The dollar hit a 20-year high against the basket of major international currencies known as the DXY this week as the effects of the Fed’s 75 basis point interest rate hike waned. made known.
For years, the world’s central banks have been engaged in an undeclared dirty war against each other, degrading currencies from left to right and center in a race to the bottom.
And, despite the impressive smokescreens erected in the name of central banks by the proponents of modern monetary theory, it was obvious to anyone with a modicum of economic knowledge that there would one day be accountability.
That reckoning has now arrived, having arrived a little earlier than expected by the economic establishment – due to covid and the Russian invasion of Ukraine.
This is the beginning, of course.
Recession is looming around the world, and only the willfully blind members of the Biden administration now believe it can be avoided.
Voters will try to wake up the Democratic Party midterm in December, but it remains to be seen whether they will get the message.
After all, it’s largely their fault.
The Obama-era stimulus packages started it all – the days when the world was incentivized to call money printing “quantitative easing.”
Money printing has also continued under Bush and Trump, but just as the economy was reeling from the first signs of inflationary pressure, President Biden comes along and pumps several trillions more into the system.
No wonder it broke.
It’s not even worth quoting the numbers M1, M2 or M3 these days, they are so far off the charts.
And will someone be able to put the genie back in the bottle?
That’s the big question.
Because national voters who have been complaining about austerity for nearly two decades have seen nothing yet. All the bailouts from Bear, Fannies May and Mac, RBS and the money printing that paid for them have been thrown down the road.
The real pain of 2008 is about to overwhelm us. Only now there is the added pain of covid and war supply shortage in Ukraine to consider.
Whatever happens, it’s gonna be a mess.
The signs are already there.
Mothers can’t get formula in the United States and gas prices are skyrocketing. Forecasts of major food shortages in the fall may turn out to be far from reality, but grain supplies will certainly be limited. We already have twenty years of easy money driving prices up, but with an equally tight supply, they are likely to explode.
That is, if the market is allowed to operate freely.
Will food be subsidized, as it was under the Roman Empire? Already in the UK, direct cash payments are made by the government to taxpayers to enable them to pay their energy bills. The fact that this money takes the form of a direct discount on the invoices themselves does not change the fact that it is helicopter money.
At some point, at some point, governments will eventually have to let go of the reins and let consumers realize what things really cost. It’s either that or initiate Soviet-style command economies.
In the UK, there’s a bit of precedent for this, but it’s hard to see this kind of intervention really fly in the US, where cultural divides already split the country in two. That the term “Civil War” trending on Twitter from time to time isn’t just mere internet hyperbole. If you think about it, there’s actually been fighting on the streets of the United States for years – Democrats back BLM, Trump says there are good people on both sides, the Capitol is overrun and after the Kenosha fire, Kyle Rittenhouse is acquitted.
These are just the opening moves, but what can we say at this point?
First, in a steadily worsening economic crisis, people are holding gold and selling crypto. The case for buying crypto may still be pretty much intact, but it turns out that at this point in the cycle, it was hot money that was holding the value. As soon as that money was needed elsewhere, it was gone.
Not so with gold.
Indeed, given the strength of the US dollar, gold has significantly outperformed, which is another way of saying that over the past few months it has been broadly stable against a rising dollar. The reasons are not so difficult to find. In fact, these are the age-old reasons why people have always held gold – it’s the most reliable way to hedge against risk.
There is no speculative money in gold, and there are no central bankers playing with the supply. It’s hard to destroy, and as Canadian truckers know the hard way, it’s harder to confiscate than fiat money.
Crypto cannot tick all of these boxes and the dollar cannot tick any of them. All it has is its yield, and right now it’s inflated much faster than the Fed can accumulate it. It’s not over yet.