The Phaserl


Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

by Michael Snyder, The Economic Collapse Blog:

Over the past decade, there has been only one other time when the value of the U.S. dollar has increased by so much in such a short period of time.  That was in mid-2008 – just before the greatest financial crash since the Great Depression.  A surging U.S. dollar also greatly contributed to the Latin American debt crisis of the early 1980s and the Asian financial crisis of 1997.  Today, the globe is more interconnected than ever.  Most global trade is conducted in U.S. dollars, and much of the borrowing done by emerging markets all over the planet is denominated in U.S. dollars.  When the U.S. dollar goes up dramatically, this can put a tremendous amount of financial stress on economies all around the world.  It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar.  The global financial system is more vulnerable to currency movements than ever before, and history tells us that when the U.S. dollar soars the global economy tends to experience a contraction.  So the fact that the U.S. dollar has been skyrocketing lately is a very, very bad sign.

Most of the people that write about the coming economic collapse love to talk about the coming collapse of the U.S. dollar as well.

But in the initial deflationary stage of the coming financial crisis, we are likely to see the U.S. dollar actually strengthen considerably.

As I have discussed so many times before, we are going to experience deflation first, and after that deflationary phase the desperate responses by the Federal Reserve and the U.S. government to that deflation will cause the inflationary panic that so many have written about.

Yes, someday the U.S. dollar will essentially be toilet paper.  But that is not in our immediate future.  What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.

This is what we witnessed in 2008, and this is happening once again right now.

Just look at the chart that I have posted below.  You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008.  And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…

Dollar Index 2015

At the moment, almost every major currency in the world is falling relative to the U.S. dollar.

For example, this next chart shows what the euro is doing relative to the dollar.  As you can see, the euro is in the midst of a stunning decline…

Euro U.S. Dollar

Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro.  As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90.  If that happens, the chart above will soon resemble a waterfall.

And of course it isn’t just the euro that is plummeting.  The yen has been crashing as well.  The following chart was recently posted on the Crux

Yen Dollar from the Crux

Unfortunately, most Americans have absolutely no idea how important all of this is.  In recent years, growing economies all over the world have borrowed gigantic piles of very cheap U.S. dollars.  But now they are faced with the prospect of repaying those debts and making interest payments using much more expensive U.S. dollars.

Investors are starting to get nervous.  At one time, investors couldn’t wait to pour money into emerging markets, but now this process is beginning to reverse.  If this turns into a panic, we are going to have one giant financial mess on our hands.

The truth is that the value of the U.S. dollar is of great importance to every nation on the face of the Earth.  The following comes from U.S. News & World Report

In the early ’80s, a bullish U.S. dollar contributed to the Latin American debt crisis, and also impacted the Asian Tiger crisis in the late ’90s. Emerging markets typically have higher growth, but carry much higher risk to investors. When the economies are doing well, foreign investors will lend money to emerging market countries by purchasing their bonds.

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3 comments to Guess What Happened The Last Time The U.S. Dollar Skyrocketed In Value Like This?…

  • Gnostic

    Financial Spin Cycle (. Rinse.Wash, Repeat ) Mr Peak Crackers

  • rich

    Economists-Say-Dumb-Things Chronicles: ‘Debt Is Money We Owe To Ourselves’

    If ‘we’ are the entire planet, equally and without distinction, then perhaps one might say, ok, although it loses all meaning and significance. I would not mind pooling my household books with one of the Banking billionaires and to be able to step up to the Fed’s free cash window anytime to do my business, with the assurance that I have a government guarantee underpinning my ledger, but alas.

    And this is a problem because the paramount issue we are facing today is the historically extreme concentration of capital assets in a relatively few hands, and the burden of unpayable debts being imposed upon a large segment of the people by a system that has been hijacked by the moneyed interests.

    I wonder if the average American who is losing their car and house, and who is being hounded by debt collectors for whom those debts seems to matter a great deal, can use that argument with the Banks.

    Putting aside private debts, let’s just stay in the realm of sovereign debt, where the economic imagination can more easily take its flights of fancy.

    Debt is just money we owe to ourselves is similar to the flat pronouncement that a sovereign that issues its own currency can never default. Money is just an accounting entry so why the fuss? And from this comes a Pandora’s Box of muddy thinking, a selective myopia towards history, and Trillion Dollar Platinum coins.

    I wonder if Greece can use this argument, that debt is just money that we owe to ‘ourselves,’ when they meet with the Germans this week.

    But no, the US is different. Every other country may fail, and many have including that insubstantial nation of Russia not all that long ago, but not us. We are young and immortal. Our benchmark for virtue is power, and we are virtuous enough to be able to say that when things are not working out as we planned, we are able to decree that ‘money is whatever we say it is,’ and God help anyone who does not agree.

  • Ed_B

    “It also has the potential to greatly threaten the stability of the 65 trillion dollars in derivatives that are directly tied to the value of the U.S. dollar.”

    You know, that $65T sounds like a lot of money… and it is. But in the derivatives world, this is less than 5% of the $1400 trillion in derivatives worldwide. So, is 5% of this market worth putting our panties in a bunch over it? Probably not.

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