Global Dollar Shortage aka Deflation

Carmen Reinhart at Project Syndicate: The Return of Dollar Shortages
But, because numerous countries employed the same tactics in an environment in which a broad array of capital controls was in place and official exchange rates were pegged to the US dollar, a parallel currency market flourished. The black market’s premium (relative to the official exchange rate) in most European countries (and in Japan) skyrocketed through the early 1950s, reaching levels that we now tend to associate with “unstable” emerging markets.

Today, seven decades later, despite the broad global trend toward more flexibility in exchange-rate policy and freer movement of capital across national borders, a “dollar shortage” has reemerged. Indeed, in many developing countries, the only thriving market for the past two years or so has been the black market for foreign exchange. Parallel currency markets, mostly for dollars, are back.

This time, the source of the dollar shortage is not the need for post-conflict reconstruction (though in some cases that is also a contributing factor). Rather, countries in Africa, the Middle East, Central Asia, and Latin America – most notably Venezuela – have been hit very hard by plunging oil and commodity prices since 2012.

Jeffrey Snider of Alhambra comments in What Progress Looks Like
The world is finally waking up to its dollar problem, though in reality it is much, much more than that; it is a full “dollar” shortage. What will likely be most shocking to those who had subscribed to the Bernanke view is that this “dollar” condition is nearly a decade old, actually explaining why Bernanke should have been dismissed at least by the time Bear Stearns failed. The FOMC in every way demonstrated conclusively its utterly criminal incompetence because money wasn’t what they thought it was – even though that was the one task they were supposed to be totally unchallenged by.

...Central banks, especially the Fed, don’t have a printing press in their “toolkits.” They had been using the myth of the money tree to some effect for decades, Alan Greenspan the most prominent accidental “genius” maybe in world history because of it. When it counted the most, however, meaning since August 2007, a money tree has proven exactly as useful as it sounds. The “rising dollar” is and has been a euphemism for “dollar” shortage but only the latest stage of it, finally proving even to (some of) the previously obstinate orthodox faithful they have no idea what they are doing.

The next step is appreciating that they never did.
Take this view of the U.S. dollar system in deflation since 2007-ish. Then consider the renminbi has been inflating almost non-stop since then. A shortage arises when demand outstrips supply, but there are large dollar reserves in places such as China. China created massive amounts of credit all of which acts a a potential conduit for U.S. dollar flows out of China. The world needs dollars, China has them, the dollars flow, the renminbi depreciates.

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