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2020-03-30 -Land of the Free
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US now the only "safe" currency.
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[Zeihan]
...
Which brings us to the new global disconnect. We can all argue over whether American financial, monetary and fiscal actions will ultimately be effective at mitigating the coronavirus recession, but it is clear to everyone that from points of view financial, monetary and fiscal the Americans not only had more freedom to maneuver and act, but they have front-loaded a lot of activity.
More such activity, much more, is coming. One of the perks of having your own currency is that you can expand your money supply (call it quantitative easing or printing currency or currency debasement if you prefer) to whatever level you feel is warranted by circumstances. The bulk of that $2.2 trillion relief package is deficit spending. The Americans can and will literally throw a bottomless supply of money at this problem. Add in the fact that the American demographic structure makes it the only large, independent, sustainable consumer base of size, and investors still feel that the US economy is the only truly safe one in the transformed economic environment.
Capital flight to the United States – already at record levels pre-coronavirus – has only accelerated. As one might expect, when the Americans finalized their plans for $2.2 trillion in deficit spending, the US dollar dipped for the first time in the crisis. That dip isn’t going to last a week (based on the currency you’re looking at, it hasn’t even lasted the weekend). Expect the US dollar to continue to rise. Expect US dollar shortages globally as everyone tries to put their money into the only safe(ish) market available. Expect the 10-year Treasury to follow the 3-month Treasury into negative yielding territory before the end of April. Never before has the “exorbitant privilege” of being the world’s reserve currency felt more exorbitant or more like a privilege.
This is just the tip of the iceberg. The centralization of global wealth into US dollar assets will trigger cascade effects throughout the financial system domestically and globally, throughout the real economy domestically and globally, while simultaneously triggering political convulsions throughout the world that will impact…everything. Many of these follow-on effects will be the subject of subsequent installments in our Coronavirus Guides series.
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Posted by 3dc 2020-03-30 13:21||
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Posted by Matt 2020-03-30 14:02||
2020-03-30 14:02||
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Posted by M. Murcek 2020-03-30 14:54||
2020-03-30 14:54||
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Posted by Iblis 2020-03-30 15:20||
2020-03-30 15:20||
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Posted by Bright Pebbles 2020-03-30 15:54||
2020-03-30 15:54||
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