The US-Dollar-Index, a currency basket composed of 57%EUro, 14% jap.YEN, 12% British Pound, 9% Canada.Dollar and 4%Swedish krona and Swiss francs, is expected to continue up over the next few years. What this means to the most people of the world, I would like to summarize this briefly.
The US-dollar is the world's largest and most liquid market for bonds and equities. Therefore, this market is basically the number 1 of Safe Haven- for global economic turmoil. Since the financial crisis of 2008, the index has started to rise and since the beginning of 2018 the index has left the correction phase (bracketed iv), which has been ongoing since March 2015. The flare-ups of the trouble spots in the emerging markets (Turkey, Tunisia, Argentina, China, India, ...) as well as the uncertainty in the EUro-area are therefore leading to accelerated capital flight and, as a result, many emerging economies and companies Markets that are indebted in US-dollars, have great problems or to get.
Why?
Capital flight always means a devaluation of the domestic currency against the dollar and thus the debt-equity ratio of dollar loans increases. Many states and companies can then no longer repay their debts, this leads to failure of these loans. Since many European banks and insurance companies are involved in these loans, their equity base is lost and thus the-EUro also loses against the US-dollar, especially since interest rates on bonds are paid in the US, while interest rates have to be paid to the ECB for "parking of money". Truly hard tobacco that awaits us all and probably can only be solved with a new world monetary system, because the majority will certainly want no depression as in the 30s of the last century. Can career politicians act proactively if it is for the good of the people? I do not think, so everyone has to take their own precautions!
With respect, absolutely no chance that the US administration would allow the dollar to rise over the next few years, none
StefanBode
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@marberisking, In the short term (1-2 months), you may be right, but we are at the beginning of the collapse of the global debt pyramid! Really, that's important to understand. Look around the world. Which currency does not depreciate against the escape currency US dollar? Look in Turkey, Argentina, India, Indonesia, South Africa, Brazil, Russia, .....
Whether Robert Mueller with the corrupt prosecutor of the South New York district tries to remove Trump from office, the appreciation of the dollar is not prevented. Although Draghi has recently recommended to the EuroBanks that the ECB will not buy another dollar, it does not prevent people around the world from exchanging their money from their local currency for the US dollar. In other words, dollar demand is rising dramatically, and believe it or not, the dollar is running short despite the huge US debt.
Pinerd60
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This is something that the so called Media Moguls will not show you or comment on. I have been tracking the movement of USD index since February this year, and it does look scary once it surpass 100. Your commentary is spot on taking into account the emerging markets.
Cincinnatuus
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Hey Stefan,
Thanks for the write-up. The trick with looking forward and foreseeing future events is getting the sequence right. I, like you, see the dollar going higher in the future. The Federal Reserve hasn't made the mistake of increasing the amount of dollars in circulation like Venezuela, Turkey, Argentina, etc. have. The dollar will go down first though, since, after all, we are in a deflationary depression due to demographics.
The other point I want to address is, the world will never choose some SDR over the US Dollar, because the Dollar is backed by the Empire of Freedom and its people, who already are showing that they won't fall for some NWO BS...
StefanBode
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@Cincinnatuus, I think by the unavoidable global Emerging Market bond crash and the following spill over to the Euro area and later the YEN area, a new world monetary system as Bretton Woods must be found. What that looks like, we do not know at the moment. However, in my opinion, it can only come about on the basis of the cooperation of the economically strongest nations and, if necessary, an annual basket of currencies based on the actual economic power of these nations.
Otherwise, for a period of 10-15 years, clearly, for me, China will take over today's function of the US dollar, and fits in with the 100-year cycle of shifting financial centers. Why China? China, like the US at present, will then come closest to the optimal currency area (Mundell), with a single language, a single bond market, spatially flexible workforce.
Cincinnatuus
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@StefanBode, China is very interesting here. On the one hand, it's a Tyranny with a self appointed ruler for life, and the country is laboring under 40 trillion in debt. On the other, the Chinese just keep moving forward. Especially think the belt and road entitative is very positive. If China truly became Democratic, now that would be something…
UnknownUnicorn1300833
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@Cincinnatuus, you are correct that after the Dollar fails, which is inevitable the world will not accept the IMFs SDRs, what then - Gold, no other choice. The funny thing about the US administration like the fall of Rome it is orchestrating the destruction of it's currency through it's own incompetence.
The West's addiction to debt to fuel a feckless welfare dependant "democracy" subject to elections is it's fatal weakness. The US has done a fantastic job of bringing Iran, China, Turkey and Russia together as a united team to dethrone the dollar, it is already happening. It is a fantasy to think there is any significant amount of gold in Fort Knox, if there was why the delay in giving it back to Germany when they requested it.
Those who own the gold make the rules. The reason why the West cannot win is that they are subject to democratic limitations. China, Russia, Turkey, Iran, Middle East, (India is a pretend democracy, all these countries are loading up with PMs) are much stronger politically because they are not subject to democratic scrutiny and do not have to bribe voters with ever increasing debt to buy votes.
China and Russia have far more Gold than reported, the US far less than anyone thinks, hasn't been there in significant amounts since Nixon. The last piece of the jigsaw is Saudi Arabia cosying up to Russia. Once the petrodollar has gone, faith and confidence in the dollar will fall rapidly, only a gold back currency will restore faith again. I'm afraid the pain is only just starting for the west. As I live the west myself it gives me no pleasure to point that out.
Cincinnatuus
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@marberisking, a couple things, the United States is actually a Plutocratic Republic, not a Democracy. But let's not confuse Democracy with Socialism, with it's attendant large government, and it's feckless welfare spending, which is killing all these countries.
The 45% of German gold is actually storied in the vaults of the New York Fed and has been loaned out, likely by the 'German CB', probably to multiple borrowers. As for the US gold, it's been under seal at Fort Knox since the time of FDR, regardless of the beliefs of all the conspiracy theorists.
As for the CRITters, the slave armies of Tyrannies don't fare so well against Free Men through history. See the Battle of Thermopylae..
The various devaluing currencies will probably just chop zeros off like they've always done. Although the wrinkle is the debts are denominated in Dollars...
pauli88
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Love your commentary. Danke!
StefanBode
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@pauli88, there is also a german version :-) Maybe I also publish my presentation for my clients for the "Great Depression 2018-2022" on YouTube. Since I started last year, I have to make a few updates and the next few weeks I'm fully booked.