"We Track the Financial Collapse For You, so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

Safeguard your financial future. Get our crucial, daily updates.

"We Track the Financial Collapse For You,
so You'll Thrive and Profit, In Spite of It... "

Fortunes will soon be made (and saved). Subscribe for free now. Get our vital, dispatches on gold, silver and sound-money delivered to your email inbox daily.

This field is for validation purposes and should be left unchanged.

Welcome to the Currency War, Part 18: Dollar Soars, Economy Disappoints

The point of competitive devaluation, aka currency war, is that a cheaper currency gives a country several advantages over its trading partners, leading to better growth and generally happier voters. The trading partners, meanwhile, get the ugly mirror image — slowing growth and disgruntled citizens — so they eventually respond in kind, with devaluations of their own. If nothing happens to stop the war, everyone’s currency ends up being worth a lot less and a whole generation of savers is partially wiped out.

In the current skirmish, Europe is crushing the US, which is to say the dollar is soaring against the euro. So if the script holds, the US should be suffering. And — despite all the breathless reports of plentiful jobs and plunging unemployment — the recent numbers do paint a picture of a country hobbled by a too-strong currency. From Bloomberg this morning:

Surprise: U.S. Economic Data Have Been the World’s Most Disappointing

It’s not only the just-released University of Michigan consumer confidence report and February retail sales on Thursday that surprised economists and investors with another dose of underwhelming news. Overall, U.S. economic data have been falling short of prognosticators’ expectations by the most in six years.

The Bloomberg ECO U.S. Surprise Index, which measures whether data beat or miss forecasts, fell to the lowest since 2009, when the nation was in the deepest recession since the Great Depression.

US missing expectations

There’s been one notable exception to the gloom, and it’s a big one: payrolls. The economy added 295,000 jobs in February and 1.3 million over four months, a reflection of a healthier labor market in which the unemployment rate has fallen to the lowest in almost seven years.

Most everything else? Blah.

This month alone, personal income and spending, manufacturing as measured by the Institute for Supply Management, auto sales, factory orders, and retail sales have all come in a bit weak.

Citigroup keeps economic surprise indexes for the world, and its scoreboard shows the U.S. is most disappointing relative to consensus forecasts, with Latin America and Canada next, as of March 12. Emerging markets were supposed to be hurt by falling oil prices but are now delivering positive surprises. U.S. policymakers frequently talk about weakness in Europe and China, though both are exceeding expectations.

Some thoughts
Coming after five years of huge deficits and zero interest rates, a US slowdown would either invalidate the concept of QE — or invalidate the concept of finite QE.

Since giving up on easy money would leave the authorities with zero policy tools to hype during the coming election cycle, surrender is a non-starter. So the idea that we haven’t done enough will soon be embraced by everyone from Paul Krugman (who’s been saying it all along) to the entire democrat party to most major corporations (who have had enough of a strong currency and long for a euro-style 1/3-off sale).

But the timing depends on the stock market. If it keeps rising then hope will endure of a “wealth effect” boost to second-half growth. If it tanks then all hesitancy will evaporate and the Fed will see Draghi’s trillion and raise him another. Bond yields will go negative, and bank savings accounts even more so.

At which point the question will shift from “is there really a currency war?” to “where will they find more stuff to buy once they have all the bonds?”

10 thoughts on "Welcome to the Currency War, Part 18: Dollar Soars, Economy Disappoints"

  1. “There’s been one notable exception to the gloom, and it’s a big one:
    payrolls. The economy added 295,000 jobs in February and 1.3 million
    over four months, a reflection of a healthier labor market in which the
    unemployment rate has fallen to the lowest in almost seven years.”
    Jobs? What jobs? The oil patch is on its ass and the retail sector is losing ground at lightning speed. The 92 million no longer in the work force would say this part of your thesis is BS. The BLS lies and we are supposed to believe sub 5% unemployment? Quit drinking the Kool-Aid and take a drive through Detroit or Burlington, NC. Our once thriving cities are derelict hulks with people hanging on to two or three part-time low paying jobs. Do some research, get out and wander the inner city of anytown USA. Oh, and don’t forget to take some cash. The homeless, unemployed need a meal.

  2. I’m surprised that JR didn’t point out that the increase in jobs are mostly part-time and low paying. They are almost economically useless, and may well be net negatives. The big picture continues to be that global debt levels are, and have been for years, growing faster than “GDP”. It’s mathematically unsustainable. Even if automation/productivity increases at the corporate level there will still be an ever increasing mass of people who earn only subsistent or less than subsistent incomes and so debt levels will continue to rise to provide basic needs. The lower prices provided by the increased productivity due to automation may maintain consumption, but the profits either will be taxed away and redistributed to so that consumers can consume those products or they will not be taxed and a bifurcated “income inequality” world will continue until government deficit spending finally implodes the whole system.

  3. “What will they buy once they have all the bonds” is a darkly hilarious question. I’ll take a shot: next crisis, the Fed will buy commercial paper. That market just about froze up last time and it only takes a couple weeks before some major company misses its payroll in the absence of commercial paper. Plus, this funnels new money directly into corporate coffers, which pleases everyone in the 1%.

    By contrast, massive stocks purchases at a time when a huge correction is needed and expected would anger the smart money on the short side (which by now has to be a large aggregate position, even if it’s hidden by what retail is doing). It’s one thing to tweak S&P mini’s here and there to keep a nice uptrend intact, but totally eliminating the expected downturn via tens of billions in stocks purchases would be taking money out of rich people’s hands only to benefit the middle class, and why on earth would central banks ever do that? So I predict they’ll let stocks tank but will be forced to stabilize commercial paper.

    They might also somehow backstop letters of credit. It doesn’t get talked about too much, but international trade was at risk of coming to a halt because banks suddenly balked at providing these. Empty supermarket shelves and no replacement cell phones or TVs would rapidly breed domestic unrest.

    1. Plausible and defensible thoughts on commercial paper and letters of credit.

      Yep, these criminals have no limits. I was dumbfounded when the Fed went beyond its $800B in assets back in ’08/’09. No more; I am just waiting on the sideline for this house of cards to fall, not making predictions anymore.

      1. You can’t make predictions because the Fed is doing what other Feds do in other countries. This is not all about the Fed in the U.S. It’s a worldwide thing. If the Fed contracts now, then it’ll be like 1930s all over again.

  4. You expect a standard free market response to factors produced by a manipulated & establishment inspired Frankenstein economy? Why?

    1. What free market? That went out the door a long time ago. We are now in a command and control soviet style economy and we all know where this will end.

Leave a Reply

Your email address will not be published. Required fields are marked *


Zero Fees Gold IRA

Contact Us

Send Us Your Video Links

Send us a message.
We value your feedback,
questions and advice.



Cut through the clutter and mainstream media noise. Get free, concise dispatches on vital news, videos and opinions. Delivered to Your email inbox daily. You’ll never miss a critical story, guaranteed.

This field is for validation purposes and should be left unchanged.