The Rise and the Fall of the US Dollar? Fiat Currencies are “Terminal”

Thursday, March 12, 2015
By Paul Martin

By Bill Holter
Global Research
March 12, 2015

We have watched, even marveled at how the U.S. dollar has strengthened since last September. All sorts of theories have been put forth as to “why”. Some have proffered the dollar is the cleanest dirty shirt of the bunch. Others believe the interest rate differential is kicking in where dollars at least have a positive interest rate versus negative rates elsewhere.

Another theory and one which I have written about in the past and believe to be the main reason for dollar strength is the “margin call” aspect. In other words, the “carry trade” which was used to leverage all sorts of trades is unwinding and dollars are needed to pay back the loans. A synthetic dollar short being covered in other words.

Looking back to my writing yesterday regarding the impossibility in my mind of the Fed actually raising rates, the strong dollar also supports this argument. If the Fed were to raise rates, wouldn’t this exacerbate an already immense currency cross problem with (for) the rest of the world? Wouldn’t higher U.S. rates explode the dollar higher (short term) versus foreign currencies? The answer of course is yes, but with a stronger dollar comes other obvious problems.

The two biggest problems are

A. we still have a trade deficit of close to $500 billion per year, a stronger dollar will only exacerbate this AND destroy what little manufacturing we have left.

B. the very problems we just saw with a soaring Swiss franc will be seen in many multiples throughout the dollar lending market.

I might add, as the dollar moves higher and foreign currencies drop, more and much stronger inflation gets exported to foreign soil. High and rising inflation and its effects on living standards and the human psyche will create massive unrest across Europe and elsewhere.

This last point is an important one, foreigners who have borrowed in dollars have already seen their “loan balance” expand because the dollars cost more to pay back. Higher U.S. interest rates will only make matters worse. The strong dollar has had the effect of slowing the global economy as companies (and individuals) are cutting back (employment and consumption) to make ends meet.

The Rest…HERE

Leave a Reply

Join the revolution in 2018. Revolution Radio is 100% volunteer ran. Any contributions are greatly appreciated. God bless!

Follow us on Twitter