The Black Swan Wall Street Doesn’t Want You to Know About
Over the last few days, I’ve been detailing how the Fed has secretly launched another Quantitative Easing (QE) program.
As a brief recap, QE is a monetary policy through which a central bank prints new money and uses it to buy debt from financial institutions. And the Fed is back doing this in a big way – with a whopping $75 BILLION worth of QE in a single week.
To put that number into perspective, at its most aggressive QE program back in 2013, the Fed was doing $80 billion worth of QE per month.
It just did that in the span of five days.
And it’s not finished by any stretch…
On Monday, the Fed pumped $65 billion into the financial system.
It pumped another $75 billion into the financial system on Tuesday.
And another $91 billion on Wednesday.
Obviously, the money pumps are only going up from here.
The Fed is calling these programs “repurchase agreement operations” to avoid admitting this is QE, but the fact remains: the Fed is printing new money and using it to buy debt securities from the big banks.
That’s QE, whether the Fed wants to admit it or not.
As I noted yesterday, the Fed is doing this to try and weaken the U.S. dollar. In simple terms, the U.S. has too much debt. And since neither the Fed nor the Federal government can afford a default/restructuring of this debt, the Fed is forced to “inflate” the U.S.’s debts away by devaluing the U.S. dollar.
This begs the question… why is the U.S. dollar rallying in the first place? With the U.S. totally saturated in debt, shouldn’t its currency be weakening?
Glad you asked…
The World is Desperate for U.S. Dollars
As I’ve noted before, the U.S. dollar is the reserve currency of the world, comprising over 90% of all currency transactions.
Because of this, whenever a foreign government or foreign corporation goes to issue debt, it will very often do so in U.S. dollars. Doing so gives the foreign nation/corporation access to a much larger pool of investors because it reduces currency risk (many bond funds are highly regulated and often cannot invest in foreign currency debt).
Put simply, if you’re a foreign government or foreign corporation and you want your bond auction to go smoothly, your best bet is to issue your debt in U.S. dollars.
However, there’s a problem with this. If you issue your debt in U.S. dollars, you now need to make both the interest payments on your debt and pay back the debt itself in U.S. dollars. But because you’re a foreign government/corporation, you can’t print U.S. dollars (only the U.S. can).
In this situation, unless you can come up with U.S. dollars by selling assets, you quickly run into what’s called a “U.S. dollar shortage.”
Now, with this in mind, consider that there is over $11 TRILLION in U.S. dollar denominated debt floating around the global financial system.
All of this is owned by nations/corporations that cannot print U.S. dollars.
Now you begin to understand why the U.S. dollar has been so strong… globally much of the world is desperate for dollars. And it’s acquiring them hand over fist, any way that it can.
All of this means we’re moving into a time of great currency volatility. And with the right trading strategy, you can use this to generate a LITERAL fortune.
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Editor, Money & Crisis