“A weak dollar is the driving force behind global liquidity,” writes Alan Ruskin in the Financial Times. Ruskin’s point is the one we make every week or so. “The U.S. has a technology,” as Ben Bernanke put it, “called the printing press.” And lately, the United States has been cranking so hard the handles are falling off. The dollars come hot off the press…and even before they have cooled, they are on their way across the vast oceans to far Cathay…where they buy luxuries that the Homeland can’t produce. In today’s Financial Times, for example, one Chinese computer maker says it is making so much money it’s hardly knows what to do with it all. Lenovo – the PC maker bought from IBM two years ago – reported that profits ‘rocketed’ for the full year.
American emissions of paper money cause a kind of chain reaction of debasement. No country wants to see its own currency fall faster than the dollar – and especially not America’s major suppliers. (We used to refer to them as ‘trading partners,’ but the term seems sadly out of date, since the trade is almost only in one direction). The dollar-receiving countries rev up their own printing presses…layering various colors of ink onto sturdy pieces of paper so that they may use it to buy America’s currency.
Result #1: more paper money everywhere.
Result #2: lower interest rates
Result #3: huge liquidity boom.
Result #4: big run-up in asset prices…m&a activity…global bubbles where some clown pays USD$71 million for a Warhol,
Surely there is a Result #5.
What? At the very least, it will be – as Mr. Greenspan suggests – a correction full of drama in the most affected markets. At the very worst, it will be something that mimics the four horsemen of the Apocalypse: worldwide depression, revolutions, wars and rumors of wars.
Markets and Money