The real reason the US dollar is screaming upward

[grapejelly]

I don't think it's CB manipulation (although it could be) for the US$.

I have been told (don't understand completely) that borrowed money is a short position on the US$...so today we are seeing a lot of debts being called due to the IMPOSSIBILITY of rollover...the commercial paper market, asset backed securities market, etc., much of this paper (Think auction note paper) was short term. Not to mention bank to bank paper.

Now it can't be rolled over.

So there is a crying need to sell, sell, sell, which does what...REQUIRES US DOLLARS.

There is a HUGE long position on US dollars.

Could it be that simple??

[Supercilious]

Re: the real reason the US dollar is screaming upward

I don't think it's CB manipulation (although it could be) for the US$.

I have been told (don't understand completely) that borrowed money is a short position on the US$...so today we are seeing a lot of debts being called due to the IMPOSSIBILITY of rollover...the commercial paper market, asset backed securities market, etc., much of this paper (Think auction note paper) was short term. Not to mention bank to bank paper.

Now it can't be rolled over.

So there is a crying need to sell, sell, sell, which does what...REQUIRES US DOLLARS.

There is a HUGE long position on US dollars.

Could it be that simple??

Basically yes. The deleveraging of various "innovations" (aka financial scams) of structured finance instruments has hit the liquidity pyramid. Derivatives are evaporating fast and there is a scramble for something less "structured" such as treasuries

[*T*]

Also repatriation.

Reminds me of backdraught: the low pressure sucking-in before the explosion...



or

[Guest]

Re: the real reason the US dollar is screaming upward

Grape - there are likely also some large geopolitical components underpinning the USD emerging. In fact they are inarguably so, if you stop to consider that all the moderate OPEC nations implicitly and quite actively underwrite the USD in multiple ways merely to fulfill their part of the "bargain" with the US. Right now, months away from the elections, Gary Dorsch writes that the Saudis and Kuwaitis are quite actively biased to keeping oil prices well behaved in order to assure a McCain victory. They threw Iran and Venezuela a small bone with a minor reduction in oil quotas to shore up slipping prices, but they are far more invested in ensuring a McCain victory, and McCain's ratings seem to have gotten a significant boost from their studied disinclination to be too aggressive in shoring up declining oil prices. There's an article of Dorsch's on Safehaven covering this. According to that article, Obama has been quite explicit in mentioning a partition of Iraq and with an autonomous Shia state in Southern Iraq joined at the hip with Iran you can imagine this has lit a fire under the Kuwaiti and Saudi butts to do whatever they can to ensure a McCain victory. Plus you've got the Russian entanglement in Georgia rattling the EU and global awareness of their predominance in supplying energy to the EU, and added all together these geopolitical factors can provide quite a notable input to the dollars "valuation", no?

BTW, as you must be aware, Jim Sinclair has insisted for years that the "synthetic dollar short" is a crock. I have no idea if he's right or not, but I'd hesitate to question Sinclair's assertion.

I don't think it's CB manipulation (although it could be) for the US$.

I have been told (don't understand completely) that borrowed money is a short position on the US$...so today we are seeing a lot of debts being called due to the IMPOSSIBILITY of rollover...the commercial paper market, asset backed securities market, etc., much of this paper (Think auction note paper) was short term. Not to mention bank to bank paper.

Now it can't be rolled over.

So there is a crying need to sell, sell, sell, which does what...REQUIRES US DOLLARS.

There is a HUGE long position on US dollars.

Could it be that simple??

[gobears]

Re: the real reason the US dollar is screaming upward

I think Grape Jelly nailed it. Its the same question I asked Eric in another thread a few days ago. Now, it will be interesting to see if the situation reverses itself.

Of course there are many possible scenarios, but I see 2 main scenarios being argued right now:

(1) The dollar long positions and dollar momentum is temporary due to unwinding of leveraged bets on commodities (and everything is traded in dollars). However, once liquidated, those funds may need to move into other currencies to pay the lenders. Basicallly, I can imagine that massive selling temporarily and artificially drives up demand of dollars. Once it dries up, there should be a massive move in the opposite direction because there is no more false momentum driving the dollar....... in fact there would be an opposite force driving in the other direction. It would be the perfect time to load up on more commodities, pm, etc... In other words, just continue the process of the dollar tanking.

OR

(2) We are heading into a deflationary depression, just hold cash.

Of course, dollar ratchet theory says we bounce back and forth, as opposing forces get the upper hand and drive first one way until they overshoot and then get pulled back the other way.

[gobears]

Re: the real reason the US dollar is screaming upward

2 followup questions:

(1) If foreigners hold commodities, and want to get cash in their home currency, they need to sell it first into dollars, then exchange into their home currency?

(2) If I borrow money from offshore in another currency to bet on commodities, and have to pay the offshore entity back by liquidating my position, then I sell the commodities into dollars, and then exchange them into the other currency? Alternatively, the offshore lending agency takes payment in dollars, but then exchange the dollars themselves for another currency.

In both cases (1) and (2), when there is an increasing volume of commodity selling, there is a greater flow into dollars (for liquidating) than flowing out for exchange into other currencies. Once the process reaches its apex, and volume of selling decreases, then the demand to exchange out of dollars could get the upper hand and drive it the other way.

[Supercilious]

Re: the real reason the US dollar is screaming upward

I think Grape Jelly nailed it. Its the same question I asked Eric in another thread a few days ago. Now, it will be interesting to see if the situation reverses itself.

Of course there are many possible scenarios, but I see 2 main scenarios being argued right now:

(1) [...] In other words, just continue the process of the dollar tanking.

OR

(2) We are heading into a deflationary depression, just hold cash.

Of course, dollar ratchet theory says we bounce back and forth, as opposing forces get the upper hand and drive first one way until they overshoot and then get pulled back the other way.

I have serious doubts about the dollar ratchet ... IMHO there is something else happening ... it's the Fed's Hammer Drill. The whole debate about the inflation deflation is irrelevant in the medium and long term.

A hammer drill employs forward-backward shocks in order to facilitate the screwing advance motion of the drill, and it's very useful for drilling holes in concrete, brickwork and ... the vaults of foreign central banks, the crumbling walls of our homes, pension funds etc.


It works like this:

1) The fed prints a ton of treasuries in a screwing motion ... and screws the dollar.

2) Foreign central banks of the countries that manipulate their currency (OPEC, China, Russia, Brasil, India Vietnam etc) start vacuum cleaning all those treasuries (our dollar - their problem) and the surplus is recycled in Wall Street "profitable" investments mainly through Sovereign Wealth Funds but also through investment made by subordinate banks or gubernment agencies .

3) Wall Street recycles their surplus of treasuries in "innovative" technologies to create bubbles of various sorts. That rapid inflation phase of a bubble is the strike-forward motion of a hammer drill that creates inflation.

4) The bubble collapses and all the derivatives created in the bubble vanish in thin air. That create the strike-back or release motion of the hamer drill. The volume of the pyramid of liquidity contracts by the evaporation of the "imaginative" derivatives and other notionals . The losses are absorbed by the foreign central banks which were recycling their surpluses on Wall Street.

5) The treasuries recycled by foreign banks are transformed from sub-inflation rate, pathetic-interest bearing notes into negative interest loans. (imagine you could get a credit card with -50% interest rate as the Fed got from the $4.4 billion invested by Singapore in Merril Lynch, which resulted in a 2.4 bil loss for the foreign investors). There are signs of deflation.

6) The Fed tries to keep the volume of the liquidity pyramid constant by pouring treasuries and modifying the distribution of levels by increasing the amount of power money. Threfore the Fed is screwing more the foreign central banks and produces more negative interest loans. (With negative interest loans, the more you loan from a bank the bigger profits you get - it's the prefect investment ).

7) The negative interest loans combined with a fresh influx of trashuries (released by the Fed in order to avoid a deflationary collapse :rolleyes create the ideal conditions for national bubbles (See what happens in China with the real estate and stock market bubbles)

8) Trying to keep things under control foreign central banks are trying to prop national economies being bled dry ( how do you think that the Central Bank of China is looking now desperately for a loan, when China is supposed to have $2 trillion in reserves? ).

9) The collapse of foreign national economies that were manipulating their currencies at 2) become unstable and there is a capital flight back to US markets:
Emerging Markets Outflows Highest Since 1995

10) A miraculous economic boom occurs in US as it happened during Clinton's time in office. Clinton was raising taxes, the deficit was vanishing, US economy was booming, unemployment was down, US economic growth was a record ... a true economic miracle in US while the rest of the world sucked ( Clinton had nothing to do with it, but was he was given all the credit . The same will happen with president Obama ;) He will be falsely credited with the Great Economic Recovery, without having anything to do with it.)

11) The FIRE hits the fan resulting in deep economic crises in the targeted foreign economies like it happened during the Asian Tigers Crisis. The only chance to avert a collapse is the pegging of national currencies to the dollar at an artificially depressed level. That's why China escaped virtually unscathed from that crisis ( they were doing such a currency manipulation since '93-'94 and they were able to do it because of the strict communist control). If the governments of the countries in crisis try to keep the status quo and try prop their currencies.... you get the Argentine scenario.

12) Recovery eventually starts to occur in the emerging market countries due to the currency peg manipulation. The dollar is still high and outsourcing of US jobs becomes the new trend. US economy begins to suck and US deficits are picking up . A 360 degree screwing/rotation movement ends. The cycle repeats from 1)

[Jay]

Re: the real reason the US dollar is screaming upward

I've seen the term bandied about, and seen the inverse pyramid graphic, but what is power money exactly? I know derivatives are at the fat end. Is power money US treasuries or PM's or something else?

[Supercilious]

Re: the real reason the US dollar is screaming upward

I've seen the term bandied about, and seen the inverse pyramid graphic, but what is power money exactly? I know derivatives are at the fat end. Is power money US treasuries or PM's or something else?

Today power money is treasuries, since the price of gold is manipulated in a shameless fashion I wouldn't consider it power money anymore.




By nationalizing FRE & FNM Bernanke wants to transform agencies holdings in some form of power money/broad money

[Jay]

Re: the real reason the US dollar is screaming upward

Today power money is treasuries, since the price of gold is manipulated in a shameless fashion I wouldn't consider it power money anymore.

And Bernanke is trying to replace US treasuries with this, right?

[blazespinnaker]

Re: the real reason the US dollar is screaming upward

I don't think it's CB manipulation (although it could be) for the US$.

I have been told (don't understand completely) that borrowed money is a short position on the US$...so today we are seeing a lot of debts being called due to the IMPOSSIBILITY of rollover...the commercial paper market, asset backed securities market, etc., much of this paper (Think auction note paper) was short term. Not to mention bank to bank paper.

Now it can't be rolled over.

So there is a crying need to sell, sell, sell, which does what...REQUIRES US DOLLARS.

There is a HUGE long position on US dollars.

Could it be that simple??

It's actually pretty simple.

Much of the growth in the money supply wasn't CB generated but rather temporary credit inflation created by derivative pyramids and other financial fun. The conundrum awhile back was caused by the fact that the CBs had a minor role compared to the monetary tools in play out there.

Anyways, now that these tools are imploding, we see credit deflation, and massive shrinkage in the money supply, resulting in the asset deflation we're seeing taking place.

[Supercilious]

Re: the real reason the US dollar is screaming upward

And Bernanke is trying to replace US treasuries with this, right?

I would rather imagine it as a very elastic supply of poor's man power money. For the really cash starved foreign central banks the agency debt would be as good as treasuries. That may be a very smart move that would allow for self regulation of the volume of negative interest loans absorbing any deflationary spikes. Bernanke is not an idiot .... ;)

[Rajiv]

Re: the real reason the US dollar is screaming upward

The money supplied by the central bank is known as 'high power money'. For the US Dollar, Notes of Federal Reserve Banks, are considered as high power money, can be kept in two different forms; as cash balance held by public or as a reserve money held by the banking system.

[Jay]

Re: the real reason the US dollar is screaming upward

The money supplied by the central bank is known as 'high power money'. For the US Dollar, Notes of Federal Reserve Banks, are considered as high power money, can be kept in two different forms; as cash balance held by public or as a reserve money held by the banking system.

It's ironic that this high powered money ain't backed by squat and loses value every year isn't it?!

[Rajiv]

Re: the real reason the US dollar is screaming upward

In Exter's pyramid, this used to be gold -- but of course now it is just paper!

However, you will note that the Fed has repeatedly asked the banks to recapitalize -- this it is hoped will enable the banks to lay hands on some more High Power Money -- and it is hoped that this will enable the credit cycle to begin again.

I do not think that this can happen until all existing consumer loans are essentially written off, and the consumer is off the hook for existing loans. I do not think that the banks are as yet willing to go through that intense pain of death!