What is spelled out below is not difficult imagining. However, once capital starts to run from somewhere to somewhere else, it is difficult to predict where it ends up. Mr. Slovo sees it running to the US which is not difficult to believe. Why an influx of capital would cause a US market crash or a precious metals crash is less clear.
I do agree, however, that regardless of how the next shock manifests, it will mark either the end of the beginning or the beginning of the end. These are dangerous times. Movements in financial markets will be swift, but the crisis period will likely play out over many years.
Mac Slovo :
What’s coming next will be complete and utter panic in European debt markets, the result of which will likely be a shift of capital from Europe to areas of the globe deemed “safer,” leaving, ironically, US Treasury instruments as one of the few bastions of safety as investors look to save themselves from financial annihilation. This means that money will flow back into the U.S. dollar, and we would not be at all surprised to see a strong move up against other currencies. On the flip side, this means we could potentially see a massive crash in stocks on Western exchanges. The panic may lead to unprecedented selling of stocks, commodities and even precious metals as individual investors rush for the exits.
But all of that is just the first phase of the next leg down. After Europe goes, we in the U.S. will likely be next, with events perhaps playing out over several months or years, eventually leading to similar circumstances – collapse of our financial institutions, destruction of our currency, a complete wiping out of the U.S. middle class, political instability, riots, and the historically traditional outcome in such cases of collapsing nations – war.
The reality of the situation has now gone mainstream.
I follow the logic that suggests our FRN’s look relatively good in the race to the bottom of fiat currencies. But if there is an influx of FRN’s from other countries which have been holding our currency, how does that not inflationary? More currency chasing essentially the same goods (stocks and commodities) it seems would cause the prices to climb dramatically.
And when the phony paper market in PM’s finally comes to grips with reality, it would seem that those who have held physical will be in an enviable position.
But I make no claim to being an economist so whoever can set me straight, please do so.
Thanks for this post; it helps me to understand the rise of the dollar. It’s better than a lot of other things — as suggested by your analogy of debris floating in a cesspool!
Every time the dollar goes up my CDN oil stocks go down. Look at Daylight Energy. It went down to $4.59 from an average of about $10 something. Then on the weekend, it was announced that Sinopec had offered $10.08 per share, and now the CDN oil and gas sector is looking up again. The flight to the dollar causes our asset prices to go down which then makes them a target for the Asians who have liquidity–by selling off their US treasuries. So my oil investments lose value against fiat currency but not for very long–the whole sector was up about 5% in trading yesterday after the Sinopec/Daylight announcement.