Loading ...The demand for dollars is running off the charts in the world of real paper money. The rising fear of Europe canceling their currency and now Boris Johnson in the hospital under intensive care have many concerned that BREXIT could be overturned. Meanwhile, the International Monetary Fund (IMF) is talking about launching a new program to help address the global shortage of dollars! Despite the cries of the goldbugs that the dollar is evil and has to crash. I have warned that during the REAL crisis, gold will rise WITH the dollar. The mere fact that the IMF is now talking about providing a backup to the Federal Reserve’s campaign to help the central banks but creating a REPO market for them to get dollars, the shortage of dollars is absolutely incredible.
IMF is preparing to offer short-term dollar loans to countries that lack enough Treasuries to participate in a Fed REPO program which enables foreign central banks to temporarily exchange U.S. debt for dollars. This is showing that we have a major MONETARY CRISIS on the horizon precisely as Socrates has been projecting.
The United States is also the IMF’s largest shareholder. This IMF initiative is trying to back up the Fed which is now trying to hold up the entire world economy as the panic for dollars is becoming insatiable. The IMF is holding virtual meetings of members when more than 90 countries have already asked for its assistance in shielding their economies from the coronavirus and global recession. This insane shutting down the world economy for a virus with such a low mortality rate is threatening the Emerging Markets which has vast outstanding debts denominated in dollars.
The IMF sees this as a short-term liquidity line that is exactly targeted to countries with strong fundamentals, strong macroeconomic fundamentals, that may be experiencing short-term liquidity constraints. But this is not a short-term crisis. Socrates has been projecting this Monetary Crisis extending into 2021-2022 for years.
This exaggerated response to the coronavirus has pushed the world economy into this worldwide rush into dollars by unleashing havoc on a global economy that is heavily dependent on the dollar as its linchpin that makes it all function. This world recession is far worse than the global financial crisis of 2007-2009. That was far more localized. I warned at the WEC that this would be a combination of the 2007-2009 Financial Crisis and the 1998 Liquidity Crisis which collapsed Long-Term Capital Management.
The Dow is bouncing as part of the dollar rally. But there is still important resistance at the 28000 level and failing to get above that on a closing basis warns that this is not over yet. The Emerging-market borrowers who tend to rely on the IMF for aid are at tremendous at risk and this is adding to the panic for dollars. The Emerging Markets issued mountains of debt in U.S. dollars not so much for the low interest rates, but because to sell this debt to pension funds who were not willing to take on foreign currency risk. Thus, it has been the Emerging Market countries who took that risk and never hedged it.
A significantly stronger dollar also hurts the U.S. by tightening financial conditions and making American exports more expensive on world markets which has been part of the trade war. The IMF stands ready now to also deploy its $1 trillion lending capacity to fight this dollar crisis instigated by the insanity of shutting down the world economy for a virus.
The Fed has taken what informally existed as a shadow REPO market via swaps and introduce a series of formal programs aimed at supporting the international supply of dollars trying desperately to stave off a Sovereign Debt Default which the coronavirus has just pulled the trigger. I seriously doubt that Bill Gates and his co-conspirators understood the ramification of what they were doing. They too looked at the world with a myopic perspective and only saw their issue and nothing else.
This also places the IMF in the direct line of fire of a collapse in the event that the Emerging Market defaults become their own contagion. The IMF is providing an unsecured line of credit without conditions that place it at risk as these countries cannot repay the loan because Bill Gates has also seriously disrupted the US economy which they have depended on as the market to sell various produced and agriculture. The IMF has already asked the G20 (Group of 20) leaders to support creating a sizable quantity of reserve assets called SDRs, or special drawing rights, as it did in the 2009 global financial crisis.
Welcome to the Monetary Crisis Cycle.