One of the insanities of our globalist system (destined only five short years ago to usher in the Age of Infinite Wealth) is that the notional and the derivative are so completely out of whack with the real.
Ireland gets lent six times its gdp, derivative markets are ten times the size of true trade and output, banks lend twenty times the money they have available via depositors – and currency speculation is (I learned last week by looking it up) a far bigger ‘contributor’ to belief about whether that currency should be whatever value it is.
What started me off as a complete greenhorn commentator-cum-analyst seven years ago was the reality of a moribund EU economy I was observing from close quarters, and the ridiculous level of that currency versus Sterling and the Buck. The trend continues to this day, with the ludicrous spectacle of a eurozone economic basket-case strengthening last Friday to 1.14.6 against the Pound.
Speculation of course is often a polite term for manipulation, but the point still stands: what Government Treasuries say they’re going to do – and Hedge Funds believe they’re going to do – are in the end more important than real trade figures, deficit numbers, or export achievements. The Japanese Yen demonstrates this every day. Now the Dollar is starting to do the same….big-time.
Although no major medium of which I’m aware has bothered to record it yet, all around the world dealers, sovereigns and speculators are making their way rapidly (albeit as yet calmly) for the doors marked ‘exit’ in the Dollar theatre. It started as an apparent punishment for Congressional Yuan-moaning last month, but now what seemed like a gesture is turning into a trend.
Wherever Buck-holders desert to, the movement is without pause, and rising: now into the Swiss Franc, now over to the Pound, the Euro or the Yen. A lot of it is going to gold, now that Fort Knox seems to have closed for business. In fact, some of the places to which investors are deserting demonstrate with stark clarity how the US is close to losing any safety status. Brazilian, Korean and even Russian authorities intervened in recent trading to offload supplies of dollars not required in their portfolios.
Ben the Banker has to know this – oh for God’s sake, of course he knows it. In fact he is a large part of the cause of it. The Slog exclusively revealed at the start of September that secret QE was on the agenda, and the actuality of its continuance in the US under Bernanke’s tutelage was confirmed more recently. But barely a day goes by now without more benign beardy balm from Benny about how the asset-buying will soon start again. He is obviously managing expectations on the age-old basis of ‘no surprises’ when it comes to major sovereign financial strategy. QE2 is about to slide down the slipway.
The Slog’s view remains that this form of stimulation is more likely to go down the toilet than the slipway. The sheer amount really required to make a difference is beyond the US Government now – and, given the importance of Sino-American trade and debt relations, diplomatically impossible.
I posted last night about how a few ‘experts’ are gradually coming round to the Slog position that raising interest rates to keep Silvers spending should’ve been a major plank in the West’s stimulation strategy; after all, most of us have the same demographic inequity: Baby Boomers with far less debt (and far more suspicion of credit cards) for credit-easing ever to be of much appeal to them. But it’s too late now to adopt that approach: things have gone too far.
Mr Bernanke is going to have his QE. Desperate officials will look for signs of recovery. And meanwhile, the flight out of the Dollar will continue.
This will make it very expensive for the States to import anything involved in manufacture. It will alarm the Chinese, divide the Government, and – after the midterms – place the US in the worst of all positions: paralysed, paying out money it doesn’t have, and priming the pump of hyper-inflation.