Is The G-7 Going To Prevent Bernanke's "Kill The Dollar" Doctrine?
If it were only up to the US, our currency would by now have been completely Mugabe'd, with the opportunity cost of quintillionaire bankers (with pristine, debt free balance sheets courtesy of the brand new $100 trillion bill) being the four remaining members of the US middle class having to lug a metric ton of dollar bills to the nearest Starbucks to buy a latte. However, it may not be so simple in the end, courtesy precisely of the other 6 complicit nations which make up the G-7 and which have as much a vested interest in killing the dollar as Bernanke, subsequent to which they can proceed to hyperinflate their own currencies.
As the chart below indicates, the JPM G-7 Vol index has been quite sticky and is refusing to revert to the old normal. This particular index is instrumental in determining appetite for carry trades: the lower the reading, the greater the propensity to short the lowest yielding currency (yen or dollar, soon cable?). The peak in the chart at the end of 2008 coincides, not incidentally, with the emergency explosion in over half a trillion in foreign FX swaps initiated by the Federal Reserve. Observing the trendlines, it appears that it is not so much the US, as the balance of the G-7 countries that seem to be preventing the dollar from making lower lows on its way to a "Bernanke wet dream" zero. A sustained upswing in this index (and consequently, in the US specific VIX comparable) would likely result in an end in the ongoing carry trade de jour.