everyone panics and decides to sell their USD, jump in to the Euro if they think some US banking collapse is coming. The logic being that they know that the only solutions available to the US are ones that will further decrease the value of the USD. So, either there is a banking collapse and foreigners lose their USD or there is a massive bailout and foreigners lose the value of their USD. Anything but the USD is a no brainier. No amount of CB currency intervention will be enough. There is a tipping point in all major paradigm shifts, are we getting close to this one and what are the implications? Interestingly despite the sell off this past week the USD gave up ground. One might have expected to see a firming of the USD as international money did the traditional flight to safety trade in to US treasuries but instead that has not happened. Is this a sign that the tipping point has been reached?
The Fed seems to be doing everything in its power to cause a migration away from the long end to the short end of the yield curve. This gives them more control and they have been doing this for a while now (recall Greeenie telling everyone to get in ARMS) but it creates significant and destabilizing volatility. Without the dampening effects of money at the long end of the yield curve the swings generated by the economic cycle become more violent and pronounced. The good times are more extreme, record profits, liquidity, leverage, and the bad times will be equally extreme. This is very destabilizing and threatens to wreck the economic cycle. Could this be the catalyst that causes the USD to lose its reserve currency status?
The Fed seems to be doing everything in its power to cause a migration away from the long end to the short end of the yield curve. This gives them more control and they have been doing this for a while now (recall Greeenie telling everyone to get in ARMS) but it creates significant and destabilizing volatility. Without the dampening effects of money at the long end of the yield curve the swings generated by the economic cycle become more violent and pronounced. The good times are more extreme, record profits, liquidity, leverage, and the bad times will be equally extreme. This is very destabilizing and threatens to wreck the economic cycle. Could this be the catalyst that causes the USD to lose its reserve currency status?
