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Why The End of QE is Bad For The Dollar and May Lead to Its Collapse

The end of QE was supposed to mean a stronger dollar. It hasn't. The dollar has been dropping for months since QE tapering was announced and started.

From August 2013:

The Printing Press is the New Gold Standard

The value of U.S. Treasuries has been maintained by the Fed’s willingness to print dollars to buy more Treasuries thus creating a non market $45 billion a month demand for such securities. Remove that demand and the price of Treasuries drops and yields rise.

Thus, the value of U.S. Treasuries AND the dollar have been backed by the Fed’s willingness to print dollars to support the dollar because if the U.S. Treasury market collapses, so does the value of the dollar.

Since the dollar's value is in part tied to the level of U.S. debt and the willingness of the Fed to monetize that debt via QE, a cessation of QE would undermine the value of the dollar.

With a decline in the dollar, values of hard assets like gold and silver that are not dependent on third party actions (like Fed intervention in the bond market) and with no counter party risks (like the creditworthiness of the United States) should rise.


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So, if you actually look at

So, if you actually look at the numbers, the government ownership of the debt has gone down. So I don't see how government demand for its own debt is propping up the dollar.

Moreover, if that really was the case, then the markets would reappraise the debt based on the manipulation.

Plus, while there is a lot of nice logic to the idea that the value of the dollar is tied to the debt levels, in practice, there does not appear to be much connection. Little correlation, at least. This is because we no longer exist in a world where the dollar is backed by gold. It is all fiat money. Plus, for the longest time now, the level of money in the economy is disproportionately tied to the power of the banks to create credit.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

I don't understand.

The end of QE (money printing) will lead to the collapse of the dollar?
From what I understand, the point of QE was to prop up the stock and real estate markets. The $85b/month was going to buy mortgage-backed securities that the banks that held them didn't want and could find no market for.
Most of the QE money was immediately parked back at the FED at .25%/per year. The total sitting there is $2.66t now. The net effect has been to help banks holding bad paper to get rid of it.
Banks, though interest rates are low, have raised borrowing requirements. Real estate lending by commercial banks has not budged for about six years.
I don't know if the $2.66t clears the banks of the bad paper or not. There is still a large percentage of homeowners who are under water on their mortgages. Student debt is over a trillion dollars and default on that debt is increasing.
When debtors default and go bankrupt, money is destroyed. That is the opposite of the collapse of the value of money. That is the maintenance of the value of money.
If they are bailed out with new money, and that money circulates, expect inflation and the collapse of the dollar.
I digress.
The FED is there to protect the big banks. If it is printing money and buying bad paper, it is to protect them, not to stimulate the economy. Perhaps the banks have gotten the wind under their wings again and the FED has bought most of their non-performing notes.
By ending QE, I don't expect the dollar to collapse. Real estate prices and the stock market may drop. There will be a new round of bail outs and bankruptcies. Interest rates probably will not rise unless the FED decides to let them. That means getting a loan will remain difficult and the economy will remain stagnant.
Until the FED lets interest rates rise, the U.S. economy will remain Japan 2.0.

[F]orce can only settle questions of power, not of right. - Clyde N. Wilson

I agree with what you have written

The unknown is what happens when the Fed stops printing money to cover the debts? Normally tightening monetary policy is good for the strength of a currency. But we are in unchartered territory where our debts have ballooned so much as a result of the Fed's willingness to monetize debt.
If they stop where is the support? The dollar isn't backed by anything other than as Greenspan says in the video in the original post-by its ability to pay any debt by printing the difference.

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So, a few points: The vast

So, a few points:

The vast majority of QE has gone to purchase treasury securities, not MBSs.

Secondly, if you look at the non-treasury securities purchased, the government is intending to hold them to maturity, and let them expire. That is the relief they are giving the banks...the banks, needing liquidity, couldn't hold on to the bonds for 10-20-30+ years like the Federal Reserve can.

Thirdly, QE has some positive effects of re-balancing the portfolios of the private sector. Truly, it gives them some more liquidity. But the major downside is that banks no longer are earning interest on those bonds (both treasury bonds and otherwise).

The net affect is that QE will drain wealth from economy in the long-term. Banks have replaced interest-earning assets with non-interest earning assets.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

This sounds like a "See what

This sounds like a "See what happens without our help?" ploy. It's like when they gated off parks and the WW2 memorial and actively prevented people from entering to make the govt shutdown more painful and visible.

"see what happens without our help"

classic example of them breaking your leg and giving you a cane and saying without us you could not walk!

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This article attributes dollar weakness to low bond yields

BUT yields are nearly 70pct higher today than a year ago but that's only half of it

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Reuters: U.S. Dollar Slides Broadly

The End of QE is contributing to the dollar slide- If the Fed who buys up to 70% of the newly existing tresuriess is no longer willing to print dollars to back the existing ones, who will buy the US treasuries bonds?

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Since when...

Since when did the Fed actually taper? From my understanding they haven't. The Fed chairwomen has clearly stated full speed ahead towards the iceberg.

The Fed starting tapering QE last year in December

on improved job out look LOL


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The fed has announced a series of tapers so far

whether they are actually slowing their purchases no one knows. But the perception is there that the Fed is stopping the program

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interesting how they have

interesting how they have tapered and the dollar has sank. Where are those dollar bulls?

that is the point. Tapering QE was supposed to mean dollar stren

that is the point. Tapering QE was supposed to mean dollar strength.
It hasn't.
take a look at the Dollar chart


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