How an Illiquid Dollar Ruins the World


    by Matthew Piepenburg, Gold Switzerland:

    One can’t emphasize enough how dangerous the current macro setting is in the wake of a deliberately strong and illiquid Dollar.

    Biden, of course, says not to worry. We say otherwise.

    The Illiquid Dollar: We Showed You So

    Over the years, we have written and reported a great deal about the US Dollar and the ironic mix (as well as danger) of its over-creation yet simultaneous lack of liquidity.

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    This illiquid Dollar, as argued since the first repo crisis of late 2019, combined with a now weaponized US Dollar on the backs of intentionally rising rates by a cornered and Volcker-wannabe Fed, all converge to spell short-term power for the Greenback and longer-term misery for just about every other asset class and economy in a now openly fractured global financial system.

    As to the stark reality/risk of this illiquid Dollar, rather than just say “we told you so,” it would be better to “re-show-you so” by making specific reference to a prior report published in December of 2021.

    Dollar Illiquidity—The Ironic Yet Ignored Spark of the Next Crisis

    Since penning that report just over 10 months ago, it’s worth revisiting the implications of an illiquid Dollar and the financial crisis of which we warned then and now find ourselves today.

    Why Strong is Weak

    It may intuitively feel good to see one’s currency beating all the others and hence puff American chests in a kind of proud admiration for the strongest currency on the block.

    Nothing, however, could be further from the truth.

    In fact, bragging about a strong US dollar in today’s global neighborhood would be akin to bragging about the healthiest (yet terminally ill) patient in an overcrowded hospice center.

    In the end, of course, all fiat currencies revert to the value of their paper, which as Voltaire reminds, is zero.

    Or as J.P. Morgan warned years ago, gold is the only money, the rest is debt.

    But I digress…

    In simplest terms, the strong US Dollar is only relatively strong because every other currency is tanking faster by the second, and this collective spiral is a direct result of the rising US Dollar exporting its inflation to its neighbors and using the bullying power of its world reserve status to weaken, well…the world.

    Let’s explain/dig in.

    How We Got Here

    So, how did we, and the rest of the world’s tanking currencies, get to this embarrassing as well as fatal turning point?

    As indicated in the above and other reports, many of the answers lie in the otherwise long and sordid history of central bank fraudderivatives madness, repo-to-Euro-Dollar obfuscation and just plain ol’ global debt addiction.

    Again, and despite trillions in printed/mouse-clicked US Dollars, much of those dollars are all tangled up in the morass (or “milkshake” aka Brent Johnson) of a highly illiquid derivatives market and increasingly illiquid Euro Dollar market.

    As we indicated then:

    As Egon von Greyerz and I have said many times, the first overt signs of this danger in the cash-poor (i.e., illiquid) market reared its ‘repo head’ in September of 2019.

    This [repo illiquidity] was a neon-flashing signal of long-term trouble ahead. And it had nothing to do with COVID…

    Informed investors in the autumn of 2019 had sifted through all the confusing minutia and noise behind the September panic in the otherwise open-fraud scheme that is the U.S. repo market (i.e., private banks levering GSE deposits for guaranteed payouts from Uncle Sam which the U.S. taxpayer funds).

    Despite all this noise, and despite being completely ignored (and deliberately downplayed) by an otherwise teenage-savvy mainstream financial media, the entire repo story simply boiled down to this: There weren’t enough available dollars to keep it (and the banks) going.

    As a result, the 2019 Fed printed more dollars and immediately dumped a $1.5 trillion rollover facility into the repo pits.

    Much, much more followed.”

    And boy did it follow.

    As recently reported, the Fed has already begun daily rollover liquidity boosts of over $2T in overnight money-market loans to the increasingly illiquid reverse repo swamp.

    This is basically “backdoor QE” and serves as just another sign of a USD-addicted system with a never-ending survival thirst for less and less available (and hence more expensive) Dollars.

    The Euro Dollar: All Tangled Up in Blues…

    The other skunk in the illiquid Dollar woodpile was what we called the “ticking timebomb” of the misleadingly-named ‘Euro Dollar’ market, discussed as follows:

    “In fact, Eurodollars have been floating around the world in greater force since the mid-1950s.

    But banks (and bankers) always come up with clever ways to make simple [and liquid] Eurodollar transactions complex [and illiquid], as they can easily hide all kinds of greed-satisfying and wealth-generating schemes behind such deliberate Eurodollar complexity.

    Specifically, rather than foreign banks using U.S. Dollars overseas (i.e., Eurodollars) to make simple, direct loans to corporate borrowers that can be easily tracked and regulated on the asset and liability columns of offshore bank balance sheets, these same bankers have spent the last few decades getting more and more creative with the Eurodollar – which is to say, more and more toxic and out of control.

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