Will the Dollar Crash in 2014?

[theo]

I know. I know. Many of us have read dozens of articles with similar headlines over the past 5+ years, some have been interesting and informative but others (too many IMO!) were a confused ramble of wild claims or thinly veiled advertisements. However, Gonzalo Lira lays out a plausible scenario of how events may unfold over the next year. Its easy to forget that it seemingly took a number of huge interest rate hikes from Volker and Co. to stave off low double digit inflation in the early 80s. Of course the Reagan tax cuts are given little credit for getting us out of the woods. You can lower prices by not only cutting demand, but also(and preferably) by increasing supply (a.k.a. real growth).

Anyway here is a link and an excerpt below. Hope you had a nice Christmas!

http://liraspg.com/will-the-dollar-crash-in-2014/



If there is a recession, the Federal government will have no choice but to go into further deficit spending in order to “save the economy”, while the Federal Reserve under incoming Chairwoman Janet Yellen—who is an avowed “dove” when it comes to QE—will quite naturally raise the level of Quantitative Easing. Retracing the taper and going up to $100 billion a month would not be outlandish inference, with a ratio of bond purchases more skewed towards buying Treasury bonds than agency bonds, in order to keep interest rates low.

Now, if this happens, there is no way that the Fed or the Federal government would allow an increase in interest rates. ZIRP would continue, bond yields would remain minuscule precisely because of QE. In fact, the Fed would want there to be a bit of inflation, for the Keynesian “pump-priming”.

Here is the mistake I believe will happen: Once consumer price inflation begins, it will not be possible to rein it in, the way Chairman Paul Volcker did in 1980 following the inflation brought by the Iranian Oil Shock of ‘79. The Fed will not want to rein it in, as they will see it as a sign that the economy is improving. And once inflation reaches double digits—as it did just before Volcker slammed the brakes hard via 22% interest rates—the Federal Reserve under Janet Yellen will not have either the room-to-maneuver or the inclination to raise rates to fight inflation.

Inflation can easily spiral out of control. I personally have seen it in South America—Chile, Argentina, Brazil. Once that genie is out of the bottle—and once a central bank proves itself unwilling to apply the strong medicine necessary to stop it—inflation will accelerate and blow up.

We are already seeing excessive asset price inflation due to the Federal Reserve’s QE and ZIRP policies: Equities are at historic highs while being completely divorced from fundamentals, bonds are yielding historic lows.

[mbailey1234]

I am surprised inflation hasn't been higher than what we have seen already. If this pile of money ever starts moving, and I mean really moving, hold on to your asses! The logical way to keep that in check would be to raise interest rates but with the federal governments debt load, how could they? I think they will just let the inflation roar on when the time comes. It will suck to be a retired person on a fixed income at that point. I don't even think this is our biggest issue. How can we continue to spend 1.4 x (or more) of what they (the federal government) bring in each year.

Just remember, everything that you own that can be taxed is collateral on that debt. Sweet dreams everyone!

This is kind of outdated now but the point is still valid.

http://www.youtube.com/watch?v=Li0no7O9zmE

[68Camaro]

The FED will continue to pump in money to keep up the mirage of a recovery, and the stock market will see wild new highs, until they lose control. The loss of control could come from inflation, but it could come from several other directions. Failure of key foreign markets to respect the USD, a new and expanding war, appreciation that the US has been gaming statistics, etc. Fundamentally, regardless of direction, it will manifest itself in a loss of confidence. The curtain will be pulled back from the wizard, and suddenly key investors will cash out and move into non-paper assets. That's what the Chinese are already doing. As soon as the larger investing / banking community starts to follow the crash will come within days.

[68Camaro]

I should add that right now I believe the market not only includes the deluded (the majority), but it includes a small group of people who (no matter what they might be espousing in the media) do have a clue, and they are taking a gamble that they know the market well enough to run faster than most of their peers, and so grab a seat before the music stops. They will be staying in the paper market as long as possible to maximize their gains, then they will attempt to cash out and convert before paper cash stops having value.

[beauanderos]

I would love to see the stock market climb to wild new highs, as Rich avers, so that precious metals remains the redhead stepchild and I can keep loading up. If we trend sideways (metals) the next five years I won't complain. It would be nice, though, to have a PM explosion when I retire (if ever )

[knibloe]

It will suck to be a retired person on a fixed income at that point. I

Most people are on a fixed income, retired or not. I cannot go to my boss and ask him to give me more. The only entity that is not on a fixed income is the government. They just print it out of thin air or steal it out of our pockets.

God help us all to have our needs met during these times.

[mbailey1234]

It will suck to be a retired person on a fixed income at that point. I

Most people are on a fixed income

This is one reason I'm thankful to be self employed. If need be I can work 100 hours per week to keep the lights on. It may not be fun but at least it is an option. If I'm punching a time clock the boss man may send me home with no notice if he no longer needs my services.

[Numis Pam]

It will suck to be a retired person on a fixed income at that point. I

Most people are on a fixed income

This is one reason I'm thankful to be self employed. If need be I can work 100 hours per week to keep the lights on. It may not be fun but at least it is an option. If I'm punching a time clock the boss man may send me home with no notice if he no longer needs my services.[/
quote]

Sooo true! Thankful for a couple streams of self employment!

[johnbrickner]

Welcome to the new normal.

We are in our 4th year of the recovery. The stock market is booming and this proves the American economy is growing. Won't take much of this kind of reality and the "recession" will be a thing of the past in the average person's memory.

Wow, feel the abundance. No inflation, jobs available everywhere for everyone who wants to works, the bills are all paid, and we even have discretionary income for those little extras we had to do without during the "hard years". I imagine another 6 to 9 months of this booming economy and those that have jobs and/or are unaware (zombied) will have been brainwashed to the point to where they will have difficulty seeing that times could be bad for anyone else out there.

As long as the government can keep the façade going to where there is either no critical mass of individuals who no longer believe or can keep a critical mass of individuals believing in the system (think Polar Express, 2004) the dollar will not crash from within. That is, because the American people have had enough and are willing to <<DO>> something about it. And personally, I no longer have that kind of faith in the American people.

The dollar's demise will come from without. That is from beyond our borders. The rest of the world will have had enough and will <<DO>> something about it. And when it happens the majority of the American people blinded by their faith and belief systems will cry "oh poor me" as is already becoming the mantra of those who know how to use it.

The key to me is to watch both China and Russia and those they have rallied around them to do business with outside of the U$D. At some point, they will reach a critical mass of Gross International Product (GIP) and will either choose or invent their preferred currency. My guess is it will happen when enough countries will be involved outside of the system where going to war will not be an Internationally acceptable choice. China is well on the road militarily to making sure it won't be a choice.

Or, also possible are the war hawks convince those who have the power to make it happen into choosing a pre-emptive strike of major significance. A resource war to make sure we get and continue to get more than our "fair" share of the worlds abundance will also give our dollar problems at least in the beginning and later if we do not win decisively. If this scenario doesn't happen in the near term, say 10 to 30 years or less, the window will close on it.

If China continues to move in her slow methodical way spreading her major economic goodwill internationally and especially in places where we have shat or are shatting on the rest of the world, and Russia comes out of the Olympic games with major goodwill (Mr. Nice Guy Putin/love that Mother Russia) momentum, we may never get the opportunity. I might also add watch for China to win the medal race. Such an event could turn world view in a manner granting her an appearance of world dominating status. At least in those who's minds can be influenced in said manner.

"if only you could see what I've seen with your eyes!" Blade Runner (1982).

[gresham]

If the dollar does crash, don't expect to see this in the news or the government's consumer price index.

That said how much value does the dollar have to lose to be considered a crash, twenty percent against the Euro and other major currencies?

[johnbrickner]

. . . The dollar's demise will come from without. That is from beyond our borders. The rest of the world will have had enough and will <<DO>> something about it. And when it happens the majority of the American people blinded by their faith and belief systems will cry "oh poor me" as is already becoming the mantra of those who know how to use it.

The key to me is to watch both China and Russia and those they have rallied around them to do business with outside of the U$D. At some point, they will reach a critical mass of Gross International Product (GIP) and will either choose or invent their preferred currency. My guess is it will happen when enough countries will be involved outside of the system where going to war will not be an Internationally acceptable choice. China is well on the road militarily to making sure it won't be a choice . . .

For a much more detailed source of the above information see the most recent Thunder Road Report here: http://www.gata.org/files/ThunderRoadReport-12-2013.pdf