These negative rates that we see in Europe are a first glimpse of fiat currency destruction due to imploding economies. And again the negative rates are nominal rates meaning they are negative by way of something beyond inflation. Specifically they are moving to their natural minimum state of valuelessness because the economy is no longer strong enough to provide alternative investments for the fiat currency. Fiat currency is shown then not to be a storage of value whatsoever. But only a representation of strength of its respective economy. As the economy goes to zero so does the value of its currency. This point is exceedingly imperative to understand in our current global environment.
What can strike a balance between the opposing forces operating on the euro-dollar exchange rate? No one can say for sure, but one thing is certain: Whereas the profits from playing transatlantic interest-rate differentials may run to 1% or 2% per year, investors can easily lose that amount in a single day – or even an hour – by buying the wrong currency when the trend turns. As we know from decades of Japanese and Swiss experience, selling a low-interest-rate currency simply to chase higher US yields is often a costly mistake.
In the last few weeks, we have seen what looks like a transition from deflationary behavior to a more traditional behavior in which gold acts as the "anti-dollar". I don't think this represents a sea-change--I still think there is more deflation to come. But we might see a change in behavior for some time before deflation returns.
The Fed had multiple opportunities to let the air out of unsustainable asset bubbles by notching interest rates higher and tapering its asset purchases (QE). Instead, it waited until the next global recession is already starting to consider what should have been done long ago.
We need to look at the concept of a reserve currency differently, because it is important. We need to look at it as a privilege and a responsibility and not as a weapon we can use against the rest of the world. If we abolish, or even lessen, legal tender laws and allow the process of price discovery to reveal the best sound money, if we allow our US dollar to become the best money it can - a truly sound money - then the chances of our personal and collective prosperity are greatly enhanced. We all have the same interest. We all want to have the highest standard of living for ourselves and our families. A sound money reserve currency offers us the best chance of achieving our shared goal; therefore, we should rally around every effort to make it so.
We have “early signs of new demand slowing” while “construction pricing is busting budgets beyond feasibility” in a market where “speculation abounds” in land pricing. When framed against a very unfavorable foreign exchange dynamic for the market’s most important buyers, the situation really couldn’t get much more precarious.
"The relationship of U.S. net worth to GDP appears to have reached unsustainable heights," warns NFIB Chief Economist William Dunkelberg, adding that a massive decline in the value of assets is "more likely" than a massive increase in GDP. Logically this seems unavoidable, unless you believe that we are truly wealthier now, even with an economy that is delivering a rather poor performance (historically weak output and sales growth) in real terms. It would seem not to be 'whether' we will adjust but when.
The underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions.