The Jackass Nails the Dollar Rise

Tue, Jan 12, 2016 - 10:01am

Jim Willie is right once again. This concept is critical to grasp, as the unfolding events track his predictions exactly.

The Jackass predicted that the US dollar would rise and rise relative to other fiat currencies, before its eventual collapse into the dustbin of history. Mr. Willie explains that “collapse” means that the fiat dollar is rejected as a means of exchange for real goods and services, as it has no inherent value since not backed by any assets other than empty promises of future delivery of something of value. The “future delivery of value” proposition is an empty promise, and the relative value of the fiat dollar diminishes as more and more dollars are printed up out of thin air to monetize the US debt.

When the US dollar collapses, the powers that be in the USA will offer two currencies, one domestic–legal tender and enforced by law as such–and one international, for trade. The internal currency will have to suffer devaluation by 30%. Willie calls this the “scheiss dollar,” meaning it is not a real currency, has no value outside the USA, and will be devalued overnight to the absolute stunning surprise to The Sheeple. Those holding physical gold/silver will see no such devaluation, as gold/silver will be priced on the international market in a form that retains its value, either by appreciating against all fiat currencies, or being valued accordingly by a new international unit of trade like the SDR or something like that.

There are those, me included, who had a hard time grasping the concept that the pathetic USA fiat currency, the dollar, would rise in value before collapsing. It has taken me years to finally “get” it.

For those still not understanding, remember that the basic laws of supply and demand apply to the US dollar. Even though it is a currency, and is often denominated by electronic entries, and hence of unlimited supply, there is still a huge amount of trade that occurs all over the world that requires actual, physical dollars. That is the aha moment for me!

Here, in the good ole USSA, we can transact for goods and services with an electronic device (like an iPhone, an ATM card, a credit card, an EBT card, and without using any actual cash (dollars or coins) at all! All those transactions in the USA are settled in dollars. Other places in the world use their local currency to settle transactions.

There are also transactions in non-USA lands that need to be settled in the dollar, which causes the problem. Many deals were made in foreign lands that need to be settled in the dollar. The loose USA monetary policy created a HUGE supply of dollars, which sloshed around the globe. Hence, the supply of dollars was large, causing their relative price to be less. This opened up a carry trade, causing many transactions to be made in dollar terms.

But, many parties to these transactions want to unwind them, given deteriorating economic conditions, especially in oil exporting emerging markets, that now have watched their inflow of dollars for their oil drop dramatically. This creates a strong demand for dollars to unwind the transaction. Huge increase in demand, absent any increase in supply = shortage. Where there is a shortage, price rises. Hence, the huge demand for dollars makes the price rise, further creating a demand for dollars to unwind transactions that are now unprofitable since made in lower dollar terms. It is a vicious cycle, one that Willie predicted long ago.

This physical supply shortage of actual paper dollars in those emerging markets in turn makes the exchange rate of the local currency vs. the dollar cascade higher, further exacerbating the problem. Limited supply = price increase.

Now I understand, and there are two ZeroHedge posts that prove Willie’s hypothesis to a standard of proof I am comfortable with: [“in an unexpected turn of events, the disappearance of not just synthetic but very physical dollars has hit one region much harder and much faster than we expected. Africa. . . .The shortage comes as the inflow of dollars from resource exports, from oil to cotton (but mostly oil) has plummeted with the prices of these commodities. The commodity rout also is putting pressure on local currencies, which some central banks are trying to support with their dwindling supply of dollars. . . . To be sure, African central banks [and for that matter, all central banks as this thing gets away from them, Cal Lawyer edit] have a simple way out: stop defending their currencies, and let the market determine the fair value. The problem with this approach is that it promptly leads to an immediate devaluation of the currency, and without fail, hyperinflation and social unrest.”] [“For now Africa has avoided the "hyperinflation monster", the result of an all too predictable scarcity of dollars, however the countdown is on and with every passing day that oil prices do not rebound, the inevitability of a full-on continental currency collapse, with hyperinflation and social unrest to follow, becomes increasingly more likely. . . . Worse, Africa is just the start: while the manifestations will differ, the mechanics of the dollar shortage, which we recently quantified in the trillions of dollars, are universal, and should the Fed's rate divergence path with the rest of the world continue pushing the USD ever higher, soon this USD-shortage will escape the confines of the world's poorest continent and make landfall somewhere where it will be far more difficult to ignore the adverse consequences of the global commodity collapse and the Fed's monetary policy.”]

So, when does it end? Eventually, transactions will settle for value. Is that gold/silver? Is that a gold-backed trade note? Is it something else?

Hang on for the ride, and prepare accordingly.

About the Author


Jan 12, 2016 - 10:04am

Excellent post, CaL

Much appreciated...and I'm sure Jim appreciates it, too!

Jan 12, 2016 - 10:13am

@ Mr. TF

Not all of us are geniuses with a humongous head like the Jackass . . .

I have two iPad pros, and still need help . . .

Keep up the great work my friend and tell Jim I am a big fan of his.

Jan 12, 2016 - 10:33am

Jackass also predicted lower oil prices

"Running out of room inside the nation’s storage tanks might be the only way to keep companies from pumping more oil. “These producers have kept chugging away when they should have been shutting down,” says Dominick Chirichella, co-president of the Energy Management Institute, a New York-based advisory group. “At some point, the fact that supply is outstripping demand has to have its moment of truth."

I'll make a deal with the oil companies, I will store their gasoline for free in my gas tank. No questions asked.

Joseph Warren
Jan 12, 2016 - 10:39am

Jim Willie Interview

For those who may have not heard this interview with the Jackass posted about a week ago. It runs a couple hours. Things are definitely getting 'interesting' -

Jan 12, 2016 - 10:44am

Great Post Cal!

Great Post Cal!

Jan 12, 2016 - 10:45am

Nigerian Currency Collapses

Nigerian Currency Collapses After Central Bank Halts Dollar Sales To Stall “Hyperinflation Monster”

from Wolf Street:

Having told banks and investors “don’t panic” in September, amid spiking interbank lending rates and surging default/devaluation risks, it appears themassive shortage of dollars that we warned about in December has washed tsunami-like ashore in oil-producing Nigeria. Following theCentral bank’s decision this week to halt dollar sales to non-bank FX market operators, black market exchange rates spiked to 282/USD (vs 199 official) and CDS spiked to record highs implying drastic devaluations loom.

Read More

Jan 12, 2016 - 10:47am

Thanks CaL!

I think most people, even here, just don't want to really believe it. The GJ doesn't care and he just says it like he believes it.

I find most people want to believe what they want to believe regardless of the intelligence and skill. Matter of fact, the more we think we know the more we tend to defend our (known) postilions.

Thanks for the post.

Jan 12, 2016 - 10:55am

Excellent post

rational, logical and well written.

wish there were more like that.

btw, and perhaps this goes without saying, but try to get as many friends and acquaintances as possible to go see "The Big Short" while it is in theaters and then when it comes out on DVD. Much as Cals post has explained a difficult,concept, the film will open the eyes of all except those who refuse to see.

Jan 12, 2016 - 11:07am

January 12, 2016 Santiago,

January 12, 2016

Santiago, Chile

Switzerland is famous for being punctual.

The trains. The buses. The meticulously crafted, hand polished luxury watches.

The Swiss are so culturally punctual that they even tend to pay their taxes well in advance of the filing deadline.

So it was quite a shock to hear this morning that the Swiss canton of Zug is asking its citizens to delay paying their taxes for as long as possible.

Why? Negative interest rates.

The cantonal government doesn’t want to take in a pile of cash, only to end up paying the bank interest on all the tax revenue.

Interest rates in Switzerland are among the lowest in the world; the official policy rate set by the Swiss National Bank is MINUS 0.75%.

Initially these negative interest rates only apply to banks; minus 0.75% is a wholesale rate pertaining to transactions among banks, and deposits they hold with the central bank.

But banks aren’t exactly charities.

So if a bank is paying interest to hold funds with the central bank, eventually they’re going to pass that cost on to the consumer. Even if that consumer is the government.

According to the Financial Times, the cantonal government of Zug estimates that they will save $2.5 million in negative interest rate charges by delaying tax receipts.

Just consider the magnitude of this decision: the monetary system has become so screwed up that a local government doesn’t want its citizens to pay taxes early.

In fairness, it’s not just Switzerland. All across Europe, interest rates are negative.

In the Euro zone, the main policy rate is only slightly ‘less negative’ at minus 0.3%.

And many of the bonds issued by European governments also yield negative rates.

In other words, you have to pay money for the privilege of loaning a bankrupt government your money.

In Germany, bond yields are negative all the way out to five years. It’s insane.

Clearly any rational individual is much better off simply holding physical cash, rather than keeping substantial funds in a savings account.

Cash doesn’t pay any interest. But it doesn’t cost any either.

It’s pretty sad statement when the 0% you earn from holding physical cash is considered ‘high yield’.

Of course, governments know this. They realize that no rational person is going to want to keep money in a bank, especially as negative interest rates cascade into consumer banking.

And that’s a huge reason why there’s such a push to outlaw cash.

If even a small percentage of depositors decided to close their bank accounts and withdraw all their savings in cash, the banking system would collapse.

There simply isn’t enough physical cash in the system.

Plus most banks are so highly leveraged, and they lack the liquidity to honor any meaningful amount of withdrawal requests.

This is one of the fundamental dangers of negative interest rates.

Central bankers, in an absurd, desperate attempt to generate inflation, are accomplishing nothing more than destroying the banking system.

And even when it doesn’t work-- even when the numbers prove that their ridiculous goal of increasing inflation isn’t working-- they just keep trying the same thing over and over again, making interest rates even MORE negative.

It’s madness.

These people have broken the concept of money.

Money is one of the most important social technologies in the history of the world, almost as important as language.

Money is supposed to mean something. It is supposed to be the metric by which we measure economic value.

But they’ve destroyed that. And it’s so obvious now.

But cutting the price of money (interest rates) so far into negative territory, money has become so worthless that even a government doesn’t want it.

And in doing so they have created the most absurd problems imaginable.

It’s pretty clear that this is not a risk free environment.

And as my colleague Tim Price pointed out yesterday, there is no single solution to protect yourself from the consequences of this madness.

We discussed last week that holding physical cash is a great option to hedge short-term risks in the banking system.

(In Switzerland, the highest denomination is the 1,000 Swiss franc note. In Europe, it’s 500 euros. In the US and Canada, it’s $100.)

But with so many politicians and idiotic economists calling for a ban on cash, plus all the greater risks with fiat currency, physical cash is only part of the answer.

Clearly precious metals make sense as part of a long-term, balanced approach.

But owning gold requires a steely-eyed, willful ignorance of the daily fluctuations in its paper price.

You can’t own gold and fret about it falling $20 in a single day, or 10% in a year.

Gold is simultaneously a form of money… as well as an insurance policy.

Trading fiat currency for gold, only hoping to trade the gold back for more fiat currency at a later date, pretty much defeats that purpose.

But even gold is not a single solution.

It may also make sense to own shares of a productive business-- ideally one that’s recession-proof, has minimal debt, and is managed by competent people of integrity.

There are plenty of other options out there, and this short list is by no means exhaustive.

But the larger point is to start thinking in this direction. Look at the obvious risks and determine what makes sense for your situation.

Most people will unfortunately succumb to the default option-- doing nothing and assuming that it’s all going to be OK because the smart guys in government will figure it out.

But this is pretty dangerous thinking.

You won’t be worse off for taking sensible steps to protect yourself from undeniable risks.

But should any serious consequences ever arise from this financial madness, they’ll happen very quickly, and it will be too late to do anything about it.

And at that time, looking back, it will all seem so obvious.

Until tomorrow,

Simon Black


Jan 12, 2016 - 11:12am

Now I Have

A Better Understanding of the High Dollar and (POOF!!!!)(Just thought of something. Not the British one but the one that disappears (I have a sick mind Ok!!)) Lol. Thank You Ca. Lawyer esq. Keep Stacking

Key Economic Events Week of 2/17

2/18 8:30 ET Empire St Manu Idx
2/19 8:30 ET Producer Price Idx
2/19 8:30 ET Housing Starts & Bldg Perms
2/19 2:00 ET January FOMC minutes
2/20 8:30 ET Philly Fed
2/21 Fed Goons all day at Chicago Conf.
2/21 9:45 ET Markit flash Feb PMIs

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Key Economic Events Week of 2/17

2/18 8:30 ET Empire St Manu Idx
2/19 8:30 ET Producer Price Idx
2/19 8:30 ET Housing Starts & Bldg Perms
2/19 2:00 ET January FOMC minutes
2/20 8:30 ET Philly Fed
2/21 Fed Goons all day at Chicago Conf.
2/21 9:45 ET Markit flash Feb PMIs

Key Economic Events Week of 2/10

2/11 10:00 ET Job Openings
2/11 10:00 ET CGP Hump-Hawk House
2/12 10:00 ET CGP Hump-Hawk Senate
2/13 8:30 ET CPI
2/14 8:30 ET Retail Sales
2/14 9:15 ET Cap Ute & Ind Prod
2/14 10:00 ET Business Inventories

Key Economic Events Week of 2/3

2/4 10:00 ET Factory Orders
2/5 8:15 ET ADP Employment
2/5 9:45 ET Markit Service PMI
2/5 10:00 ET ISM Service PMI
2/6 8:30 ET Productivity & Unit Labor Costs
2/7 8:30 ET BLSBS
2/7 10:00 ET Wholesale Inventories

Key Economic Events Week of 1/27

1/28 8:30 ET Durable Goods
1/28 10:00 ET Consumer Confidence
1/29 10:00 ET Pending Home Sales
1/29 2:00 pm ET FOMC Fedlines
1/29 2:30 pm ET Powell presser
1/30 8:30 ET Q4 GDP first guess
1/31 8:30 ET Pers Inc and Spending
1/31 9:45 ET Chicago PMI
2/2 10:00 pm ET Chiefs win SB LIV

Key Economic Events Week of 1/13

1/14 8:30 ET CPI
1/14 9:00 ET Goon Williams
1/15 8:30 ET PPI and Empire Fed
1/16 8:30 ET Retail Sales and Philly Fed
1/17 8:30 ET Housing Starts
1/17 9:15 Et Cap Ute and Ind Prod

Key Economic Events Week of 1/6

1/7 8:30 ET US trade deficit
1/7 10:00 ET ISM Services PMI
1/7 10:00 ET Factory Orders
1/8 8:15 ET ADP employment
1/9 8:00 ET Goon Chlamydia speech
1/9 1:20 ET Goon Evans 2:00 ET Goon Bullard
1/10 8:30 ET BLSBS
1/10 10:00 ET Wholesale Inventories

Key Economic Events Week of 12/16

12/16 8:30 ET Empire State Manu Idx
12/16 9:45 ET Markit flash PMIs Dec
12/17 8:30 ET Housing Starts and Bldg Perms
12/17 9:15 ET Cap Ute and Ind Prod
12/19 8:30 ET Philly Fed
12/20 8:30 ET Final guess Q3 GDP
12/20 10:00 ET Pers Inc and Spending
12/20 10:00 ET Core Inflation

Key Economic Events Week of 12/9

12/10 8:30 ET Productivity and Unit Labor Costs
12/11 8:30 ET CPI
12/11 2:00 pm ET FOMC fedlines
12/11 2:30 pm ET CGP presser
12/12 8:30 ET PPI
12/13 8:30 ET Retail Sales
12/13 10:00 ET Business Inventories
12/13 11:00 ET Goon Williams speech

Key Economic Events Week of 12/2

12/2 9:45 ET Markit Manu PMI
12/2 10:00 ET ISM Manu PMI
12/2 10:00 ET Construction Spending
12/4 9:45 ET Markit Services PMI
12/4 10:00 ET ISM Services PMI
12/5 8:30 ET Trade Deficit
12/5 10:00 ET Factory Orders
12/6 8:30 ET BLSBS
12/6 10:00 ET Wholesale Inventories

Key Economic Events Week of 11/25

11/25 8:30 ET Chicago Fed Nat'l Idx
11/25 7:00 pm ET CGP speech
11/26 8:30 ET Advance Trade
11/26 9:00 ET Case-Shiller home prices
11/26 10:00 ET New home sales
11/26 10:00 ET Consumer Confidence
11/27 8:30 ET Q3 GDP 2nd guess
11/27 8:30 ET Durable Goods
11/27 9:45 ET Chicago PMI
11/27 10:00 ET Pers Inc & Cons Spndg
11/27 10:00 ET Core inflation
11/27 2:00 pm ET Beige Book

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