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The Stronger Dollar = Stealth QE
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Whether this trend will hold or reverse is unknown, but it does suggest that there are advantages to being the cleanest shirt in the dirty laundry.
Dave at Trade with Dave recently posed an interesting question: Is A Stronger Dollar Stealth QE? The question might seem wonky, but it's actually a nuts-and-bolts topic in the context of a larger question: why is the U.S. economy now the shining beacon of growth (albeit modest) in a world rolling over into recession?
As I understand Dave's thinking, the dynamic works something like this: in QE (quantitative easing), the Fed creates money out of thin air and pushes it into the financial system, with the hope that some of that inflow of cash will trickle down into the real economy.
A stronger dollar encourage foreign capital to flow into the U.S., as it makes more sense to shift money into appreciating dollars (that are gaining purchasing power) than leave it in currencies that are depreciating (losing purchasing power compared to the dollar).
This inflow of new money into U.S. bank accounts, bonds, stocks and real estate is more or less the equivalent of the Fed's QE operations, minus the money-creation step.
So in terms of fresh money flowing into the U.S. financial sector, capital inflows driven by the stronger dollar are generating the same effect as the Fed's QE.
Does this matter? At a minimum, it gives the Fed a PR victory, as the Fed has the freedom to end QE without upsetting the apple cart too severely. It also gives the Fed the freedom to keep interest rates low without all the bond-buying of QE, because overseas buyers are snapping up bonds and other dollar-denominated assets.
Some observers think the money-printing baton has simply been passed to the European Central Bank, China's central bank and the Bank of Japan, and all that new money is finding it's way into the U.S. financial system. In effect, the Fed gets the PR victory of ending its own money-printing operation because other central banks are doing the heavy lifting and the U.S. is benefiting from all their money creation.
It's not easy to track capital flows, and so it may not be possible to provide a definitive answer to this inquiry. But it does seem that the relative strength of the U.S. economy vis a vis other major economies and the emerging markets is supporting U.S. assets (broadly speaking--this week's stock market freefall notwithstanding) via capital flows from weaker economies and currencies.
Whether this trend will hold or reverse is unknown, but it does suggest that there are advantages to being the cleanest shirt in the dirty laundry (insert your metaphor of choice).
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As long as ANY CB is printing, QE is going on. Manipulation of interest and exchange rates just guide the flow.
correct. Fiat is fiat is fiat.
tick tock motherfuckers.
I do find it amusing how they are still trying to change reality by changing the names of things.
Statists are silly creatures.
It's like putting lipstick on a pig...
USD is not exactly fiat, its backed by most important commodity of present times i.e. oil.
It worked until oil exploration & production was rising.
Wrong, it is not backed by oil, oil is a global currency, if you have oil, you can actually do and build stuff.
The dollar is backed by the souls of the U.S. military, period. "Reserve status" has always been enforced by our "guns". Wake the fuck up.
CS needs to find another hobby
Actually its backed by a far more formative substance than "stuff:" Its hard to find a force of influence more cohesive than that of Perception ....
This inflow of new money into U.S. bank accounts, bonds, stocks and real estate is more or less the equivalent of the Fed's QE operations, minus the money-creation step.
So in terms of fresh money flowing into the U.S. financial sector, capital inflows driven by the stronger dollar are generating the same effect as the Fed's QE.Sorry Charles, but no. No more USD are created by foreign capital flows into the US, so the Fed and its crony banks' principle problem remains; ie, without the creation of new currency to buy toxic assets, their asset/liabilities/risk balance is still wonky.
It's true that with a strong dollar, the US government can buy more stuff and may need to borrow fewer USD, and thus less QE will be needed to suppress rates; but that's a different issue.
oil is a global currency, if you have oil, you can actually do and build stuff.
Currency - means and unit of exchange.
build stuff with - resource or commodity.
I agree with what you are saying, just the terminologies.
if you have USDs, you have oil. If you have oil, then you have a resource to build stuff.
The world would not have just agreed to using USDs purely on enforcement by gun, not for too long atleast. I mean if you have big guns and intent of using them then why fabricate a facade of currency and markets. Just take it at gun point.
The world agreed to use USD as reserve currency because it gave them access to oil. Producers were forced at gun point to sell oil in USDs.
Shut up and let me sleep.
"if you have USDs, you have oil." -- Again, complete bullshit. paper/digital credits will not do any work. Calories will. My brother has been drilling for 25+ years asshat. Those rigs run on calories not fucking paper or digital credit you stupid fuck.
"Backed by" is a case of semantics, IMO. I would rephrase it as follows:
1. The US (and its Fed) were the FIRST to claim "dibs", by INDEXING their USD currency with Oil. Diabolically clever.
2. The next diabolically clever move was to use its economic, political and military muscle (leveraged force!) to prevent anyone else from doing the same -- thus forcing the ROTW (rest of the world) to 'buy' its fiat paper.
Therefore... the USD is Indexed/Linked to Oil, but Backed by Leveraged Force.
Note that any time a country tries to use Step 1, they are attacked by the US (e.g. Saddam/Iraq, Qaddafi/Libya...). And that is why the US hates Iran: It is not its proclaimed "enmity with Israel, or its (alleged!) threat to Israel", but its threat to the USD hegemony and its pre-9/11 plans to run a pipeline to China, via Afghanistan. The "Iran-Israel" meme is bogus, a Red Herring for the dumb-ass Masses. If Russia, Iran and other Central Asian countries create their own "OPEC", and thus create a parallel currency system to the USD, the USD is... "washed up". And with it, are the globalist dreams, schemes and lifestyles of its Zionist owners and players.
USD is not exactly fiat, its backed by most important commodity of present times i.e. oil.
So this is why we're making "best effort" at starting a world war with Russia?... Must be too much paper out there and not enough oil for the U.S. to make such bold moves???!!!
Can have all the fiat you want as long as you're selling ALL OF IT in that de-facto currency which just happens to be USD, but once a major oil player decides to walk off the "reservation"...
USD is not exactly backed by oil. It could be argued that it's backed by the world's largest military forcing one to trade USD for oil, however.
A currency backed by Gold means it can be converted into Gold.
Similarly, having USDs mean having access to oil. Only issue is the price of oil fluctuates and is not fixed.
Yes, USD is backed by oil, enforced by MIC.
Bullshit, take away the MIC and those with oil can still exchange it for other things as well as still actually do/build stuff.
Remember, when fraud is the status quo, possession is the law.
Are you on drugs?
Hold tight onto all those paper promises.
Hey, she's lookin' better and better!
It doesn't matter what you look like honey, I got my beer goggles on.
Makin' bacon, yous guys,,, ;-)
Note: It's not the money sloshing around in the virtual bucket that is the problem. Money flows are only a symptom of the larger problem of socio-economic collapse. Humanity is suffering from a social collapse that is manifesting in all aspects of our existence. One of the most glaring is the world financial structures.
TPTB can't solve this problem, because they cannot admit the real cause. This pressure is building on people all around the world and many if not most of them are at or near the limits of their coping ability. This powder keg is about to blow up in our collective faces, and when it does, everything we have taken for granted will have to be reconsidered. This is WAY bigger than most people can imagine.
Truly, a catharsis of humanity. This is a pivotal point in our history. The decisions made over the next two decades will define the future of mankind.
Fasten your seat belts kiddies, it's going to be one helluva ride,,,
bullshit. The mantra remains "growth at any and all costs" for all fiat-slaves or fiat-driven eCONomies.
This is not possible in real terms and will fail.
Some of us will have the consumable calories to actually do something, some of us will not.
The first system to re-attach their currency with the real world, might stand a chance. I don't see the money-changers being in favor of returning to such a system as the value of their "labor" becomes recognized as zero pretty fucking quickly. They would have to return to tradiation banking, and that involves real work and real risk (can't have that). Right now these useless fucks are over-compensated to say the least.
Full faith and credit motherfuckers.
hedge accordingly.
No mention of brazen wars, plunder and bribes and arm twisting behind the scenes.
"appreciating dollars (that are gaining purchasing power) "
woah hahhahhahahahahahaha!!!!
What's the saying about a sucker born every minute?
Got to love dow futures down 330, Dow opens green and is running +50. Suckers!!!! ShortS getting fucked hard right now...
Show me Belgium. They still buying?
no, we don't show Belgium. it's Europe's "private parts", you dirty rascal, you. you should be ashamed of yourself
Strong dollars and deflation don't seem to be making food prices drop.
that isn't the deflation you are looking for, move along.
Yeah I know, the farce only affects the weak minded.
WTF???!
Currency movements are driven by Supply and Demand. So a stronger Dollar is the RESULT of foreign investors buying Dollars (or locals repatriating). Stronger US dollar imports Deflation, and restricts Exports so slower growth, its the Feds worst nightmare and IT IS NOT QE.
Used to believe Interest Rate differentials were only Currency drivers but when you think about it, the stronger economy usually has a stronger currency and concurrent with growth also has higher rates. Currency move is combination of capital flows into the strong economy by investors seeking above average returns, and also investors attracted by the higher rates.
yes, but fuck the Fed!!! What part of all fiat goes to ZERO, don't people understand?
I think it's the 'all' part..... American exceptionalism and all that, maybe?
the "fiat goes to zero...", which is correct, over a long horizon, eventually, coupled with the utterly unhistoric firm implied belief of "...at the same time"
but keep that thought of "the cleanest shirt" of CHS firmly in mind. chant it whenever you lie in bed and try to sleep. ohmmmm.... ohmmmm.... the cleanest shirtttt....
Whats backing the dollar to make it strong? The american peoples birth certificates
We don't need no stinkin birth certificates.
nothing, it's that other economies are in even more shit than the US
Damnit why won't that pesky gold go lower to where GS says it will?
It is not a case of cleanest shirt, it a case of old, outdated reflexes and blatant maniupaltion.
QE foreva until WWIII
Strong dollar as useful and long-term utility as crack with ZIRP killing savers, and low liquiity in a closed system.
Martin Armstrong's thesis and his reason the US stock market is going higher, gold lower until the latter part of next year.
Funny how ebola breaks out just as we're ending QE.
USD sux less than the others.
This article is mostly wrong. The USD is appreciating because The Fed is ceasing printing operations for the time being, whilst other CB's are continuing theirs. The QE program, amongst other things, was designed to weaken the dollar so US corporations could improve their export business, and thus improve their overall revenue, despite the depreciating dollar climate at home, which would negatively impact them. He is right in his point that there are huge inflows of cash into the US at this time, and for the reasons he stated, but it is absolutely not any sort of stealth QE. However, and quite ironicly, any flights to quality into the US bond market will have the similar desired effect of the QE program by pushing yields lower.
"The Fed is ceasing printing operations" -- LMFAO!!!! Only for some. Please, there are still some people/entities that can get freshly printed greenbacks for little to NO interest (ZIRP).
The Fed is very much engaged in a "Let the majority eat cake while we give money to a select few" monetary policy.
see this...
http://blogs.wsj.com/economics/2014/10/09/feds-reverse-repo-tool-catches...
Can anyone explain how the dollar is the "stongest currency," yet several other countries have lower rates on 10 yr. bonds? Is it due to China/Russia's liquidation?
Please report to the nearest FEMA camp for re-education.
You borrow money in lower rate country say 1% then buy US bonds that pay 3%. You make 2%. You are buying the USD to do it so more demand for dollar makes it rise. Called carry trade. Japan has .1 rates so many have this type of deal going, it was with New Zealand for a long time because they had plus 4%
Russia has to go to market to sell its US bonds the person/country buying has to get USD to give to Russia for the bond, creating demand for USD.
There are only 3 trillion in printed bills in circulation world wide. Demand for cash also pushes the dollar.
If the underlying demand for goods and services is not real, perceived strength is an illusion.
The magicians at the Fed, Treasury, and WS Banks can conjure up many things, except real demand.
They will continue to scheme until another force says enough is enough.
"The Stronger Dollar = Stealth QE"
yeah, right
the whole point of QE was to generate inflation (weaker dollar) and kick start mfg via export
Whereas widespread distribution of money creates runaway inflation, QE seems to be designed to give money to the elitists and their organizations and debt to everyone else.
This allows the elitists to decide what is done with the money, containing and funneling it places that benefit them and to starve others.
Such "let the majority eat cake" monetary experiments have been done before. This one will end the same way.
Here's my advice. Don't trade with Dave.
better to write nothing at all, than to write a stupid article like this. it is prima faciae wrong.
It's a lovely story, I hope it's true, the world owes us a trillion or so for financial services rendered since 2008. OTOH we'd like to thank a couple of billion little people who've been buying our bonds and won us this award.
Unfortunately a stronger dollar will also chase yet another million jobs to China, yes as even David Stockman might agree, even at this late date.
Market is very, very nervous right now. A warning by one "Microchip" took down the whole sector 5% overnight, even fat cat Intel. Might mean something, but in an average market it might have hit those stocks 2% instead of 5%.
Hows that new reserve currency doing?
http://www.4-traders.com/RUSSIAN-ROUBLE--US-DOLLA-2373630/technical_anal...
Putin must have his head on swivel, his billonaire buddies are gettin' smoked
i think there is a stronger case that it provides the room for the fed to give the usa economy another push of wealth affect stimulus to levitate realestate firmly out of underwater giving potntial refinancers and sellers room to move. abe lit the pilot light, europe turned the burner on, the usa will turn it up to the high setting. it is just more coordinated printing.
What am I missing here? Why is the dollar "stronger" again?
As far back as I can remember in the current era, the US government has been coercing and pleading with China to let the value of the yuan rise, and, perforce, let the dollar weaken against it.
And slowly China let the yuan's value rise. UNTIL
The fall of the yuan occurred the very same week, almost the very day, that Viktor Yushchenko was forced to flee Kiev.
We are all old enough to decide whether these two events are related.
Weak dollar == sour grapes
Strong dollar == sweet lemons
Hugh-Smith is apparently unaware of all the consequences of a strong dollar. It will also worsen the existing trade deficit and add new incentives to corporations to move their operations overseas.