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US Nearing Recession, Dollar Falling Hard

The dollar soars by a record amount versus the euro and the yen in 2014. And economists predict strong growth in 2015. Really? If a country can have a rapidly-appreciating currency with all the benefits that that confers, and strong economic growth with all the obvious advantages that that confers, why wouldn’t everyone be going for powerhouse currencies?

Because the two things, a strong currency and accelerating growth, tend to be mutually exclusive in the short run, with a strong currency acting like rising interest rates, slowing growth and making debts harder to service.

So it shouldn’t be a surprise that the latest batch of US numbers are somewhere between disappointing and catastrophic. First-quarter GDP was flat and is about to be revised negative. Retail sales were flat in April, the first month of the second quarter, with business inventories and import prices pointing in the same grind-to-a-halt direction.

US retail sales May 2015
The US is now looking at zero growth for the entire first half of 2015. Six years into a recovery, with record low interest rates and a recent doubling of government debt, that’s a bit of a dilemma. Especially given the Fed’s threat to raise interest rates in the next few months.

Rates clearly are not going to be raised, at least not on purpose. On the contrary, slow growth always and everywhere leads panicked governments to break out the stimulus. And the dollar is reacting to this prospect exactly as one would expect, by falling like a stone in the past month.

US dollar May 2015

Gold, meanwhile, is acting like the reciprocal of the dollar, adding $30 an ounce in the past two days.

Gold price May 2015

At the risk of excess repetition, the US is obviously losing the currency war and will soon be forced into a new offensive. Negative interest rates, here we come.

25 thoughts on "US Nearing Recession, Dollar Falling Hard"

  1. – Still a USD bear ? I am a USD bull !!!!! and a USD going higher is the worst thing that can happen to the world.
    – Negative interest rates ? The “Fireworks” will be seen on the long end of the interest rate market. i.e. watch the 30 year rate go higher. No, this NOT a sign of inflation but a sign of deflation.

  2. I may be jumping the gun, but it seems to me that when the US reverses course and “eases” more things are going to unwind and devolve very quickly. On the other hand, there are still a lot more tricks in the bag and “investors” know it. A massive global “debt jubilee”, for example, may be more successful than the fiat money masters fear, especially if the CBs can buy up nearly all the bonds in the world. That way “everyone” gets relief so who’s going to complain? And I’m still holding out hope for “helicopter” money.

    1. The only massive “debt jubilee” you can expect to see is one for the banks and finance companies; that’s exactly what you saw with TARP and Quantitative Easing, in which they were given trillions almost interest free, but not the rest of us.
      Students didn’t see any “debt jubilee” either when Congress voted that they could not, like those other “persons” , i.e., corporations, discharge their debts through bankruptcy. As for negative interest rates, the giant sucking sound that H.Ross Perot associated with jobs fleeing out shores could as well apply to money, if someone were to offer 1/2-1% APR return, which would be ten-fold what the greedy U.S. banks are paying.

  3. Cannot see any American with two ounces of sense paying Uncle Sam or a bank for the privilege of owning their debt or liability. Better to put the money into currency under the mattress, gold, silver, and diamonds. The Fed will raise rates because the Baby Boomers are not spending Lost Interest Income, and they are a growing segment of the U.S. population, aside from illegal aliens. The Fed has to start unwinding the giant mess they have made of things, soft economy or not. I am actually angry about banks using my money for free while they make record profits over the last 6 years. TIME TO PAY THE PIPER. Long-term rates are heading higher regardless of what the Fed does because the Fed, ECB, Peoples Bank of China, and Bank of Japan cannot buy up the entire global bond market without outright currency collapses. Change is in the air.

    1. Baby boomers spending isn’t the problem because they are, actually holding the economy up as we speak. But it the millennial’s that are not spending because of the low wages and debt incurred for their educations. We have a rent seeker economy that lives off of everyone just like the Chinese are by selling us the goods they make and use those dollars to buy our assets. So we’ve got foreign countries buying us out and we got our next germination in debt and we got our banks financing the whole thing so that the one tenth of one percent can hold their money in some bank offshore. Yap, that’s what we get when we have Republicans and bankers running the country every time.

      1. If I recall when the Obama Depression was in full swing in 2009 and still going strong this date, the Democrats controlled both houses of Congress. Enough blame to go around, but get used to Conservatives being in power because the Big Government Idea has been a total failure. Plus, we can’t afford to be liberal anymore, UNCLE SAM IS BROKE BY ANY DEFINITION OF THE TERM. The big banks contribute more to the Democrats than the Republicans so you need to rethink the Blame Game.

        1. They all seem to be content to give all of our savings away to Iraq and Afghanistan. At this point it is just a funny money confidence game. However, I would not underestimate the ability of the central banks to pull another rabbit out of their hat.

          Just when Japan appeared to be on the ropes, they got bailed out by low oil prices. This can’t go on forever, but there appears to be a little more life to the fiat era.

        2. I guess you missed Obama’s latest speech in which he wants to double down on the “War on Poverty”. He said ‘not everything that can be done has been done.’

        3. So if you are equal an equal opportunity critic then explain the Republican Congresses job on getting the economy going since they took control of it? Austerity doesn’t work as one can see first hand in Greece, Wisconsin and Kansas,. Republicans go to Congress first to make themselves rich by giving tax breaks to corporations that don’t need them, then by cutting funding so that public sector is short changed from operating, then say, see big government is a failure so then they push for privatization and then go to work for the blood suckers who don’t do any better then what the government did. In fact, it’s worse because now you get a middle man rent seeking off the tax payers. No, there are some things the government does better than the private sector as in Medicare that has only a 3% overhead while the private heath care has 10 to 20% overhead. The charter schools is anther example of the private sector ripping off the the tax payers but that’s OK to Republicans because that’s what they want to happen. Anything that makes big government look incompetent is their objective so that their ideology fits their intentions Brownback is bankrupting Kansas to prove what? That he and the rest the cronies are insane?

          1. Dan, the Democrats really own this economy now after six years, so we will see how it plays during the 2016 Election, just as George Bush has been blamed for the 2007 Recession. You can hate conservatives all you want, Dan, but that does not change reality when the crap hits the fan in the weeks and months ahead. Your team will be at the helm of the Ship of State when we flounder, and that event will happen much sooner than most people think. Medicare is unsustainable on many fronts, and charter schools, overall, have been successful in allowing children a decent education where the public schools have failed miserably. Where does Obama send his girls: a private school.

          2. The Republicans owned the economy since 1996 to too 2006 and then since from 2009 to now. If you want to play the numbers game. So who should own it? The government became unstable after Bush took office with his unfunded tax cuts, two unfunded wars, and unfunded medicare part D. It set up the coming years with not putting the two wars on the books. They don’t want the government to succeed because they have adopted the Kochs anti government libertarian policies that are opposite to generally the public’s. They want to fund the wars and a large military but don’t want to pay for it, and they want to pay for it buy reducing the social safety net, which when polled the pAublic is against. If you question it just go to Bernie Sanders sight and see for yourself how the public is polling on his agenda. Both Republicans and Democrats poll very positively on his issues because they are what’s on the public’s mind. Austerity and war isn’t.

          3. Dan, austerity is coming, the United States is broke by any accounting standard. Both parties get the blame, but we get the pain. Tough times ahead for an Insolvent United States. Bernie Sanders has as much chance to get elected President as I do.

          4. We would’t have this problem if the banks hadn’t been deregulated and built trillions of dollar in derivative debt and basically went out of business, and got bailed out, but the public sector didn’t, causing a depression and lower tax receipts. At the same time low marginal tax rate is causing a problem in our government’s operation. The banks are going to fail before the government does. A little historical reference: During the lead up to the 1929 depression Harding and his treasury secretary, Mellon, lowered the marginal tax rates to 25% and we’ve seen what happened then. Well, Reagan did the same thing along with wage stagnation in the 70’s to create the over investment in derivatives–speculation. The private sector is the problem not the public sector and history is going to repeat itself. The right’s argument is the same one they used in 20’s. There is no libertarian state with a middle class…………….it doesn’t and never did exist and people who tell you that getting the government out of the way are either lying to you or they’r misinformed of how this country evolved into a power in the world.

          5. Dan, there are too many mis-statements of fact in your comments to even respond to, just don’t have the time. Let’s re-open this conversation in a year when the results of Big Government and Something-for-Nothing policies have resulted in the worst Depression the United States has ever seen. The cupboard is bare, Dan. The idiots in Washington just haven’t gotten the memo yet.

            The Public Sector is the least efficient way to distribute wealth to the American middle class or even poverty class. AmTrak is a shining example that will now be reorganized and partially privatized, probably under the next President.

            I am afraid you are the one who is misinformed, Dan.

        4. @SageOwexford, I think you display a profound ignorance about who holds the purse strings in our government, with republicans controlling the congress now and the house after 2010, I think you need to go back to high school and try to pass your civics class, one more time …

          1. SystemBuilder, I have an MBA in Finance & International Finance from the University of Michigan, can build my own computers for my company with one hand behind my back, graduated 3rd in my high school class of 360 students, my 3rd High School, had an Engineering Scholarship as an undergrad at Michigan, and have run my own successful business for over 26 years now. What was that you were saying about ignorance???

            Listen, Democrats, you own the economy now whether you like it or not since you have a President who operates outside of Congressional law and the Constitution, so man up and take the licks that are coming your way. Since we are already in a Depression, only made worse by the failed policies of bed-wetter Obummer, the mobs in the streets will be hanging images of JackAsses aka Donkeys in their marches upon Washington.

            I also got straight A’s in Civics and Government so ante up to the bar and take your medicine. Blaming others is oh so Democrat!!!!!!!!!!!!!!

          2. Michigan engineering is a nice school if you want an easy ride, they called me to offer me early admission but blew their chances by acting too eager. For my bachelor’s thesis I wrote software that became a billion dollar company. How about this for a pissing contest?

          3. I think Old Blue dodged a bullet in your case. A Bachelor’s Degree thesis, never heard of one. Usually a requirement for a PhD.

          4. Obviously you have not heard of very much if you have never heard of A Bachelor’s Degree thesis. where you been boy??? Your credibility just went down the drain

          5. Beth, Old Babe, I graduated from grad school in 1976 and I have thousands of clients where my credibility is 110%. That is all you have to contribute to this blog?? Education today is a far cry from what I received in the 1960’s and 1970’s; no wonder Generation X cannot find jobs.

  4. Is the US ‘losing’, or will we be winning by ‘losing’? Gotta get that dollar down and them profits back up boys! There’s more stock to be bought back! More bonuses to be distributed before TSHTF arrives!

    1. Agree. There is no way out of this. The policies that are normally used to escape recessions – stimulus and lower interest rates – have been used up and then some.

      The Fed is out of bullets. And the demons are at the gates now

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