The Jackass Nails the Dollar Rise

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.

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Key Economic Events Week of 5/28

5/28 9:00 ET Case-Shiller home prices
5/28 10:00 ET Goon Kash-n-kari
5/28 10:00 ET Consumer Confidence
5/28 1:00 ET Goons Cook and Daly
5/29 1:45 ET Goon Williams
5/29 2:00 ET Beige Book
5/30 8:30 ET Jobless claims
5/30 8:30 ET Q1 GDP 2nd guess
5/30 8:30 ET Wholesale inventories
5/30 10:00 ET Pending home sales
5/30 12:00 ET Goon Williams again
5/31 8:30 ET PCE and Core PCE
5/31 8:30 ET Personal Inc and Spend
5/31 9:45 ET Chicago PMI

Forum Discussion

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