The American Dollar is on its way up because everyone has woken up and is rushing towards it as fast as they can. Why this sudden (but expected) reaction? Because no matter what happens in the USA as a result of the battle between the Republicans and Obama, the dollar is the one world currency which will always trade and will always bounce back.
Never mind that hundreds of thousands of poorly-paid American employees aren’t being paid, never mind that America is quite likely to default on its debts as a result of Congress possibly blocking the raising of the $17 trillion debt ceiling. Those things just DO NOT matter. Why? Because of the numbers.
To every other country on Earth a debt ceiling of $17 trillion seems beyond huge! It appears to be beyond management…but you have to remember that the USA’s annual economy is worth approximately the same amount! In addition, the worldwide trade in the American dollar is about $4 trillion PER DAY and even though much of the trade is by algo-trading, such vast volumes mean that there is little chance of business suddenly drying up!
The dollar trading volume every FOUR DAYS is roughly equivalent to America’s entire debt! So, even if the USA defaults on its debt, the worldwide dollar trade will continue.
A very high percentage of these trades will be in derivatives and high-speed meta trading. Whatever the views are on this modern equivalent of the three-card trick (blink and you’ll miss it), as the owner of the world’s reserve currency, America can get away with economic choices and techniques open only to it.
Whatever happens in the States, the global economy, especially within the Eurozone, will remain fragile.
The American economy has given a very good impression of having been in recovery for several quarters but the maximum collateral damage that the current Washington crisis can cause, will be to make the ersatz recovery look even more unconvincing. That’s unlikely to give the Fed, Obama or even the Republicans too much of a headache.
The whole affair will not be dealt with by means of finesse or any subtle change in policy. It will be the equivalent of a fiscal sledgehammer! Uncle Sam’s customary solution to any issue!
We live in a “meta-money” driven financial system which sits above (and below) the “real” economy. It manages to both influence and to be driven-by the real economy which gave birth to it (that’s the old-school economy which is based on profits derived from either manufacturing or providing a service).
Stockmarkets, whose original purpose was to raise capital to fund business are now no more than piles of gambling chips to be plundered (mainly) through the medium of high-frequency trading – a mutation of “simple” capitalism.
The goings-on in America will generate billions – no matter what the outcome, because bets are currently being placed on all scenarios and outcomes. In the main, it will be Republicans or, strictly-speaking Republican-supporting business placing the bets.
That’s because Washington’s political agenda is being driven by right-wing business because it is they who are funding the Republican right-wing and ultimately, their agenda is very straightforward. They want Obama out. The Republican left-wing has to go along for the ride.
The outcome will be similar to that which has developed in the United Kingdom over the last few years – big business (specifically Banking) and not the electorate will drive the political agenda.
They have the chips AND the cash.
(The IMF’s Christine Lagarde has just made the customary panic announcement that the Americans should sort themselves out. “Vite! Allez!!” ….Calm down, love…let them finish the game.)