Dollar Wins in a Global Deflation

Quotable

"But even an orderly, globally organized debt reduction would be insufficient to remove the underlying obstacles to growth unless it enables the creation of new investment spaces for young industries providing a new global mix of goods and services. That can only be achieved by removing the obstacles to entrepreneurship and innovation.

“For most countries, this would require removal of the current political elites and the pseudo-constitutional political systems the latter employ to maintain themselves in power. (Here I am mostly speaking of the quasi-dictatorship of the pan-Europeanist bureaucracy and the Chinese mandarin/”Communist” system). In this race to change political leaderships in favor of forces that would promote entrepreneurship and innovation, the US political system enjoys a unique advantage in the world. Given the singular constitutional arrangement of this country, a radical change of national leadership in this direction is not only possible but appears to be increasingly likely in next year’s general election.

“If that turns out to be the case, the US Constitution will prove to have been not only the product of unparalleled political craftsmanship over two centuries ago, but also a human artifact of incalculable economic value today.”
                                    Criton Zoakos

Commentary & Analysis
Dollar Wins in a Global Deflation

I am a big believer in the idea MAJOR global macro events are catalysts that produce long-term trend changes in markets (granted the gift of hindsight helps us see this; but for the record I believed the dollar had put in the a bottom during the credit crunch, and said so then, and though confidence in that call has waxed and waned, I still think the credit crunch marked the end of the US dollar bear market; now a multi-year bull market is likely underway.) I think the major leg up in the US dollar will flow from much needed global deleveraging. Much of the debt needed to de-lever is our money, which was thrown onto the market as public debt by our illustrious governments, was done so in an effort to stave off global deflation. They will lose this battle; Mr. Market is much stronger. I say governments will lose under the assumption there is any desire to ever have real sustainable growth sometime in the years to come. That seems an open question when one witnesses the antics of the US administration and Eurozone centralizers. I offer the chart on the next page as a summary review of the US dollar index since major currencies began floating back in 1971 when President Nixon severed the link between the dollar and gold. Note that each bear phase in the US dollar has been about seven years in length. It is downright biblical! Keep the faith!

Enjoy your weekend!