Which Way Is Up?
With the Fed pausing, the dollar has now come under attack. As foreign banks raise rates to curb their out of control money supply growth (over liquification), the dollar weakens vs those currencies.
This lowers the gap between our bond yields and foreign bond yields, making their bonds more attractive.
Our bond prices could be forced lower, thus raising yields and our interest rates without any Fed action.
Fortunately, the dollar is still used in over 85% of all global oil transactions, a $2 Trillion per day market.
To date, petro and Asian trade dollar recycling have kept our bond prices high and interest rates artifically low as the Fed has raised rates.
A weakening economy and declining housing sector does not improve the Feds hand in combating further dollar erosion. But they really don't want to combat this erosion.
If the Fed raises to protect the dollar, the already plunging housing market could cave in. If the Fed lowers rates to protect housing and stimulate the economy, the dollar will fall further.
Given a choice between a crushed housing market or crushed dollar, the Fed will let the dollar fall first. This rationale is in line with the Central Bankers inflationary & debaucherous policies.
Bare in mind that 90% of our trade deficit is energy, automotive, and Chinese & Japanese import related.
Should the dollar decline further, the Chinese yuan will continue to increase in value. This year the yuan is +5.6% vs the dollar, forward traders in Hong Kong already estimate another 4% increase vs the dollar this coming year.
This increase may hurt Asian exporters and devalue their dollar holdings est. at 70% of their $1.9 Trillion in FX reserves.
China alone holds $700 Billion of their $1 Trillion in dollars. Thus a 1 cent drop in the dollar equals a $7 Billion loss for the Chinese.
As demonstrated by the bond market and the inverted yield curve, the Fed with its interest rate lever, has very little if any control over interest rates in this country.
Should the Fed stand pat, raise or lower, the foreign investor controlled bond market will ultimately control interest rates and the fate of our housing sector ATM.
A lower dollar will hurt exports for our partners and lower the value of their dollar holdings.
Our trade partners will continue to hedge with gold, other non dollar foreign assets and devalue their own currencies to mitigate dollar devaluation losses.
Ultimately, all currencies will devalue, real wages decline or stagnate, commodities prices rise and hit equilibrium, and assets will keep going up in nominal, not real terms.
This lowers the gap between our bond yields and foreign bond yields, making their bonds more attractive.
Our bond prices could be forced lower, thus raising yields and our interest rates without any Fed action.
Fortunately, the dollar is still used in over 85% of all global oil transactions, a $2 Trillion per day market.
To date, petro and Asian trade dollar recycling have kept our bond prices high and interest rates artifically low as the Fed has raised rates.
A weakening economy and declining housing sector does not improve the Feds hand in combating further dollar erosion. But they really don't want to combat this erosion.
If the Fed raises to protect the dollar, the already plunging housing market could cave in. If the Fed lowers rates to protect housing and stimulate the economy, the dollar will fall further.
Given a choice between a crushed housing market or crushed dollar, the Fed will let the dollar fall first. This rationale is in line with the Central Bankers inflationary & debaucherous policies.
Bare in mind that 90% of our trade deficit is energy, automotive, and Chinese & Japanese import related.
Should the dollar decline further, the Chinese yuan will continue to increase in value. This year the yuan is +5.6% vs the dollar, forward traders in Hong Kong already estimate another 4% increase vs the dollar this coming year.
This increase may hurt Asian exporters and devalue their dollar holdings est. at 70% of their $1.9 Trillion in FX reserves.
China alone holds $700 Billion of their $1 Trillion in dollars. Thus a 1 cent drop in the dollar equals a $7 Billion loss for the Chinese.
As demonstrated by the bond market and the inverted yield curve, the Fed with its interest rate lever, has very little if any control over interest rates in this country.
Should the Fed stand pat, raise or lower, the foreign investor controlled bond market will ultimately control interest rates and the fate of our housing sector ATM.
A lower dollar will hurt exports for our partners and lower the value of their dollar holdings.
Our trade partners will continue to hedge with gold, other non dollar foreign assets and devalue their own currencies to mitigate dollar devaluation losses.
Ultimately, all currencies will devalue, real wages decline or stagnate, commodities prices rise and hit equilibrium, and assets will keep going up in nominal, not real terms.
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