by
Ivor
currency wars
by
Adam Taggart
by
charleshughsmith
Executive Summary
- Why currency wars are heating up, and will get more intense from here
- Why it’s critical to understand the influence that Triffin’s Paradox has on the situation
- Why global crises will cause the dollar to strengthen further
- What will happen next
If you have not yet read How Many More “Saves” Are Left in the Central Bank Bazookas? available free to all readers, please click here to read it first.
In Part 1, we reviewed the deterioration of the dominant narrative of the past six years—that central banks can move markets higher and generate growth more or less at will. In shorthand: central bank omnipotence.
Three dynamics are undermining that narrative: diminishing returns on central bank monetary policies and public relations pronouncements; a collapse in oil prices that is destabilizing a key sector of the global economy, and the strengthening U.S. dollar, which is wreaking havoc on emerging-market currencies and economies.
If central banks really had such absolute control of the financial universe, would they let these three trends undermine their policies and power? The answer is clearly “no.”
There are a number of other factors undermining the “central banks are in control” narrative, but the field of battle where central banks are most likely to lose is foreign exchange (FX), for two fundamental reasons:
1. The FX market dwarfs the central banks. The equivalent of the entire Federal Reserve balance sheet ($4.5 trillion) trades in the FX markets every few days. Given the size of the market, central banks cannot manipulate the FX market via proxies or direct purchases for long. The only central-bank controlled factors that influence FX are interest rates paid on government bonds and money-printing. The first supports the currency, the second weakens it.
2. The FX market is still an open market, influenced by government bond interest rates, trade deficits and surpluses, perceptions of risk and speculative bets. This mix is much more dynamic than the two levers controlled by central banks: setting interest rates targets and creating new money to buy bonds.
Let’s trace the primary dynamics of the FX market, which is currently being destabilized by the rising U.S. dollar…
What Will Happen Next For the US Dollar
PREVIEW by charleshughsmithExecutive Summary
- Why currency wars are heating up, and will get more intense from here
- Why it’s critical to understand the influence that Triffin’s Paradox has on the situation
- Why global crises will cause the dollar to strengthen further
- What will happen next
If you have not yet read How Many More “Saves” Are Left in the Central Bank Bazookas? available free to all readers, please click here to read it first.
In Part 1, we reviewed the deterioration of the dominant narrative of the past six years—that central banks can move markets higher and generate growth more or less at will. In shorthand: central bank omnipotence.
Three dynamics are undermining that narrative: diminishing returns on central bank monetary policies and public relations pronouncements; a collapse in oil prices that is destabilizing a key sector of the global economy, and the strengthening U.S. dollar, which is wreaking havoc on emerging-market currencies and economies.
If central banks really had such absolute control of the financial universe, would they let these three trends undermine their policies and power? The answer is clearly “no.”
There are a number of other factors undermining the “central banks are in control” narrative, but the field of battle where central banks are most likely to lose is foreign exchange (FX), for two fundamental reasons:
1. The FX market dwarfs the central banks. The equivalent of the entire Federal Reserve balance sheet ($4.5 trillion) trades in the FX markets every few days. Given the size of the market, central banks cannot manipulate the FX market via proxies or direct purchases for long. The only central-bank controlled factors that influence FX are interest rates paid on government bonds and money-printing. The first supports the currency, the second weakens it.
2. The FX market is still an open market, influenced by government bond interest rates, trade deficits and surpluses, perceptions of risk and speculative bets. This mix is much more dynamic than the two levers controlled by central banks: setting interest rates targets and creating new money to buy bonds.
Let’s trace the primary dynamics of the FX market, which is currently being destabilized by the rising U.S. dollar…
by
Adam Taggart
James Rickards, financier and author of the excellent cautionary best-seller Currency Wars, has recently released a follow-on book: The Death of Money: The Coming Collapse of the International Monetary System. In it, Jim details how history provides plenty of precedent for the collapse that has begun amidst the major world currencies.
The historical progression is predictable enough that Jim is comfortable claiming that the next economic crisis we face will be bigger than the ability of the Federal Reserve (and the other world central banks) to contain it. And that such a calamity will happen within the next five years:
Jim Rickards: The Coming Crisis is Bigger Than The Fed
by Adam TaggartJames Rickards, financier and author of the excellent cautionary best-seller Currency Wars, has recently released a follow-on book: The Death of Money: The Coming Collapse of the International Monetary System. In it, Jim details how history provides plenty of precedent for the collapse that has begun amidst the major world currencies.
The historical progression is predictable enough that Jim is comfortable claiming that the next economic crisis we face will be bigger than the ability of the Federal Reserve (and the other world central banks) to contain it. And that such a calamity will happen within the next five years:
by
Adam Taggart
by
Adam Taggart
Jim Rickards, author of the best-seller Currency Wars, sees the world's central banks embroiled in a "race to debase" their currencies in order to restore – at any cost – growth to their weakened economies.
In the midst of the fight, the U.S. Federal Reserve wields oversized power due to the dollar's unique position as the global reserve currency. As a result, actions by the Fed create huge percussive ripples across the battlefield, often influencing events in ways little understood by the players – and especially by the Fed itself.
In Rickards' words, the policymakers at the Fed "think they are dialing a thermostat up and down, but they're actually playing with a nuclear reactor – and they could melt the whole thing down":
Jim Rickards: We’re Witnessing One of the Greatest Failed Experiments in Economic History
by Adam TaggartJim Rickards, author of the best-seller Currency Wars, sees the world's central banks embroiled in a "race to debase" their currencies in order to restore – at any cost – growth to their weakened economies.
In the midst of the fight, the U.S. Federal Reserve wields oversized power due to the dollar's unique position as the global reserve currency. As a result, actions by the Fed create huge percussive ripples across the battlefield, often influencing events in ways little understood by the players – and especially by the Fed itself.
In Rickards' words, the policymakers at the Fed "think they are dialing a thermostat up and down, but they're actually playing with a nuclear reactor – and they could melt the whole thing down":
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