Yen
by
Ivor
by
charleshughsmith
Executive Summary
- Understanding the two different ways money flows into the US dollar
- How currency crises elsewhere can send the dollar skyrocketing
- Why yen, yuan and euro printing are not the same as dollar printing
- How these accelerating money flows are creating the next global crisis
If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.
In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.
The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.
Two Kinds of Dollar Flows
Let’s start by differentiating between the two kinds of money flows into the dollar:
- Money converted from periphery currencies into dollars to pay back loans denominated in dollars
- Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.
Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.
In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.
This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.
The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…
Why The Strengthening Dollar Is A Sign Of The Next Global Crisis
PREVIEW by charleshughsmithExecutive Summary
- Understanding the two different ways money flows into the US dollar
- How currency crises elsewhere can send the dollar skyrocketing
- Why yen, yuan and euro printing are not the same as dollar printing
- How these accelerating money flows are creating the next global crisis
If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.
In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.
The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.
Two Kinds of Dollar Flows
Let’s start by differentiating between the two kinds of money flows into the dollar:
- Money converted from periphery currencies into dollars to pay back loans denominated in dollars
- Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.
Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.
In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.
This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.
The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…
by
Chris Martenson
Executive Summary
- The data that proves Japan is a ticking time bomb
- Why the yen may still fall a lot further from here
- How Japan's contagion can threaten world markets (and yes, the US)
- Why the contagion is now underway, and what you should do about it
If you have not yet read Central Planners Are In A State of Panic available free to all readers, please click here to read it first.
Japan, By The Numbers
I completely understand why the Japanese authorities are freaking out and taking enormous risks. It's because they have no good choices left. More fundamentally (and worse) they are in charge of a system that is destined to fail.
Exponential money systems have to eventually fail because all paper money is just a marker for real wealth, it is not real wealth itself, and therefore ever-increasing exponential paper claims being stacked up against a world of real wealth that is growing much less quickly (and someday reversing entirely) is a mathematical formula for a monetary accident.
But it's quite bizarre that Japan, of all places, cannot see through to this math predicament given their very publicly and often discussed demographic decline.
Having peaked at 128 million in 2005, Japan now has 127 million inhabitants and is on its way to 90 million by 2050, and 45 million by ~2100.
(Source)
This means that..
What Will Happen When Japan Breaks
PREVIEW by Chris MartensonExecutive Summary
- The data that proves Japan is a ticking time bomb
- Why the yen may still fall a lot further from here
- How Japan's contagion can threaten world markets (and yes, the US)
- Why the contagion is now underway, and what you should do about it
If you have not yet read Central Planners Are In A State of Panic available free to all readers, please click here to read it first.
Japan, By The Numbers
I completely understand why the Japanese authorities are freaking out and taking enormous risks. It's because they have no good choices left. More fundamentally (and worse) they are in charge of a system that is destined to fail.
Exponential money systems have to eventually fail because all paper money is just a marker for real wealth, it is not real wealth itself, and therefore ever-increasing exponential paper claims being stacked up against a world of real wealth that is growing much less quickly (and someday reversing entirely) is a mathematical formula for a monetary accident.
But it's quite bizarre that Japan, of all places, cannot see through to this math predicament given their very publicly and often discussed demographic decline.
Having peaked at 128 million in 2005, Japan now has 127 million inhabitants and is on its way to 90 million by 2050, and 45 million by ~2100.
(Source)
This means that..
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