The US Dollar Is Going To Skyrocket

Here again we are going to counter traditional thought out there. Nevertheless, when looking at how things are, we see where they are going.

Many seem to believe the USD is going to crash. This is something people keep espousing. What, however, is the basis for this? How do people arrive at this conclusion other than misguided ideology?

It could stem from the fact many people believe the US Government and Fed create dollars. The majority believe that when their is easing, they are creating dollars that enter the economy. They fail to realize that Fed liabilities are not legal tender. Instead, what the Fed creates is nothing more than a bank instrument that only legal to hold by depository banks. It is illegal for individuals or businesses to hold this "money".

Once we understand that, the entire economic paradigm which people build their beliefs upon collapse.

When it comes to the USD, the reality is up, not down is the most likely direction.

Source

Global Debt

It does not take a genius to figure out that global debt is skyrocketing. This is something that is spoken about repeatedly. In fact, there is so much debt out there we could well enter a Sovereign Debt Crisis. This is likely going to occur during this decade.

That said, it is vital to understand that a significant portion of the world's global debt is denominated in USD. This is vital to the needs of the world. Anyone who is going to attempt to pay their debts back will require USD.

As we discussed in the past, the situation with Chinese developers is an prime example of how things work. The debt within the borders of China, those written in Yuan, are of no consequence. The Government can do handle this by strong-arming the banks and whomever has the debt.

It is outside the country where the trouble arises. This debt is not within the realm of the CCP. Instead, since it is denominated in USD, that is what is needed to service the debt. This means the country having to tap into their USD reserves or selling the Treasury Bonds they hold.

The challenge for all these countries is the Eurodollar market suffered a major contraction the last 20 years. Built upon the USD that is in non-US banks, the Eurodollar system evolved into a shadow banking system completely outside the Fed's control.

As the world requires more USD to service an increasing debt load, we are going to see a lot of upward, not downward, pressure on the USD. This is going to have really harm many developing nations, further compounding their situation.

Simple Supply And Demand

The liquidity crisis in the USD is a result of the out of control fiscal policy by the US Congress along with more than a decade of Quantitative Easing. We saw the former starting 25 years ago which pulled more USD into the domestic banking system as more bonds were sold to overseas entities.

This situation is further worsened due to all the QE. When the Fed starts swapping Securities for Reserves, this only locks more USD into the banking and financial system. The money is not in the domestic economy, let along spreading out globally.

This is started to be reflected in the USD. We are seeing it move upward, albeit at a slow pace.

As we can see, the USD does trade in ranges for long periods of time. However, after bottoming out during the Great Financial Crisis, the USD moved up a leg and traded in a range for much of the past 7 years.

This is no surprise considering the fact many of the European countries had to unload their bonds for USD, starting in 2014. They had no choice due to USD scarcity. The much needed USD did not reach the international system as more of it got locked in with all the fiscal stimulus and QE that occurred after the GFC.

This simply is not likely to reverse course. If anything, the likelihood is more spending will take place.

Hence, we can ask a simple question: where are all the dollars going to come from to pay back all this debt? While we can expect some of it to fail, with defaults taking place, not all will go that direction.

Here is where the problem arises. There is already a USD shortage on a global scale. How is the USD going to collapse when there is a demand? These debtors have no choice but to convert their currencies to USD since that is what the debt holders require for payment. It is built in demand side pressure.

These are concepts that most overlook in their analysis. It does not fir their narrative so they simply ignore what is taking place. Most Americans have the problem of not looking at things but from the US perspective. When it comes to the USD, there is an entire global economy that is dependent upon that.

There is an estimated $175T-$200T in global debt denominated in the USD. Much of that debt is going to be out there for decades. This is going to require a lot of USD to make the ongoing payments as required.

If the US Congress keeps spending like drunken sailors, this will only suck more USD out of the global economy and into the US banking system. It will continue to crush the Eurodollar market. This will cause a big run in the dollar.

As we proceed through this decade, there will come a time when the USD will skyrocket.

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