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Is a Global Debt Deleveraging At Our Doorstep?
The blogosphere is rife with talk of the “death of the US Dollar.”
The US Dollar will eventually die, as all fiat currencies do. But the fact remains that everyone on the planet has been borrowing in US Dollars for decades, or leveraging up using Dollars and that process needs to unwind.
When you borrow in US Dollars you are effectively shorting the US Dollar. So when leverage decreases through defaults or restructuring, the number of US Dollars outstanding diminishes.
And this strengthens the US Dollar.
With that in mind, it looks as though we are in the early stages of a massive, multi-year Dollar deleveraging cycle. Indeed, the greenback is now breaking out against EVERY major world currency.
Here’s the US Dollar/ Japanese Yen:

Here’s the US Dollar/ Euro:

Even the Swiss’s decision to break the peg to the Euro hasn’t stopped the US Dollar from breaking out of a long-term downtrend relative to the Franc:

The fact that we are getting major breakouts of multi-year if not multi-decade patterns against every major world currency indicates that this US Dollar bull market is the REAL DEAL, not just an anomaly.
With that in mind, I continue to believe the US Dollar is in the beginning of a multi-year bull market. And this will result in various crises along the way.
Globally there is over $9 trillion borrowed in US Dollars and invested in other assets/ projects. This global carry trade is now blowing up and will continue to do so as Central Banks turn on one another.
This will bring about a wave of deleveraging that will see the amount of US Dollars in the system shrink. This in turn will drive the US Dollar higher.
Indeed, consider that the US Dollar actually MATCHED the performance of stocks for the year of 2014.

And it is crushing stocks in 2015 as well.

Any entity or investor who is using aggressive leverage in US Dollars will be at risk of imploding. Globally that $9 trillion in US Dollar carry trades is equal in size to the economies of Germany and Japan combined.
Indeed, few investors remember that the US Dollar rallied hard in 2008 as a precursor to the meltdown. Is today's US Dollar rally a similar warning?
Smart investors are preparing now.
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Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
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no to deleveraging the plan to issue SDRs will expand global liquidity, think of it this way, there are x number of dollars in the global system, us euro yuan etc. now we keep those and we add SDR rights which will also be traded in bonds. they just doubled the global money supply. in turn this monetary base is subject to fractional reserve expansion of the new currency ( which is backed in gold to bring the muppets on board, but as in any reserve note system that backing is eventually diluted by this fractional reserve component ). the us has the largest voting bloc in the imf, the deal will absolutely destroy the EMs, but they are about to be raked over the coals with or without SDR. at least if they have some gold to back their share of the new currency. the western industrial nation have destroyed the commodities markets and now they plan to take control of all raw materials in perpetuity. it is a long cold day for energy, russia sa, and probably gold, though doubling the global currency should make gold more attractive thats not the side of the trade to be on, and the market is telling you that right now. it might all blow up of course before it ever gets off the ground. the world might not be ready for a global currency. otherwise the machievellian deal is setting up. is China in or out? that remains a real question. JY can buy up our Tbonds from Bejing, confident that the new expansion in SDR will make no one notice the fed balance sheet has doubled. its a beautiful way to inflate away global debt.
It's worth noting that while the dollar is rising in value against stocks and other currencies, gold and silver have kept par, hovering around $1100 & $15. It could stay that way for as many years as it takes this deflationary flame to burn out. That would set the stage for a Weimer inflation and a gold & silver decoupling.
It's not just the borrowing in US dollars, if indeed the borrowing has an effect on the strength, but the buying of dollars. As the world's reserve currency, countries need dollars to make transactions. Demand for dollars will drive up the price, at least in a non-manipulated world. Also, the strength of the dollar can also be relative to the weakening of other countries currencies, raising the value of the dollar by default. As more money is created, this should decrease the value of the dollar. As debt is paid off (or defaulted upon) this should increase the value. Leverage just amplifies these moves while it exposes the speculators to a lot of risk.
I remember reading a prediction many years ago that the dollar would strengthen in a big way, as a precursor to both the dollar and things in general going to shit. It's been so long since I read this that I've gone through several computers and a lot of hard drive crashes in the interim, so I no longer have the discussion saved.
Anyway, now it makes sense to me.
No other paper currency in history has been so prostituted like the dollar has,
it will end in tears for sure, exactly how bad? Time will tell... watch the USTreasuries... therin lies the silver dagger
Thats what happens when criminal Zionist banking mafia get control of your money supply
When the 10 year T-Bill heads down and stays, expect a very lean Christmas, then no Christmas, and then you get a lump of coal. Keep it. You will need to collect a bunch of them to stay warm.
LOL!!!!!! Fuck no, not even close.
No way in hell the amount of paper claims/promises are decreasing!!!!
I went out to look and no ... no debt leveraging at my doorstep ... ... you sure?
Can someone please explain this - "When you borrow in US Dollars you are effectively shorting the US Dollar. So when leverage decreases through defaults or restructuring, the number of US Dollars outstanding diminishes."
How borrowing in US dollars is equivalent to shorting? And how leverage decreases through defaults?
Thanks.
How borrowing in US dollars is equivalent to shorting.
I first came upon that way of thinking a few months ago. I think I understand it. The logic is the same whether its stocks, bonds, real estate, the dollar or anything else that fluctuates in price.
To buy stocks is to go long. The idea of buying is to profit by selling at a higher price.
To short a stock, one borrows from the owner at the market clearing price. Loans have to be paid back. So if the market clearing price goes down, the owner has to accept being paid back at the lower price. Ownership transfers to the short.
With the dollar, savers would be the equivalent of owners and longs. During inflationary times, savers lose as the dollar loses purchasing power.
But if one borrows dollars, say to buy a house, that is the equivalent of shorting. The borrower gains by paying back the loan with cheaper dollars.
In a deflationary cycle, it all goes in reverse. Savers (longs) gain as the dollar gains in purchasing power, and borrowers (shorts) lose as loans have to be paid back in more expensive dollars.
Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
- Shakespeare
Plutus Avarice,
I wish someone would answer your question. In the meantime, ponder this. The really big guys in the carry trade borrow virtually free USD (dollars) and buy foreign fiat currency that is paying really well.
All profits taxpayer funded.
I think he means this: If you borrow in dollars, you're hoping the dollar gets weaker. Better said: You're betting the dollar gets weaker. If you have a choice in which currency you get to leverage with, you should pick the one that devalues the most- that way you pay back less.
But this is a bet. You're taking a risk. If the dollar strengthens, you're scrambling for more of less dollars to pay back the nut. The chances that you won't be able to repay- that you default- are greater. If you default on a dollar loan, that means there are less dollars out there, since all the ones you borrowed, but can't pay back, are no longer in circulation. This has the spiralling effect of strengthening the dollar, causing yet another dollar borrower to default, strengthening the dollar again, etc.
If you expect (hope) the dollar you borrow is worth more than the dollar you return in repayment, then you're shorting that dollar you borrow.
The trick is to still come out ahead, even with interest.
In periods of high inflation, a lender will charge more interest on a loan, hoping to come out on top of inflation (aka decline in future purchasing power) with the dollars they get back to make the deal worthwhile (profitable; ie interest covers the cost of lost purchasing power...and then some).
We should note that because of zirp, many interest rates have been held artificially low. That means a more limited ability to hedge inflation costs through the life of a loan. We've also had higher-than-reported inflation in the goods and services people use, coupled with lousy employment opportunities, and little or no gain in incomes...
In fact, expect a really lousy jobs report today (I'd say 150k or less).
All of this makes contracted deleveraging (ie paying off a note as agreed) much tougher to do, and defaults much more likely.
Now, if you're a racketeer who borrowed dollars to make a trade, hoping the dollar you paid back was worth less, and instead, find that defaults rise, because dollars in the system decline in number when they're not returned to lenders, the number in circulation shrinks, sending the value of any one of them higher.
That makes the dollar you need to pay back worth more (than expected), and the difference, plus interest on the loan, eats into whatever you made on the trade you borrowed those dollars to cover. If you failed to make enough on that trade, you lose money.
That loss can be significant.
At least, this is the way I understand it all...
...but, I could be wrong; if so, maybe someone will straighten me out...
m
when you short US dollars you sell US dollars against Yen or whatever, when the short expires you need to buy these dollars back. If a non US citizen borrows US dollars to buy US shares and gets a marging call she/he needs to buy US dollars. I assume thats why the author believes borrowing dollars is tantamount to shorting dollars. IMHO dollars can only
disappear when the FED is selling US Ts. ... or when you burn them ... because those borrowed dollars are now in someone else account and dont evaporate if someone else defaults on a loan.
Don't over think it, it's a Phoenix Capital post.
Believe me you be better off just looking at data, any data will do, with a cup of coffee and a spreadsheet, and ignore this crap altogether.
But, But, only 10 more electronically distributed copies left.....
Just like FED printed money. How can something that has no cost be valuable?
This article illustrates one of the biggest fantasies + fallacies regarding the fate of the USD, especially among the USA haters and the obsessed-believers in the saviour-PMs religion, ie that the USD will die, explode, implode, become worthless, crash, etc.
The USD will NOT "end" in any of these catastrophic outcomes.
The USD WILL just simply decline in usage, influence, power, relative value
BUT
over many, many, many years - the USD will decline, decay and rot - not collapse.
Hey Prober,
In a purely economic scenario, you are probably right. What we are witnessing is not a purely economic collapse. Actually, the economic turmoil and distortions we are seeing is really a "symptom" of the real problem. What we are entering is a socio-economic collapse. The disintegration of our social fabric is the driving force in all other matters. Fear and greed, the two words that describe the market best are no longer moderated by such mundane things as ethics, and integrity.
Hope this helps,
;-D
Just like Detroit and now just like Chicago and just like Los Angeles AND both the states of Illinois and California.
100% in agreement. It will be a very slow, controlled (yes control because during the course of collapse Uncle Fraud and its cousins will kick the can an infinite number of times, whatever it takes to maintain "confidence").
But Phoenix Capital is very, VERY right about the explosion of stories on the internet about the US dollars collapse, all of which are dead wrong in order to get you to buy gold and other PMs.
Yep, like the pound did.
Yep right up until it was devalued. Bang over night.
What is this about devaluing ??? Unpossible ! All is double plus good...
https://en.wikipedia.org/wiki/Hyperinflation
We can't be out of money ! We can still type numbers into a terminal !!!
LOLZ