Minyan Mailbag: The Dollar Continues Downward
Central banks have only one tool, the creation of debt to create liquidity. The more they create of one, the more they create of the other.
I have noticed that all world markets, commodities and currencies are breaking out except the U.S. dollar which continues downward. Inflation seems to be the theme I see forthcoming. I'd love to hear your updated thoughts. Thanks.
My views only increase with market action. Central banks have only one tool, the creation of debt to create liquidity. The more they create of one, the more they create of the other.
Statistics are showing that the impact this has is waning exponentially. In 1980 it took $1 of new debt created by the Fed to create $1 of GDP. In 2000 that had risen to $4 of new debt for $1 of GDP. Now it takes $6.
So as liquidity grows (inflation) the forces of liquidity reduction (deflation) grows as well. At some point the probabilities of deflation (debt reduction) will become manifest. So as things look better I think they look worse.
I left MIM2 agreeing with both you and Tony Dwyer, Tony shorter term and you longer term. I see the explosion of commodities and the world markets as inflationary as the Fed explodes money, the U.S. dollar continues to sell lower and world wide liquidity explodes. At what point do we see interest rates turn higher? Does the U.S. dollar need to print new lows? Also, is the U.S. dollar the likely catalyst for bonds, then stocks, then further with real estate to head south? It looks to me like the U.S. dollar is ready to see those all time lows tested, possibly by year end. Do you see it this way?
I sold my house for a nice profit last year in anticipation of a real estate crash. I'm now worried like crazy that the U.S. dollar is going to break and send rates screaming higher and the markets into a crash. I was early in 1999 but capitalized in 2000. I'm worried I'm early again, what's your timing (best guess) on all of this?
I can't comment on timing. That is based on people's appetite for risk. That is the only thing. That appetite has been exacerbated by central bank intervention: governments actually buying private assets (monetization) to keep the liquidity train going. Can the government own all the world's assets? That is called communism. I don't think so.
All we know is that everything they do to keep markets liquid ultimately makes the situation worse: it increases debt without increasing income to service it.
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