Fed's and ROW's Worst Nightmare


Nattering at Mercenary Trader: As always cogent and excellent work, and that is why you are one of the few I follow. Because there are so many factors and permutations, IMHO an elevator version of the Fed's worst nightmare:

Buying bullets, Fed raises, short term rates rise regardless, defaults mount, debt spreads widen. Flight to safety, long term UST rates decline, increased odds of flatter curve and inversion. Contractionary economic trajectory, self reinforcing dollar loop, continue, more bond sales, less dollars chasing bubble oversupply, increased liquidations, multiple reflations Pop!

That was in 50 words, I have never been that laconic, print it and frame it, or not.
Mercenary: Yep. Condensed into a question: We have seen a major currency (the yen) strengthen against its issuers' will and the deflationary consequences of such... what happens if that happens to the USD?
Nattering Back: We discussed Fed's worst nightmare, now ROW's? Alrighty then...
As pointed out in Contractions in Money Flows and Market Liquidity Part 2... Hubba, hubba, who do you trust? The Greenback.... the US dollar now commands:
  • Almost 100% of global oil and energy transactions
  • 90% of global FOREX transactions
  • 80% of international trade finance transactions
  • 63% of commodities contracts
  • 60% of foreign currency reserves of the world's central banks
  • 60% of banks' cross-border liabilities
  • 52% of governments' and corporations' foreign currency debt

Excellent point (the Yen) and although a succinct question, much like Triffin's paradox. 2009, $1=0.67E, by 2015 the Euro was to displace the dollar.... And then? 

What happens to the USD? It is possible, but the odds of occurrence are inviolate. That flotsam, jetsam, lagan and derelict is from a flexible and "dirty" float... wouldn't be prudent at this juncture.

Elevator version: Pound fixed float. Yen carry did NOT command global transactions. $ 90% forex, 60% fx reserves, liabilities, 52% foreign debt. Massive flight from dollar? Hyperinflation of all things dollar denominated, global economic chaos and catastrophe ensue. Good ahead, make my day.

Without the clips, elevator version in 35 words, your making me more laconic, print it, frame it, or not.

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