by
Adam Taggart
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Economy
Economy
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
JW
by
Chris Martenson
Few people understand the global economy and its (mis)management better than David Stockman — former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier.
David is now loudly warning that events have entered the crack-up phase, which he predicts will be defined by the following 4 developments:
David Stockman: The Global Economy Has Entered The Crack-Up Phase
by Chris MartensonFew people understand the global economy and its (mis)management better than David Stockman — former director of the OMB under President Reagan, former US Representative, best-selling author of The Great Deformation, and veteran financier.
David is now loudly warning that events have entered the crack-up phase, which he predicts will be defined by the following 4 developments:
by
Chris Martenson
Executive Summary
- Which countries are next in line to "go Greek"?
- Which major countries will be hit by deflation next? Which will instead see massive inflation?
- How individuals should start preparing
- Why huge massive losses and wealth transfer are inevitable for many
If you have not yet read Part 1: Greece Exposes The Global Economy's Achilles Heel, available free to all readers, please click here to read it first.
At a high level, the suite of predicaments we face are as obvious as they are serious.
Perhaps the largest predicament we face is that infinite economic growth on a finite planet is an impossibility and yet that's exactly what our monetary and banking systems require.
Not merely because the bankers and politicians want it, which they do, but because that's how the system itself is designed. When you loan money into existence, you get an exponential increase of that money over time. Actually you get an exponential increase in debt too, only at a faster pace which translates into larger quantities.
For as long as debts are growing at an exponential pace, everything is fine with the world, the economy hums along, politicians get re-elected and the big banks churn out profits year after year.
However, when the debt growth stops, financial panic sets in, the banking system threatens collapse, and the fiscal and monetary authorities pull out all the stops in their efforts to prevent these various ills from getting any worse.
What the political and banking folks are desperately seeking to prevent is nothing less than a Great Unraveling.
Their task is impossible.
The Great Unraveling will be a set of related economic and financial crises that end up taking inflated expectations and reducing them to match reality. Perhaps this process will take years, or maybe it will take decades, or maybe it will take months. Nobody knows. But the longer that…
The Approaching Great Unraveling – Are You Prepared?
PREVIEW by Chris MartensonExecutive Summary
- Which countries are next in line to "go Greek"?
- Which major countries will be hit by deflation next? Which will instead see massive inflation?
- How individuals should start preparing
- Why huge massive losses and wealth transfer are inevitable for many
If you have not yet read Part 1: Greece Exposes The Global Economy's Achilles Heel, available free to all readers, please click here to read it first.
At a high level, the suite of predicaments we face are as obvious as they are serious.
Perhaps the largest predicament we face is that infinite economic growth on a finite planet is an impossibility and yet that's exactly what our monetary and banking systems require.
Not merely because the bankers and politicians want it, which they do, but because that's how the system itself is designed. When you loan money into existence, you get an exponential increase of that money over time. Actually you get an exponential increase in debt too, only at a faster pace which translates into larger quantities.
For as long as debts are growing at an exponential pace, everything is fine with the world, the economy hums along, politicians get re-elected and the big banks churn out profits year after year.
However, when the debt growth stops, financial panic sets in, the banking system threatens collapse, and the fiscal and monetary authorities pull out all the stops in their efforts to prevent these various ills from getting any worse.
What the political and banking folks are desperately seeking to prevent is nothing less than a Great Unraveling.
Their task is impossible.
The Great Unraveling will be a set of related economic and financial crises that end up taking inflated expectations and reducing them to match reality. Perhaps this process will take years, or maybe it will take decades, or maybe it will take months. Nobody knows. But the longer that…
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