naked capitalism

River says:

RE: Fundamentals at odds?

It is very difficult to understand what is causing dollar strength unless one looks at alternative explanations, imo.

‘The extent of manipulations engaged in by this Federal Reserve is mind numbing. The total number of sequestered dollars has now reached well in excess of $1.2 trillion dollars. That means that Fed credit, so far, has been effectively increased only by about 10%, over the last 2.5 months, rather than 150% that appears on the surface of the Fed balance sheet. The rest is temporarily sequestered.

Back in July, the U.S. Treasury, through the ESF (Exchange Stabilization Fund), sold billions of euros and, I believe, established a dollar sequestering “derivative” by paying interest, perhaps in Euros, to foreign money center banks. This was designed to keep dollars out of circulation, overseas. It was the beginning of the dollar bull back on July 15th.

I had thought, at the time, with good reason, that the U.S. would run out of foreign exchange and would be forced to close down the operation within a few months. I underestimated Ben Bernanke.

Instead, the Fed managed to establish currency swap lines with various foreign nations, under the guise of supplying them with dollars. This need for dollars arose partly as a result of the actions of the Fed, in sequestering Eurodollars in July, and partly as a result of the multiple credit default events which triggered over $2.5 trillion worth of selling in the stock and commodities markets, as 50 to 1 leveraged players were forced to cover about $50 billion worth of credit default insurance obligations.

In truth, the Fed needs the foreign currency more than the foreign central banks need dollars. The Fed is using its new foreign currency resources, in part, to control the value of the dollar, and to ensure that U.S. bailout bonds are sold for the highest possible prices at the lowest possible long term costs. Anyone who buys long term Treasury bills is going to lose a fortune of money in the long term.

The Fed has also taken a number of steps beyond those already discussed to restrict aspects of the normal money supply which most strongly affect exchange rates. For example, they only allowed “currency in circulation” to rise by $33 billion in aggregate, while at the same time increasing foreign reverse repurchase agreements to reduce foreign availability of dollars by $30 billion, and reducing the “other liabilities” category dollar availability by another $7 billion. Since it is likely that “other liabilities” involve foreign held dollars, this resulted in a net deficit of $4 billion on foreign exchange markets, as compared to September, 2008.

All these actions, taken together, have supported the dollar overseas, and led to a breakdown of the commodities markets. The adverse effect of a paradoxically rising dollar has been especially severe in dollar dependent commodity producing nations, such as Ukraine.’

http://seekingalpha.com/article/109210-the-manipulation-of-gold-prices?source=front_page_most_popular_articles

Richard Kline says:

I adore Cassandra’s inside, backstory take on Madoff’s make off with the flow; it’s what I had an itch to paste up had I the background. Look, his return number was _ridiculous_; he never missed; his putative ’strategy’ could not POSSIBLY make that money, and no one but on one could find a sliver of light into how he did it. _And_ reputable people steered clear of him and his. Ergo, if something sounds too good to be true, and furthermore its true nature is utterly opaque, then . . . .

This is the America we don’t believe we are—but we are. Some of us. Whether high rollers or the nickle slot crowd, it’s been something for nothing since, as Cassandra says and I’ve howled since long, Reagan set the tone. Madoff’s 70; I say 10:1 he does a Ken Lay, and never does a day on the inside.

lineup32 says:

He has been posting over at

http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-29-2008-inflation.html

Anonymous says:

Hell, three hots and a cot might be just what this guy was after in the long run. I’m sure he must think that every trust baby deserves to be taken…like most of the other people in prison.

Anonymous says:

Nouriel Roubini is a really smart and prescient guy who deserves our respect, but…

“For the next 12 months I would stay away from risky assets. [...] I would stay in cash or cashlike instruments such as short-term or longer-term government bonds.” (emphasis mine) — from 8 really, really scary predictions

As a committed deflationista actually advocating the purchase of what is now the ultimate bubble asset, he may have jumped the shark. And I don’t think he is trying to market-time the onset of inflation by making his statement applicable only to the next 12 months, because he has stated elsewhere that he believes the Fed will simply “mop up liquidity” later.