02/19/2020 - Yra Harris on Risks to the Global Financial System
“The global financial system seems to be gearing up for massive actions by the global central banks in an effort to calm the potential headwinds that a deflationary fallout would force upon the world. There is a NEGATIVE FEEDBACK LOOP in motion as the U.S. DOLLAR rally against the emerging market currencies will force corporate debtors in emerging economies to push goods out at depressed prices, from commodities to manufactured goods. Regardless of how slow economic growth turns the DEBT has to be repaid.
There is TRILLIONS of U.S. dollar-denominated debt coming due over the next 18 months ..
It is for this potential feedback that Federal Reserve Chairman Jerome Powell needs to CUT INTEREST RATES/OR OPEN MASSIVE SWAP LINES TO EMERGING MARKET CENTRAL BANKS that don’t already have access. There is a GLOBAL FINANCIAL CRISIS LOOMING. The recent price action in GOLD, COMMODITIES and, of course, the flattening of the yield curves portend GLOBAL CONCERNS about what the IMF director warns.
It is not inflation driving GOLD higher but concerns about central banks panicking in an effort to fight their dread of deflation in a fiat currency world. If Powell did this correctly he could head off some of the immediate fears by maintaining the cuts would be immediately removed if the COVID-19 virus proved to be a short-lived drag on global growth and potential financial impacts.
This potentially has much larger implications for the world’s financial system. Again, who is this guy Jerome? It’s time to be forthright and explain this is not meant to assuage equity investors but those economic actors with DOLLAR liabilities. Jerome do the math. Again, GOLD made even higher highs against many of the world’s currencies. Powell, it’s time to heed the wisdom of Paul Volcker and listen to the wisdom of market signals: gold, dollar, yield curves et al.”
