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1
I would like to share some ideas about Cause & Effect as it relates to why I think the dollar is going higher because in my opinion many get these two mixed up. Cause...is the action. And Effect is the resulting reaction to that action.
I would like to share some ideas about Cause & Effect as it relates to why I think the dollar is going higher because in my opinion many get these two mixed up. Cause...is the action. And Effect is the resulting reaction to that action.
2
When demand for a commodity (in this case the dollar) is higher than the available supply, price rises. If supply outstrips demand, the commodity (dollar) falls.
When demand for a commodity (in this case the dollar) is higher than the available supply, price rises. If supply outstrips demand, the commodity (dollar) falls.
3
Despite many theories to the contrary, there is huge demand (cause) for the dollar. Both from domestic & international entities. Perhaps the biggest demand comes from the debt service on the dollar debt that both these domestic and international entities owe.
Despite many theories to the contrary, there is huge demand (cause) for the dollar. Both from domestic & international entities. Perhaps the biggest demand comes from the debt service on the dollar debt that both these domestic and international entities owe.
4
If there was no demand for the dollar, or if demand for the dollar was falling, the price would have been falling over the last 18 months as well. Instead, it has risen (effect) over the last 18 months.
If there was no demand for the dollar, or if demand for the dollar was falling, the price would have been falling over the last 18 months as well. Instead, it has risen (effect) over the last 18 months.
5
The fact that it has been rising has been a big source of concern for the IMF, BIS & several of the world’s central banks who have begged the Fed to loosen monetary policy. Why? Because of the demand for dollars outstrips supply.
The fact that it has been rising has been a big source of concern for the IMF, BIS & several of the world’s central banks who have begged the Fed to loosen monetary policy. Why? Because of the demand for dollars outstrips supply.
6
Again, if there was no demand, the $ would be falling because no one would be interested in having them. This would make dollars extremely easy to come by as there would be ample supply (liquidity). If there was ample liquidity, there would be no need to lower rates or do QE.
Again, if there was no demand, the $ would be falling because no one would be interested in having them. This would make dollars extremely easy to come by as there would be ample supply (liquidity). If there was ample liquidity, there would be no need to lower rates or do QE.
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It is because there is HUGE demand for dollars that the lowering of US rates and a return to QE are even discussed. In other words, if you argue that the demand for dollars on the world stage is falling and also argue that QE is going to return, you are contradicting yourself.
It is because there is HUGE demand for dollars that the lowering of US rates and a return to QE are even discussed. In other words, if you argue that the demand for dollars on the world stage is falling and also argue that QE is going to return, you are contradicting yourself.
8
Now...can you argue that the dollar is going to fall BECAUSE they are going to return to QE? Yes! But again, if you argue this case, you are acknowledging the demand for dollars is so large they have to return to QE. And until they do QE...you are a dollar bull!
Now...can you argue that the dollar is going to fall BECAUSE they are going to return to QE? Yes! But again, if you argue this case, you are acknowledging the demand for dollars is so large they have to return to QE. And until they do QE...you are a dollar bull!
9
But now lets look at what returning to QE means. It means that deflationary pressures (demand for $) are so high, they had to go back to extraordinary measures to supply them. AND with ROW already doing QE & negative rates, it means that the global economy is in terrible shape.
But now lets look at what returning to QE means. It means that deflationary pressures (demand for $) are so high, they had to go back to extraordinary measures to supply them. AND with ROW already doing QE & negative rates, it means that the global economy is in terrible shape.
10
So let me ask you this...would you like to borrow $1mm in an environment when you cold lose your job bc the “smartest” financial minds in the world are telling you the economy is so bad they had to put the patient back on morphine?
So let me ask you this...would you like to borrow $1mm in an environment when you cold lose your job bc the “smartest” financial minds in the world are telling you the economy is so bad they had to put the patient back on morphine?
11
No? Me either. That’s why low rates are deflationary. Because everyone hangs on tight to what they have rather than trying to grow. Its the “going to the mattresses” as Sonny Corleone would say where you are just trying to outlast the other guys.
No? Me either. That’s why low rates are deflationary. Because everyone hangs on tight to what they have rather than trying to grow. Its the “going to the mattresses” as Sonny Corleone would say where you are just trying to outlast the other guys.
12
So what happens when the world goes to the mattresses (cause)?Deflation, thats what happens (effect). What does deflation mean? It means the demand for liquidity (dollars) outstrips the supply of liquidity (dollars) & the price of liquidity (dollars) rises even with QE.
So what happens when the world goes to the mattresses (cause)?Deflation, thats what happens (effect). What does deflation mean? It means the demand for liquidity (dollars) outstrips the supply of liquidity (dollars) & the price of liquidity (dollars) rises even with QE.
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And then what happens? More QE...even though they are already doing QE. Why? Bc demand for dollars is so high QE can’t even supply it. So if you believe in not just QE4...but also QE5, QE6 and QEForever...than you are a bigger dollar bull than you can even imagine.
And then what happens? More QE...even though they are already doing QE. Why? Bc demand for dollars is so high QE can’t even supply it. So if you believe in not just QE4...but also QE5, QE6 and QEForever...than you are a bigger dollar bull than you can even imagine.
14
Also, many people make the arguments that CBs are going to lose control & $ will fall. Again, I think this is wrong. If $ falls & the world is able to extend this fiat game, and pay off $ debt, that is the Fed winning. The $ rising and blowing up the world is the CBs losing.
Also, many people make the arguments that CBs are going to lose control & $ will fall. Again, I think this is wrong. If $ falls & the world is able to extend this fiat game, and pay off $ debt, that is the Fed winning. The $ rising and blowing up the world is the CBs losing.
15
In any case, I actually dont care whether you are a $ bull or a $ bear. What I care about is that people properly understand the argument they are making. Bc if you understand Cause and Effect, you might just make it through this financial nightmare.
In any case, I actually dont care whether you are a $ bull or a $ bear. What I care about is that people properly understand the argument they are making. Bc if you understand Cause and Effect, you might just make it through this financial nightmare.
