The Anatomy of a Crisis: A Strong Dollar and Disappearing Liquidity
Since March – the dollar’s rallied over 7%. And it’s caused the Emerging Markets to implode.
But the bigger problem is what lies ahead.
And that’s a global dollar shortage – which the mainstream continues to ignore. . .
I’ve touched on this a couple months back. Wondering when the mainstream would start to realize that the stronger the dollar gets – the more pressure global economies will feel.
I wrote. . . “This is going to cause an evaporation of dollar liquidity – making the markets extremely fragile. Putting it simply – the soaring U.S. deficit requires an even greater amount dollars from foreigners to fund the U.S. Treasury. But if the Fed is shrinking their balance sheet, that means the bonds they’re selling to banks are sucking dollars out of the economy (the reverse of Quantitative Easing which was injecting dollars into the economy). This is creating a shortage of U.S. dollars – the world’s reserve currency – therefore affecting every global economy.”
Since then, things have only gotten worse. . .
First: Jerome Powell – the Fed Chairman – issued a statement at the end of June that they would actually increase the amount of rate hikes over the next two years. This means they’re tightening even faster.
Second: the U.S. Treasury increased their debt-borrowing needs to the highest since the financial crisis – which was over a decade ago. Therefore, they will need even more dollars to fund their spending.
“The department expects to issue $329 billion in net marketable debt from July through September, the fourth-largest total for that quarter on record and higher than the $273 billion estimated in April [a 17% increase], the Treasury said in a report Monday. The department’s forecast for the October-December quarter is $440 billion, bringing the second-half borrowing estimate to $769 billion, the highest since $1.1 trillion in July-December 2008…”
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