Saturday, August 1, 2009

Why the dollar may crash, and the stock market too...

In spite of the fact that the U.S. dollar index is sporting relatively low node values, around .25 - .35 (which would normally suggest more dollar rally ahead of us), the Geopolitical realities may still trump the technicals. Here is an article by Jim Willie describing in stark terms that the U.S. economy may be nearer to major trouble then admitted on Wall Street. (Like we didn't know that, right?)

We all know what the problem is, criminally reckless behavior by the Wall Street-Washington D.C. axis. What is harder to see is the path in front of us. Jim Willie is providing a service of filling in some of the missing information on this score. Here is his commentary:


D said...

That is factually incorrect. The US Swap lines have been cut dramatically and they were never intended to support treasury purchases abroad, rather to try to WEAKEN the dollar. There was a shortage of dollars internationally. The swap lines went from over half a trillion dollars at the end of 2008 to $83 billion today.

Everyone fixates on US QE, when foreign central banks were doing it before us. China has been printing as fast as it can for YEARS!

If we are going to hyperinflate all of the debt away, what are we waiting for???

mlytle said...

Hi D,
I admit I don't follow the data on the swap lines all that much, so you could be right and Jim Willie, could be wrong on that score. In the broader sense, though, I have seen numerous articles, suggesting that China is losing interest in American debt. I tend to think Willie is correct in that general sense. I don't see us going into hyperinflation from excess money printing, more likely is some kind of debt default, as I think the U.S. debt structure is beyond repayment. The dollar could lose value through some kind of implosion of the U.S. Government Financial structure. Collectors around he U.S. still have a few examples of currency once printed here that now has no value, from the Confederacy during the Civil War. They racked up enormous un-payable debts too. They didn't hyperinflate the debts away,(although they maybe made a stab at it) they just ceased to exist after they lost the war and then structurally disappeared. I have some notion something like this could happen again if the U.S. basically defaults, and like California finds itself unable to sustain it's operations at a basic level. I know that sounds drastic, but I don't see the aggregate debt has come down at all, it's probably still increasing at an exponential rate..I think a word like Hyper-deflation might need to be used in this case...

Mark L.