Submitted by Charles Hugh-Smith of OfTwoMinds blog,
I have been suggesting for several years that the U.S. Dollar would confound those anticipating its demise by starting a long secular uptrend.
In early September I made the case for a rising U.S. dollar, based on the basic supply and demand for dollars stemming from four dynamics:
- Demand for dollars as reserves
- Other nations devaluing their own currencies to increase exports
- “Flight to safety” from periphery currencies to the reserve currencies
- Reduced issuance of dollars due to declining U.S. fiscal deficits and the end of QE (quantitative easing)
So what does this mean for the global economy?
Central Banks Are Responsible for the Heightened Risk
If a position was hedged by a derivative that was to be paid by a counterparty if things went south, and the counterparty blew up before the hedge could be paid off, there was no hedge.
The Problem with Carry Trades and Cross-National Debt