The Everything Bubble Has Found Its Pin. The Pin’s Name Is Jerome Powell

The comments below are an edited and abridged synopsis of an article by Graham Summers

The US dollar is the world’s reserve currency. As such, it is the currency of choice for issuing debt. Entities around the globe will often choose to issue debt denominated in the dollar, even if the dollar is not a currency used in their economy.

The US dollar is the world’s reserve currency. As such, it is the currency of choice for issuing debt. Entities around the globe will often choose to issue debt denominated in the dollar, even if the dollar is not a currency used in their economy. When you borrow money in US dollars, you are effectively shorting it. You are betting that the dollar will weaken, making your debt servicing cheaper on a relative basis. When the dollar strengthens, it becomes more difficult to service your debt. This is true even for the US itself. The $20 trillion it owes in public debt is effectively one gigantic $20 trillion US dollar short. Enter Jerome Powell. The Powell Fed has decided to embark on the most aggressively hawkish monetary policy in Fed history, and the currency markets have taken note. The dollar is breaking out of downtrends in every single currency. Assuming Powell doesn’t want to blow up the $60-trillion dollar-denominated debt bubble, the chart included here screams ‘policy error.’ The last time the dollar rallied against every major currency was in 2014. At that time, the entire commodity complex imploded by over 60%, and emerging markets came within a hair’s breadth of systemic collapse. Within six months of the dollar’s rally in 2014, Brazil’s stock market was down nearly 70%. China’s was down nearly 50%. Emerging markets across the board dropped over 30%. Oil fell from $105 to $30. So, buckle up. The everything bubble has found its pin - Jerome Powell When you borrow money in US dollars, you are effectively shorting it. You are betting that the dollar will weaken, making your debt servicing cheaper on a relative basis.

When the dollar strengthens, it becomes more difficult to service your debt. This is true even for the US itself. The $20 trillion it owes in public debt is effectively one gigantic $20 trillion US dollar short.

Enter Jerome Powell. The Powell Fed has decided to embark on the most aggressively hawkish monetary policy in Fed history, and the currency markets have taken note. The dollar is breaking out of downtrends in every single currency.

Assuming Powell doesn’t want to blow up the $60-trillion dollar-denominated debt bubble, the chart included here screams ‘policy error.’

The last time the dollar rallied against every major currency was in 2014. At that time, the entire commodity complex imploded by over 60%, and emerging markets came within a hair’s breadth of systemic collapse.

Within six months of the dollar’s rally in 2014, Brazil’s stock market was down nearly 70%. China’s was down nearly 50%. Emerging markets across the board dropped over 30%. Oil fell from $105 to $30.

So, buckle up. The everything bubble has found its pin, and the pin’s name is Jerome Powell.

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This Post Has One Comment

  1. Saeed

    Greetings Graham, I didn’t understand something that Dr. Jim Willie (Editor of Hatrick Letter, http://www.goldenjackass.com) said several years ago. He said the USD will rise and rise and rise, and then it will vanish. Now I understand how this happening. With rise of Fed Funds rate the USD is rising plus the USD shortage QT creating, however, as Western banks get into trouble with their EM loans the bubbles will pop at home. Then the Feds will have to do the largest QE in History and USD will be history, and Gold, Silver and other real assets (farm land, art, yachts, etc) will take center stage. The only other option is IMF steps in with their SDR to bail-out the banks, and gets this new global currency into circulation. Hope I am wrong because the next inflation wave will destroy the middle class leading to social chaos and revolutions.

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