I concur.. Which is why I sense that a collapse in commodity prices will put an upward bias on the USD. Effectively when one purchases a USD denominated commodity, it's an arbitrage against the USD. Sell USD and buy Commodity. So when commodity prices decline, they sell commodities and re-convert back into USD.
Thus, right now the Fed is desperately attempting to ward off deflation, which means they are "fine" with a certain level of commodity inflation, to include Gold and Silver. Keeping those commodities at elevated prices above natural supply and demand curves, creates the perception of inflation, or at least avoiding deflation.
But if we're facing a global recession over Europe, and perhaps China, I'm not sure how they long they can continue to maintain this inflationary illusion. It's not just that there is too much debt out there, but that it's bad debt, which is not generating a positive cash flow.
Debt isn't necessarily a bad thing, so long as the profit/value that is created exceeds the cost of holding that debt. I think we're beyond that point and debt is now being generated to pay off interest on previous debt, not to pay back the principal, or generate a greater return in cash flow.
Hawk |
