Is the US$ Going to Crash?
There are a lot of folks out there who believe there is tremendous pressure on the US$. Agreed. However, most of those folks believe the pressure is to the downside. I believe the opposite, the pressure is to the upside, am still long the $, bullish, and have added on a bit. There are plenty of logical reasons to assume the US$ is heading much lower. Agreed. But it’s all about the timing of it. And the dangerous outcome is not a “crashing” US$, but it’s a surging US$. Do you remember all of the hysteria back in 2008 about the “crash” in the US$, and it still continues today. There were/are many scam artists who sucked people into buying gold, or any “tangible assets which will benefit from the crash in the USD”. But a funny thing happened along the way. The $ did not remotely crash, yet gold, and all tangibles, had a stellar run into Spring 2011 thru to 2012 – stellar – and without a crash in the $. Another market “theory” shot down. Yet we couldn’t get rid of these scam artists, as they are still around scamming away with another completely incompetent sales pitch. Their US$ crash pitch was a bust, but the selloff in the $ since 1/3/17 has given the scammers new hope.
It’s tough to see a situation where the trillions outstanding in global US$ based debt can have any effect but to push the US$ higher, possibly much higher – pressure. And we can combine that with the disaster sitting in the European and Japanese banking systems, which is in great part thanks to the insanity of negative interest rates. What in the world is going to happen to the massive hedge funds, oops excuse me, central banks, when all of the negative yields which they are loading up on go to positive yields. And then keep going to even more positive and positiv(er) rates over the years (meaning lower and lower prices). Who’s going to bail them out? And much of the debt which they have been loading up on is low credit quality to boot.
Back in the glory days with the “US$ crash”, in 2008 and beyond, the mantra was QE/money printing would destroy the value of the $, and gold would soar, of course. Well gold did soar, almost tripling, but the $ did not crash, and it is not going to crash. Money printing did not cause inflation, nor will it. The mechanics of QE was never about causing hyper-inflation. It’s been about moving “money” around, and much of it has been sitting in bank’s reserves, not getting into the economy, but certainly some went into the financial (paper) markets. The Fed grew its balance sheet from 900 billion to 4.5 trillion, while the bank’s grew their reserves from 800 billion to 2.5 trillion. There will be another post about these issues along with the QE by the other central banks, and how exports fit into this. But we need some perspective here about the Fed’s balance sheet. The total FX trading per day is about 5 trillion, while the Fed’s balance sheet is 4.5 trillion. And lastly, looking at the long term US$ chart below, we can see the 2 major tops, and it was the soaring $ which caused its own demise. History will repeat.