What Do These Two Charts Have In Common?

By: John Rubino | Fri, Mar 6, 2015
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The premise of a currency war is that by devaluing its currency a country is able to sell things overseas more cheaply, which gooses its growth at the expense of its trading partners.

If it actually works that way, then you'd expect this chart of the euro plunging against the dollar...

10-Year Euro Chart

...to be reflected in some sort of strong-dollar related downturn in the US. And right on cue, the Fed reported this morning that American manufacturers are now in the sixth month of a new-orders slowdown:

US New Manufacturing Orders

If things continue to play out according to script the coming year will be slightly better than expected for Europe (but only slightly because of all the other messes those guys have made of their common currency experiment) and quite a bit worse than expected for the US (because we actually think we're recovering).

Then comes the next and final stage of the cycle, where the US realizes that it's tipping back into recession, with all the unacceptable things that that implies for the equity bubble, tax revenues and campaign contributions, and shifts gears from tightening to open-the-floodgates loose, hoping to push the dollar back down against the euro, yen and yuan. The difference this time around will be that, as Europe is now discovering, easing monetary policy when interest rates are already zero means pushing into negative numbers. And that means yet another leap of faith into uncharted, experimental, very possibly disastrous territory.

 


 

John Rubino

Author: John Rubino

John Rubino
DollarCollapse.com

John Rubino

John Rubino edits DollarCollapse.com and has authored or co-authored five books, including The Money Bubble: What To Do Before It Pops, Clean Money: Picking Winners in the Green Tech Boom, The Collapse of the Dollar and How to Profit From It, and How to Profit from the Coming Real Estate Bust. After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a currency trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He now writes for CFA Magazine.

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