‘Ground Zero’ – Will The Dollar Shortage Kick Off The Next Financial Crisis?
There’s an old saying.
“You can’t fight the dollar.”
And what this means is: because the world’s chained to the U.S. dollar (thanks to its reserve status) – everyone’s constantly affected by whichever way the dollar’s value goes.
If the dollar declines – then the foreign economies and currencies get a boost from an inflow of capital.
But if the dollar rises – then the opposite happens. Foreign economies and their currencies sink.
You can understand why, then, so many countries today are peeved with the Federal Reserve’s tightening. They’re all suffering the unintended consequences of a stronger dollar.
I’ve written about this problem before. . .
Foreign Central Banks from all over the world – such as Argentina, India, Vietnam, Indonesia, and many more – are all defending their own local currencies against a stronger dollar.
Those that borrowed trillions of dollars are exposed here. A rising dollar against their own falling local currencies creates a mismatch between liabilities (the rising U.S. dollar). And assets (their own weakening currencies).
Also keep in mind that as rates rise, the dollar-indebted foreign corporations and banks are all feeling the pain of increased borrowing costs.
For instance – I wrote last week that onshore bond defaults in China just hit a record high as liquidity gets tighter. . .
That’s why today – as U.S. interest rates rise (especially as of late hitting a seven-year high). And the dollar gets stronger – the global cost of capital keeps getting more expensive.
Thus – putting it simply – overseas investors and corporations are finding it increasingly difficult and costlier to get their hands on dollars.
And yet – so far – the market doesn’t realize just how costly and scarce U.S. dollars are becoming. . .
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