The dollar has broken higher and over the 80 level by 7-8% recently versus foreign currencies. Is “King Dollar” back and what would it mean if it was? First off, I do not believe King Dollar is anything more than a “less dirty shirt” in a pile of dirty clothes meaning the U.S. economy right now is not as bad (“reportedly”) as either Europe or Japan. Notice I included the phrase “right now,” the U.S. is just as upside down and broke as either Europe or Japan and of course on a much grander scale. Please keep the term “broke is broke” in the back of your mind as this is the case for all of the West’s financial system.
So why has the dollar rallied? You must remember there is huge leverage in the system and the bulk of the debt is in dollars and must be paid back along with interest …in dollars. As the global economy has weakened, this has put stress on the ability to pay back loans. This has happened along with (maybe because) the Fed trying to stop QE. They now only pump an extra $10 billion per month into the credit markets whereas they were pumping $85 billion per month last year, the credit markets were “used to” and comfortable with all this extra cash floating into them. This (for now) is ending.
Japan and Europe began to pick up the slack from the taper and began increasing their loose monetary policy, the Fed “passed the baton” so to speak to Japan and Europe and thus weakening their currencies. With the yen and the euro weakening, their currencies now buy less goods than they did before. This can also be looked at as the inflation rate going higher in both Europe and Japan, the money supplies are increasing, their currencies are dropping in value and “stuff,” all stuff costs more. The problem is that both central banks (as is also the Fed) are pushing on a string and cannot get already over levered borrowers to borrow more or spend much of the credit the central banks are creating.
There are also other problems the strong dollar brings with it. It makes our production of goods (what’s left of it) more costly and thus less competitive, it makes dollar denominated debt more difficult to carry and it also lowers any profits made by U.S. companies as the foreign currencies earned are worth less. A stronger dollar that moves as fast as it had recently also has the potential to set derivatives off balance and as derivatives are now larger than the system itself …a danger to the system itself. Remember this, ANY big moves in a short period of time have the ability to bankrupt holders of derivatives and the “chain” is only as strong as the weakest link. Should a large Japanese, European, U.S. or other bank become insolvent because of losses in the FOREX market, they ALL will become insolvent in a very fast “financial virus” or chain reaction type of event.
Another thing (mentioned above), a strong dollar makes “stuff” more expensive, food is a big part of this. When the necessity of life, food, becomes more expensive then the common man is affected. If food becomes “too” expensive for the common man to afford, this is when you see unrest and violence erupt. This is simple and why so many other countries are now trying to move away from dollars and have anger toward the U.S., food priced in dollars becomes more expensive when dollars become more expensive.
I also want to mention one other aspect to historical dollar movements. Part of the U.S. playbook for many years has been to weaken opponent’s currencies prior to wars. This playbook works both to U.S. advantage and opponent disadvantage. “Stuff” as in oil, supplies and equipment gets cheaper in dollars while more expensive in foreign currencies. In the current saga with Russia, a cheaper oil price in dollars and a MUCH lower ruble value means Russia gets pinched or starved for cash flow. Their rubles now buy less internationally and their oil revenues are also lower, exactly the recipe to weaken an opponent prior to any military action. I believe this is an important clue as to whether we will push for “conflict” or not, I believe we will.
To answer the question whether or not King Dollar is back to stay, I don’t believe there is ANY chance at all and the current strength will be very transitory. The U.S. is broke on too many levels to count from financially to morally, ethically and everything in between. The dollar is a fiat currency as is every other on the planet. It is based on confidence alone and foreigners know this. This is why the BRICS have set up a bank and a proposed clearing system. It is also why several metals exchanges have been set up, the foreign community will attempt to bring fair dealing amongst trading partners back to where it was “pre 1971.”
As I wrote Monday, the U.S. economy and financial system have become a mirage and as such we will see another round of new, bigger and badder QE once the realities begin to set in. Creating new dollars via credit is the only tool left in the Fed’s bag of tricks. Can they actually withdraw any of the credit they have already supplied? Can they ever raise interest rates again? Ever? Can they ever shrink their balance sheet and actually sell off some of their assets? The answer of course to all of these questions is “no.” Should you be worried about a “stronger currency” issued by a bankrupt entity over anything other than the very short term? The answer again is a very big “NO.”
I find it odd that our dollar is on top when we are the most bankrupt nation in the history of the world! Any one or any country that wants our fiat money (aka toilet paper) must have an IQ of minus 100!
Any one that believes the Fed will raise interest rates has an IQ of minus 200!
I think this holiday season we will see very weak sales, especially with 92.6 million not in our “Labor Participation”, and that many stores will have to lay off workers and or close stores.
By mid 2015 I believe those not in the labor participation will be much higher and we may be seeing riots and other ugly situations.
I saw yesterday where Nancy Pelosi made 1 to 5 million dollars on just one “insider trading” position which is legal for those in Congress but illegal for you and I and Martha Stewart. I hope those crooks in Congress keep all their crooked gains in fiat paper (aka toilet paper) and never buy PM’s. Will serve them right when the toilet paper is good for just one thing (in the outhouse that is).
Any one that wants King Dollar can have it !!!
the Fed may be forced to raise interest rates.
I spoke to Ben B this morning he told me there wont be QE or Rates raised but he did say that Janet will Pull a Mario on the USA with negative interests rates
Bill, Harvey organ is predicting the Silver charade ends by December. He said that the chinese have loan out their Silver and expect it back. He also said that they will announce a default if it is not return and that would expose the fraud going on with silver and gold this year, and that we could see a big price move if that occur. What do you think of what he said?
I think a distinct possibility.
I don’t know who Harvey Organ is, but I do know that if he is correct he will be a big hero but if he is wrong nobody will even remember he said it.
Harvey is very knowledgeable of PM’s, he will be on our webinar next week.
Harvey is great, I’ve been following him for years. He brings together all the PM related news every night so people don’t have to search for it. My only issue is that I think he takes the numbers provided by the banks with a bit too much confidence, re: open interest, GOFO rates. I’m more inclined to believe that most of those numbers are total fabrications, I read a few weeks ago, I think from Andrew Maguire, that the London GOFO numbers are just made up since they had to get rid of the image of backwardation, it had been in it too long.
Harvey knows the numbers are fraudulent, I converse with hi on a daily basis.
What is going on with Harvey Organ’s website? This seems quite odd for it to be removed.
I think you would find this of interest.
this bank will not be stopped, maybe delayed but not stopped.
I thought it was interesting that Qatar and Saudi Arabia have lent their support to this effort, as well as Singapore.
if I’m not mistaken, 133 countries will sign on to it.
And now we have this about South Korea.
moving West to East?
Here is another indication of the changes coming.
Russia, UAE considering payments in national currencies
Source: Russia Beyond the Headlines – http://rbth.co.uk/news/2014/10/10/russia_uae_considering_payments_in_national_currencies_40504.html
not an indication, fact, dollars will be excluded from many trades.
Koos Jansen does it again.
Mark in Dever…..Please reference a video posted recently by Brother John (type Brother John silver) on youtube that talks about some speculation on Harvey’s blog being taken down.