Jeffrey Snider at Alhambra has been doing the yeoman's work of explaining the global dollar deflation. His latest is here: ‘Rising Dollar’ Again To Start This Week
At FT Alphaville, Izabella Kaminska digs into how dollar shortages affect global trade financing in: Dollar shortage *alert* (plus global trade *alert*)
She relays a recent speech by Hyun Song Shin, Economic Adviser and Head of Research at BIS. The first chart below pretty much says it all though. The collapse in leverage at U.S. securities firms is the collapse in eurodollar funding which has been Mr. Snider's focus. To boil it down into the most simplest of terms, the money supply is made up of money and credit. Credit far outstrips money as a share of total money supply in nearly all modern economies. The credit created on U.S. securities firms and mega bank balance sheets in the form derivatives such as credit default swaps was the outer edge of credit supply. It collapsed in 2008.
The Eurodollar Decay
The Trump win takes ongoing economic trends in the global economy and steps on the gas. Even if Trump does nothing but pursue a pro-American domestic agenda, he will achieve his trade goals because the Federal Reserve won't stop the dollar deflation. Higher interest rates, higher U.S. dollar, lower energy imports and more domestic manufacturing. If there's even a little bit of trade balancing, we could see an incredible rally in the U.S. dollar and a collapse in emerging market currencies before the cycle completes.
The index to watch is the U.S. Dollar Index. It hit a multi-year high today, intraday. We'll see if it holds or not. I expect it will based on everything I've been blogging about the past several years, but the market is final evidence. A short-term pullback in the dollar is likely, a possible handle on a large saucer bottom.
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