by Rick Ackerman
The U.S. dollar took a massive hit in stride following last week’s announcement of a $6 trillion bailout package. The news caused the greenback as measured by the Dollar Index (DXY) to fall by just a few points from recent highs. The dollar’s seemingly inexplicable strength is a harbinger of the catastrophic debt deflation I’ve been warning about for many years, since it will increase the real burden of debt on all who owe dollars. It also shows how the dollar can be subject to short-covering pressure capable of pushing its value far above any logical threshold, even when the Fed is practically giving away dollars to the rest of the world.
Let me explain. At present, exceptionally strong demand for dollars is being driven in significant part by liquidity issues originating in Japanese financial markets. Like all central banks, the Bank of Japan has usurped a wide variety of debt paper in order to create a nearly unlimited supply of money to prop up the economy.