• 263 days Could Crypto Overtake Traditional Investment?
  • 267 days Americans Still Quitting Jobs At Record Pace
  • 269 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 272 days Is The Dollar Too Strong?
  • 273 days Big Tech Disappoints Investors on Earnings Calls
  • 274 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 275 days China Is Quietly Trying To Distance Itself From Russia
  • 276 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 280 days Crypto Investors Won Big In 2021
  • 280 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 281 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 283 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 283 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 287 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 287 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 288 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 290 days Are NFTs About To Take Over Gaming?
  • 290 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 293 days What’s Causing Inflation In The United States?
  • 294 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

Well That Didn't Work

The Bank of Japan and European Central Bank eased recently, which is to say they stepped up their bond buying and/or pushed interest rates further into negative territory. These kinds of things are proxies for currency devaluation in the sense that money printing and lower interest rates generally cause the offending country's currency to be seen as less valuable by traders and savers, sending its exchange rate down versus those of its trading partners.

This was what the BoJ and ECB were hoping for -- weaker currencies to boost their export industries and make their insanely-large debt burdens more manageable. Instead, they got this:

JPY/USD 1 Week Chart

EUR/USD 1-Week Chart

Both the yen and the euro have popped versus the dollar, which means European and Japanese exports have gotten more rather than less expensive on world markets and both systems' debt loads are now harder rather than easier to manage. And it gets worse: Japan's yield curve has inverted, meaning that long-term interest rates are now lower than short-term rates, which is typically a harbinger of recession. Here's a chart from today's Bloomberg:

Japan 10-Year Yields below overnight rates

This sudden failure of easy money to produce the usual result is potentially huge, because the only thing standing in the way of a debt-driven implosion of the global economy (global because this time around emerging countries are as over-indebted as rich ones) is a belief that what worked in the past will keep working. If it doesn't -- that is, if negative interest rates start strengthening rather than weakening currencies -- then this game is over. And a new one, with rules no one understands, has begun.

 

Back to homepage

Leave a comment

Leave a comment