The Fed Rate Hike Will Trigger a $9 Trillion Meltdown
By: Graham Summers
GoldSeek.com
Thursday, 17 December 2015
Yesterday, the Fed has hiked interest rates from 0.25% to 0.5%.
It is the first rate hike in 10 years. And it is now clear that the Fed is not only behind the ball in terms of raising rates… but that it has now primed the financial system for another 2008-type meltdown.
By way of background we need to consider the relationship between the US Dollar and the Euro.
The Euro comprises 56% of the basket of currencies against which the US Dollar is valued. As such, the Euro and the Dollar have a unique relationship in which whatever happens to the one will have an outsized impact on the other.
Here’s why the Fed’s decision to raise rates will implode the financial system.
In June 2014 the ECB cut interest rates to negative. Before this, the interest rate differential between the Euro and the US Dollar was just 0.25% (the US Dollar was yielding 0.25% while the deposit rate on the Euro was at exactly zero).
While significant, the interest rate differential was not enough to kick off a complete flight of capital from the Euro to the US Dollar. However, when the ECB launched NIRP, cutting its deposit rate to negative 0.1%, the rate differential (now 0.35%) and punitive qualities of NIRP (it actually cost money to park capital in the Euro) resulted in vast quantities of capital fleeing Euros and moving into the US Dollar.
Soon after, the US Dollar erupted higher, breaking out of a multiyear triangle pattern and soaring over 25% in a matter of nine months.
The Rest…HERE
