by Charles Hugh Smith
Of Two Minds
The reality is that we’re one panic away from foreign-exchange markets ripping free of central bank manipulation.
While all eyes on fixated on global stock markets as the measure of “prosperity” and “growth” (or is it hubris?), the larger force at work beneath the dovish cooing of central bankers is foreign exchange: the relative value of nations’ currencies, which are influenced (like everything else) by supply and demand, which is in turn influenced by interest rates, perceived risk, asset purchases and sales by central banks and capital flows seeking the lowest possible risk and the highest possible return.
Which brings us to Triffin’s Paradox, a topic I’ve covered for many years:
Understanding the “Exorbitant Privilege” of the U.S. Dollar (November 19, 2012)
The Federal Reserve, Interest Rates and Triffin’s Paradox (November 19, 2015)