Monday, October 5, 2020

Expecting a dollar crash?

The end of the dollar’s exorbitant privilege

If the dollar falls by 30%, as Steve Roach predict, then the Fed can no longer collect remits for Treasury and our interest charges on new debt go up by almost half.

And conversely, another stimulus raises the Fed Taxes needed, forcing dollar demand down. The can will not kick and we will have a shutdown and tax battle coinciding with a banking crisis.

A 35% drop in the dollar puts us back to 2015.  Thar was when the Swamp still collected taxes. using that period the Swamp was paying 2.2% for new money and still carried old debt at about 2.5%.   The Fed covers almost half the new interest charges with the tax on collateral. Every one is avoiding that Fed tax. savers and soon foreign holders of government bonds.   The stock market is tax avoidance. Shadow banking is avoiding that tax. Shutting down the banking sector is avoiding the tax.   Including that tax, Tax payers are still paying about 2.1% on ten year Swamp debt, bu GDP is still down by a third, and yearly growth still low to negative.  

We will be tempted to devalue, so be prepared to do it right.   None of the Nixon style overnight devaluations. Too fraudulent. But the recover will be mostly about rebuilding regulated banking. The senate needs to understand this as they will be in the middle of a horrendous tax battle.

Corporations are the new shadow bankers:

As these markets continue to suck at the fountain of liquidity while ignoring everything else failure appears to be not an option for my now old mantra holds as true as ever: There is no bull market without intervention. The time that markets have been able to stand on their own is long past and gone. And with rates held at zero until at least 2023 that mantra will continue to hold true for years to come.

Market returns remain a liquidity subsidy whether driven by the fiscal or the monetary side.

Corporations have access t shadow banking and can avoid the Fed tax.  To kick the can we need another 200 billion in taxes.

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