Last Thursday, there was a time when almost all of the hundred or so market symbols I was following were “red”, except for the US dollar index. This was unusual and disturbing, but hardly mysterious, since the strong dollar was the reason everything else was losing value. The trend is unfortunately just beginning and will eventually overwhelm the global economy and banking system. Any observer could have seen this coming, though few did. Even now, only die-hard deflationists understand the disastrous consequences a strong dollar has on the mountainous debts that have piled up around the world. It is also not understood why hyperinflation is an extremely unlikely option to liquidate this debt, since it would destroy the creditors – i.e. the Masters of the Universe – as a class. Deflation not only makes much more sense, it already seems to have begun to suck asset values ​​into a worthless singularity with a power that will eventually become unstoppable.

The possibility of ruinous debt deflation was once considered wild talk. I was practically the only one writing about it in the early 1990s. I even suggested at the time, in reflections published in Barrons and the San Francisco Examiner, that a short squeeze in the dollar could lead to precipitous deflation. My flooring experience made this scenario not only plausible, but probable. It still is, I believe, and it seems predictable that it will start with a small disruption in credit markets that will quickly lead to a drying up of short-term lending. Borrowers unable to renew their loans as usual will be forced to settle in cash, an unfamiliar medium of exchange in the world of finance. This will cause ripples of panic overnight, but don’t bother queuing at your bank’s door before dawn, because the $25,000 to $50,000 that branches usually keep on hand may not not even be enough to repay the first two. or three applicants in the queue.

think smaller

If you think of deflation as an increase in the real debt burden, you will begin to understand it better than most fools. They say it’s a decrease in the money supply, and while that’s technically correct, it’s a useless concept because no one has any idea how much money is available. Additionally, trillions of new dollars can be borrowed overnight by speculators who simply think expansively (i.e. bullishly). The resulting illusory wealth can work wonders in a bull market, making investors and even simple homeowners think of themselves as geniuses who can get richer and richer without putting in a lot of work. Those closest to the banks that caused the illusion have the boats and planes to prove it.

But reality is about to set in because expansive thinking has already succumbed to a bear market in equities that began in early 2022 and a real estate meltdown that is unfolding with alarming speed. Fed easing won’t help either, even if the charlatans who run the central bank were bent on cutting interest rates. Because if they did, we would soon discover, as happened in 2007-2008, that even 3% mortgages can crush borrowers when the value of their home is down.

No hiding place

A rally in stock markets to new highs temporarily remedies the problem. But the actions have gotten so heavy lately that even the mandatory counterfeits needed to keep the rubies in the game haven’t materialized so far. The result of the past week was that, rather than thinking expansively, investors seemed an inch away from a contract panic that would have encompassed stocks, bonds, gold and every currency except the US dollar. A full-fledged selling panic has yet to occur since the bear market began in January, but there is no way this initial bear phase can end without one. Meanwhile, the dollar’s rise has spiraled out of control, creating a deflationary shock far larger than any problem central banks have ever seen, let alone managed. The dollar monster that has walked among us for more than a generation has begun to stalk us, and there is no hiding it.