Global currencies devaluing – protectionism end games

Ok, my post here was essentially a caffeine (yes caffeine) induced conversation with a friend who trades in the market. Basically we were amazed (as was everybody) as US taxpayers paid AIG executives bonuses, although not entirely surprised. We tried to imagine the possibility of the US government reversing it’s ‘bailout everybody’ policies; to protect it’s own wealth (taxpayers monies). So it is a fantasy. Nothing more. The reality is that the US (with other countries already beginning the process) is now on a mission to destroy it’s currency. This quantitative easing (printing money) and buying up mortgage back securities and any other securities tied to the credit markets, is essentially a massive attempt at flooding the USA and world with cash. Courtesy of the Federal Reserve under a self confessed money printer Ben Bernanke.

This is of course will lead to inflation even in deflationary environments, but the other factor is the protectionist aspect as all global currencies are been devalued at the same time. So it could be wise to assume that a huge debasement in global currencies and their value is the first shot in a protectionist agenda.

As the US attempts to self capitalize, outflows of investment from USD and USD related assets will occur. Today I listened to an economist at a certain big bank explaining the benefits of the massive money printing exercises by the Federal Reserve, but again he missed the point that inflation will trump any internal inflows of cash into the US economy (hey like Zimbabwe!). But as discussed with all the global Central Banks attempting to do the same as the Federal Reserve like the Bank of Japan and Bank of England; by collapsing their currencies they will of course force import prices up. So it’s a terrible situation for the global economy. But expected.

So, from a trading perspective it’s time to look at inflation protective buys. Obliviously gold, oil and the few currencies that still show a degree of value, at this point the Japanese Yen although I would say short term. Stocks, such as bigger oil refinery and produces, some bigger mining companies. Pharmaceuticals, although debased currencies will kill the import market on drugs (hence effecting company profits) although depending if there is crisis such as a severe flu out break. Or watch for tariffs removed for flu drugs. Some ETF’s, say long term purchases on Japaneses stocks. Still if you trading short term, ETF’s on silver, index put warrants on all major indices. Short US banks.

The USD/YEN – notice the USD about to punch through 93 Yen support, then it will reside in the trading range of 83-92:

Oil:

Gold against the USD (self explanatory):

Bear Markets, new year rallies, US treasuries and the China Syndrome.

Global stock markets have rallied, mirroring the rallies in November 2008 that latter petered out into 2009. Oversold markets showed some life after banks Citgroup and Bank of American speculatively informed the market they may return to profit in the next quarter

refer to graph:

Still in fragile economies and negative market sentiment, the bad news just keeps coming. Can US markets maintain rallies out of a brutal bear market, or get sucked back down into new lows? Whether oversold or not, one thing remains is the terrible state of the global/US economy. I was discussing the rallies with a friend of my on the weekend, we both agreed that market would rally but agreed that the rallies showed investor caution, especially when the rallies were speculatively driven.

Yet our discussion kept going back into general human psychology and the mentality fear. We were trying to pinpoint the basis of fear and fear reaction, not so much regarding markets per se but generally. The idea of survival of the fittest kept coming up, not entirely biologically driven, but also not dismissing the idea of survival of the fittest in human instincts and survival. But also adding cultural/economic power structure of survival of the fittest. As I discussed in The wrongs of Government intervention in the free markets, biology and survival of the fittest – Governments may become totalitarianism based., the theory that was reached, which could be a shock in someways. Is with governments of the world trying to maintain asset prices from collapsing could actually allow them to collapse. This conclusion came out of the recent remakes from China’s Premier Wen, when he came out recently and said he was concerned about US Treasuries, since China holds 1 Trillion of US debt.

To me it still comes back to gain over pleasing the electorate, for example governments eventually protecting their wealth rather than intervening in markets to please the taxpayer. Even though market invention has been a complete fiasco (at the expense of the taxpayer), note AIG massive bonus payouts, and counterparties (overseas and local US investments backs) getting taxpayer dollars connected to the AIG bailout! It just gets worst and worst for the Obama administration. But the real fear is China’s concern of their US investment of US debt. If markets rally due to money printing and asset support and Treasures tank, with an added bonus of an absolutely deteriorating US economy. China may edge closer to selling or threatening to sell US Treasuries. This may cause the Obama administration to reverse it’s obsessive bailout programs and sink the stock indices to add weight back into Treasures. Thus keeping it’s (US) major investor (China) happy. Could Governments turn from asset support policies to deflation liquidating policies and hammer the private equity markets back down? All this to protect the inflows of investment into Government debt?

With a bottom in bear markets months away, concerns that tax payers are getting shafted and China thinking (not in a good way) about their investments in the US. A complete reverse in US government economic policy could occur. Only because the fear of a China sell on Treasures and the banks and private sector abusing taxpayer money; at some point the US taxpayer will want to see some free market failure.

The US government could allow the free markets to punish somebody (corporate). To keep faith both from the taxpayer and it’s main investor.

So we both felt, albeit speculatively that the US government may have no choice but to stop supporting asset prices and try and drive Treasures up. In other words allow for a massive deflation to occur, or simply put fall into a depression and hope it’s a sharp one.

Japanese bank goes bankrupt – Asia could have a festering banking crisis

The alarming aspect of a Japanese bank (Norinchukin Bank) that has just filed for bankruptcy protection is that it was bank that was not listed on the public markets. It was a private bank with over 4000 investors. Although it will be large enough to cause a ripple effect through the Asia markets in particular causing the HK dollar and iTraxx credit spreads to widen. I did indicate that a Japanese bank could be on the brink, that was briefly discussed in Consumers will punish the financial system for governments exuberant money printing – Be careful on equity market ‘rallies’ into next year.

This bank failure in Japan is not so much of a shock but more a revelation that the Asia banks (outside from Japan) could be now straining to hide any toxic junk they have. But regardless I suspect it will cause a withdrawal of confidence that Asian banks could somewhat come out unscathed from a global banking crisis. In saying that it would be worth watching movement of the Japanese Yen. There was speculation that risk aversion could send a reversal of the Yen highs, meaning the US dollar could gain ground with possible highs over the Yen. This didn’t happen short term, as the US Obama administration with their incumbent Reserve Bank could nationalise the whole US banking system (considering the bigger US banks total 20 different banks – all earmarked for huge Government equity stakes). This would further destabilize the USD as investors will be petrified at the massive moral hazard the US government will embark on; the stock market will sink on any reports of nationalisation as will the USD.

This can be seen in the below graph, speculation that the USD could reach 100 against the Yen were diminished after risk aversion caused the USD to be dumped and the Yen to be bought up again.

On a daily USD/Yen graph: Mometum at 37 days (last two lows) is showing a decline, CCI (1) 20 overlapped with the USD/Yen is showing a sharp decline, the CCI (2) is showing a sharp decline that could mirror lows made on 16 DEc 2008 when the USD touched 88 against the Yen.

(click on graph for larger image)

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 17)

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 17)

Japan is now in a depression. The Japanese economy has been followed extensively on morbius glass since the onset on the global recession. Japan was interesting situation as the country tried to secure exports with China after the US slumped. As we know China could be facing a very nasty downturn, hence it has effected export counties in the Asian region severally, namely Japan.

Japan also is a very good example that a stimulus package does not work, instead leading to distortions in the FX markets. In Japan’s case a high YEN, as opposed to collapsing currencies elsewhere. This is because money is being taken of of countries where their interests rates are falling and general capital flights (weak goverment t-bonds). So safe havens are sought out, the Japanese Yen is relatively safe comparable to very risky currencies like the EURO, GBP and USD. Of course this put pressure on Japanese exporting – so a continued downward spiral has occurred for the Japanese economy.

Japan is a bellwether for Asia, in which would indicate the US is but a whisper away from a depression (if it isn’t already in one). So with Japan as a good example of capital flights out of Western developed countries like the US and the UK (a discussed this can be seen with the rise of the Japanese Yen). This would also show that the markets are wary of countries that are trying to re-capitalize without outside investors. So as they print more currency and attempt to self capitalize, the market is now factoring two things: inflation and protectionism. Which are both inevitable, as governments with their incompetent policy makers will ignite inflation and a trade war.

(For Japanese related blog posts, please type “Japan” in the morbius glass search option.

Currency markets revealing the dire problems in global economies

The economic crisis that is gripping the banking sector and inter market credit markets, has polarized governments to establish an intervention problem beyond anything seen in the history of capitalism and global markets. As discussed numerous times on morbius glass this intervention is short sighted and dangerous for the future of market stability. So this economic crisis could have essentially burnt it’s self out albeit harshly, but that is the down side of capitalism; you play markets in boom times expect at some point a bust. That is the reality of markets. Still the belief that government intervention from fiscal stimulus to bank and company bailouts will work, has now developed into a frenetic hysteria of ‘bailouts’. Of course this will lead to the next crisis, or more correctly has exasperated the next crisis which in all retrospect could be worst than the credit markets imploding.

So with global economies and the markets still collapsing, the unsure aspect and volatility will continue to erode confidence. A widespread panic is developing again this could be the final drop in global markets, particularly stocks. But currencies are an excellent bellwether to it’s perspective economies.

The next crisis (and this could be sudden) could be accumulation of two things both leading into each other as a severe blow to a countries economic stability. The first is currency destruction, which is now happening on a broader economic front, as all countries have gone mad with stimulus packages and bailouts. A risky disposition under the false pretense that somehow countries will avoid a nasty bout of inflation down the line. We know this as untrue as inflation may not have entirely disappeared. Declines on discretionary items may have fallen dramatically, but I still hear and see increase in energy bills, food. Although containable at this point, it is not unfeasible to see a spike in food prices (depending on weather and climate change) and even oil (depending on the geopolitical volatility of the middle east and output shrinking/costs increasing).

When the UK recently decided to bail out RBS, claiming to 70% ownership of the company. The Great Britain Pound was immediately sold off, this was also on news the the UK government would insure credit worthy mortgages and guarantee bank debt. Not just for one bank, but for all banks. Hence the market factoring in that the UK government has now taken on huge risks, including the Bank of England’s terrible balance sheets which now rely on money printing to continue the flow into the UK economy. Not only does a falling pound represent the losing value of it’s worth, but the risk now of a country that may find it hard to raise capital; it’s government debt could be downgraded. As was Spain’s recently, also Portugal, Greece, Italy, Ukraine. Germany, France and the UK are close to be downgraded as credit worthy nations, in other words no one will want the debt.

Refer to graph of the GBP against the Japanese Yen (From 1.41 7th January 2009, down to 1.24 on the 20th January 2009. The sell off was primary on news of the bank bailout out and government intervention into the UK banking system):

With Ireland recently threatening to pull out of the EU if it isn’t bailed out by the EU also effected EURO. The crisis is now in a panic phase, that extends not just from the credit/banking crisis; but politically. As politicians attempt to save their own necks, they are inevitably causing more harm to economic stability than good. It’s a ripple effect, that is becoming more an more pronounced. Disproportional and ‘ad hoc’ intervention is creating far more volatility and market panic, if they were to just allow the markets to correct itself naturally.

In saying that, the EURO was sold off dramatically when Standard and Poor down graded Spain’s sovereign debt, this is a warning shot to the FX markets; that European countries all could be downgraded in someway. With Ireland and Spain who are both extremely over leveraged especially in the property markets.

Refer to graph EURO against the Japanese Yen (from 131  18th December 2008 to 115  20th January 2009)

One of the better currencies (not in value) for measuring risk and volatility in the global markets is the Australian dollar. Once a favorite in carry trading, especially with Japanese FX traders. The AUD collapsed timed with the stock market collapse in September 2008 from .85 down to .60 in October 2008. Now bouncing around in a wide volatile range between .60 and .72, this would indicate the extreme volatility in the global markets. Although now the AUD is on the downside again, it could most probably breakthrough the .60 support. Especially if Australia gets a rating downgrade, or the Reserve Bank cuts rates aggressively in the coming months. Also to note is Australian government intervention in the banking sector of local credit markets. Other factors global too watch that will effect the AUD is the commodity markets, when or if a recovery occurs soon. Which may be unlikely in the short term.

refer to graph AUD/USD:

2009 – Get ready for massive deflation, US dollar destruction and the global economy slump further into recession

A trader from Japan noted in a report that he felt that volatility had diminished, or at least volatility had narrowed within a range. The trader may be correct, volatility has tone down somewhat, but the markets still represent dysfunction. Not to forget the oil price, that decided to move back into the high 40’s on the back of the Israel invasion into Gaza Strip – remember the oil spike is not so much on the Israel blockade and attack on Gaza, the oil spike is on the back of Iran (and a wider middle east conflict) and it’s response.

But the global economy is falling into a sharp downtrend, which is now unstoppable (until it reaches a bottom). Hence massive deflation is on the horizon, no matter how much is spent and how much stimulus is given out, confidence in the global economy has been shattered, therefore a stimulus package is essentially a waste of money and it is a token gesture at best

So it could be assessed that global stock markets could decline in a massive sell off, under the weight of very poor corporate earnings, the bubble bursting in US Treasuries and a substantial sell off of the US dollar (capital flight out of America); and mix in a broader conflict in the middle east. We could be a the edge of a huge price decline on everything, hence a massive wave of deflation beginning at the end of the first quarter of 2009.

Traders and some commentators are now looking at US Treasuries as the next bubble to burst and a bigger slide in the US dollar. As Obama will attempt sell a muted (with tax cuts) stimulus package to congress, regardless it will put pressure on the USD – and I think this time, as opposed to the USD recovery in mid 2008, it will definitely get crunched very hard in 2009.

But in saying that massive deflation is on the horizon also means the rise in the Japanese Yen, Gold and now possibly Oil. With money outflowing out of stocks, Treasures and USD, it will end up with the very few safe havens left.

Global indices generally were flat into 2009, the ‘feel good’ rallies in the first week of 2009 started from Wall Street, although Asia was subdued, now Europe’s main Indies rallied as the US stocks fell. These rallies won’t last, in fact they are barely rallies. There are speculative at best, as new year profit driven trading begins – but the bad news is just settling in. As mentioned, the narrow volatility range now could indicate that the market is waiting for the next shoe to drop which could be a nasty deflation slump, with inflation remaining on food and other essential amenities.

Car company bailouts, Goverments will print money into 2009, oil will go lower.

Even though 2008 will close off as a terrible year for the global economy, 2009 will turn out to be horrendous. As liquidity will literally dry up right across the board, the only money being pumped into the economy will come directly from the Central Banks. Not only will growth completely slump in 2009, there will be three aspects (bailing out banks, printing money, increased taxes/cuts to public spending – health and community) to economies which have a devastating effect on a society. With governments throwing billions into the financial system, that on the whole will end up creating zombie companies and propping up zombie banks. As mentioned in ‘Keynesian’ fiscal policy out of control – Australian government bond downgrades, the worst policy plunders a government can make is cushioning the banking system, that has operated in a incompetent and risky way. In other words, the banks or at least the banking model should be punished for it’s lack of care and bad management. This hasn’t happened, instead they have propped up the bad business models. There are going to be lasting effects of tax payer money going straight into buying distressed debt, toxic waste, MBS’s and every bad assets banks own; and don’t believe these ‘effects’ will be a positive for the global economy. Shifting ledgers and accounts by using government money and guarantees, has given banks the ability to recapitalizes their balance sheets, whilst shifting their depreciating assets into other ledgers. So not only has tax payer money being used to recapitalizes banks balance sheets ( but don’t expect to receive personal big credit/loan account offers ), governments have foolishly rushed into guaranteeing bank deposits, with guarantee caps going up to a million plus, the banks can now also re capitalize by selling secured debt or bonds that are now AAA rated. But governments who are now sending all their accounts into deficit, will find it hard to raise capital because government debt will naturally be downgraded, 1. from all the risk on their balance sheets, 2. bank debt is now more attractive to investors, compared to government debt.

Still, the final insult to injury will be governments finding it hard to raise capital; which will be left with the taxpayer again (us), in the raising of taxes and the cutting of public spending – especially health and social services. Nice deal hey?

Then the money printing, which will ensure that inflation will creep back, especially in the US as the US dollar declines rapidly into 2009.

Another example of poor judgment and mindless money printing and spending by government has been the car industry bailouts. Most probably some of the worst business models known to humanity are now all knocking on government doors. You can thank the worst government policy machine in the world which is American policy makers, who have no idea whats going on and their incumbent central bank (The Federal Reserve) which is literally out of control. So it’s a double whammy of economic stupidly.

The car industry will still shrink, despite bailouts and loans, but as mentioned the US have created a precedence; now Canada, Russia, the UK and even France are all considering doing the same. At some point jobs losses in the car industry will be inevitable, but with governments only pumping money into the ailing car industry for their own self interest, ie votes. The joke will be back on the poor car workers as profits will still tumble and the fact is jobs cuts (company restructuring) have already been planned by upper management.

With emotion aside, one has to be sensible at the ramifications of printing money into a severally hemorrhaging car industry. It is senseless, sure the governments can print money, but this will lead to currency destruction and inflation, with the other detriment being raised taxes and public funding cuts. The pain, should be felt now, deal with it . The upper management should be relinquished, company then goes bankrupt and taken over by a rival; say a Japanese based car company (that made better smaller cars).

Also on a analytically perspective. The oil price has crashed from highs of 147 to 38 a barrel, it could go lower. Over leveraged and hugely indebted car giants took massive gambles, with car production. Designing fuel guzzlers and uneconomical junk (refer to the Chrysler 300c). I wouldn’t invest a dollar into that industry, with the oil price totally unstable in lower ranges, indicates that the world economy is slowing down to crunch time. Industries are using less fuel, oil and any petroleum based products. These industries have also expanded on loose credit conditions, are all going to find it hard to raise capital. As a trader, you just need to bring up the oil graph and see the massive deflation in the oil price; with potential to go much lower. But with oil trading in a range at 40 and 43 a barrel indicates that demand has fallen off, therefore any oil related products or products that use oil (cars) have also fallen off. In other worlds, there is NO MONEY to be made in collapsing industries, like the car industry. Yet, the governments have decided to create yet another living dead industry.

Refer to WTI graph. Oil looks stabilized to a point: trading range 40, 43. This could be on the back of OPEC cuts. From a bull to bear perspective on the oil price, which has been a shock in the sense of much it has fallen. Points to the direction of the global economy, which is sharply down. At this point the oil price does not look like it’s in a recovery buy at any point at all. Some more selling into 2009 on economic factors could see the oil price bounce down to 35 a barrel

Watch Global Currency markets. Country bankruptcy ‘endgames’.

Hungary, Ukraine, Argentina, South Korea are countries that could cause a domino effect (within their regions) of risk aversion and panic, sending ‘interconnected’ economies into free fall. Bank of Korea just slashed rates down 0.75%, now siting at 4.25%. The South Korea Won has been hammered in the currencies markets, the barometer of a country’s economic situation is their currency. The Won is indicating that South Korea is going to be hit hard by the major consumption economy (USA) prolonged recession , this may cause the rest of Asia to go into a meltdown. Hence Asian markets liquidating stocks and running out of stocks into the Japanese Yen, powering the Yen to all time highs. This has caused the Yen to be favored over the Euro, which as one point was at 1.66 Yen on November 6th 2007, the Euro now is facing down, a good chance it could bounce off 1.00 Yen. This by no means indicating that the Japanese economy is booming, in fact Japan is a country that is so negative with an ailing stock market, the general market that doesn’t know where the bottom could be – the Nikkei could go much lower before any kind of rebound.

Nikkei (225) 23 yr graph, note the highs in 1990 just shy of 40,000 points, through to the current 7,649. That is 18 years of losses (long term)!

The Japanese YEN like the US dollar are considered low risk as opposed to the EUR, it could be surmised that European economy is collapsing more dramatically than Asia and the US. Ukraine just being bailed out by the IMF, Hungry cold be next and other European countries namely Eastern European could all start to face the reality of defaulting. Of course the big question is Russia’s economic situation?

If there is an ‘endgame’ in the markets would could see whole countries go bankrupt, a global slump with a slew of countries that are broke, from the Americas to Europe and parts of Asia

The constant reminder of volatility in the market is the intervention of all the global central banks and governments; this intervention is of course delaying a huge invertible outcome. Thus at the same time causing a market to become even more jittery.

One can solely blame intervention by global governments and central Banks for the volatility, check the VIX out:incredible.

The market simple can’t find a bottom. With a accelerated global slump occurring the worst thing the central banks and governments can do is pump money into the system and cut interest rates.

Especially with the extreme market volatility with emerging and developed economies currencies.

A range of currencies will be sold off dramatically in the market, if Argentina or a European country or countries start knocking on the IMF door. If South Korea looks for a bailout package, expect the Australian Dollar and New Zealand Dollar to crash below current supports. With the AUD most definitely heading below 0.60.

Extreme market volatility: blame it on Bernanke and Paulson – revised ‘bailout’ bill.

Already recognized as one of the most unpopular bills the senate in the US has ever orchestrated. Knocked back once because of voter displease, now revised in an ‘ad hoc’ way which will still cause the congress to vote in an uneasy majority.

The US is going into a prolonged recession, with US unemployment numbers coming in at a seven year high, motor vehicle sales down and literally every indication that the US is in recession or heading towards a nasty one. This revised ‘bailout’ bill will have no effect on the greater economy, this is factual. A government money infusion to any bank that puts it’s hand out, maybe even the possibility of private business (non banks) getting bailed out too, makes no sense. To capitalize business when the market hasn’t even stabilized is crazy talk, in fact the US housing market is still collapsing. So essentially if you were a bank that just got bailed out, you would not reinvest into an unstable market. You would like any investor, or business shrink down your business model, horde cash and sit it out. Which is what the banks will do on this bail out proposal. It could be argued that this so called ‘700 billion’ revised bail out proposal is more token to restore confidence in the stock market. Not the wider markets, it’s actually quiet deceptive. Orchestrated by a ex-banker Henry Paulson, who would know that a ‘crisis of confidence’ or confidence in the market can make money and lose money. So, if you were to agree to this bill, you would from a perspective of a short term gain on banking stocks – as they will rally significantly once this revised bill is passed. It is a quick fix for Wall Street, not main street. It’s gambling with tax payers money. Thus is the nature of clueless politicians and ex-bankers trying cash in before the shit storm really kicks in.

But gamblers who are desperate make rushed and poor decisions, the market volatility is a good bell weather to the bill proposal. The market doesn’t really accept that the bill it’s self will save the US economy, in fact the market knows that this bill will do very little except a short term rally on the Dow Jones and S&P 500.

(Dow and S&P 500 graph is in real time)

Inflation hasn’t entirety disappeared, despite the slowing US economy, and Europe’s dramatic slowdown. So most traders and investors are aware the pressure on the US dollar, of late there has been currency swaps by central banks. Buying the USD. The USD will suffer on this bill, if it is successfully passed this time. The Federal Reserve with other central banks, may cut rates simultaneously. The credit market will still be frozen despite the bill passing in congress. As banks unload worthless toxic assets onto the US taxpayer (billions of dollars worth of junk), the market will then see which banks are essentially dead, to be revived as zombies by the US government. One has to wonder how the hell these business will return to profit, if at all. The con job would be exasperated further as banks (mentioned earlier) start to horde.

VIX heading towards 50

(VIX graph is in real time)

So, with an extremely unstable consumer market, that is in recession. It is a pipe dream to believe that liquidity being pumped into the credit markets will revive them.

The whole process (bail out and rate cuts) looks unstable and unreliable, hence I can’t see banks beginning to loosen up liquidity and lending to each other.

Market meltdown on the cards when US markets open 15/09/2008. Asia on holiday, major indicies sell off feared.

Lehman Brothers will most probably not exist in 17hrs from this blog entry; already major stock markets are advising brokers to not touch Lehman Brothers. Not to forget American Insurance group, which is in so much trouble, it is unlikely they will come through the next 20+ hrs as a functioning insurance company.

Of course, this will send all the indicies globally into a major tailspin. So it will be bloody day when America wakes up and Asia comes off holiday.

But, a rumour has come through that the Federal Reserve will cut rates in an emergency meeting on Monday (15th September 2008) morning EST. A .25% cut off the extraordinary low 2.00%, which will make it 1.75%. Will they do it? The US futures seem to think so (300+  point loss); the FX market says so, the EUR against the USD has shot up to 1.44.

I think back to a blog post I wrote in June 2008 called A US dollar currency crisis just a stone throw away, this post was written prior to the ‘appetite for risk’ that had occurred in the FX markets for the last month of so, with high yield currencies being sold off and the USD gaining strength. It now appears that the USD may be under major selling if the Federal Reserve do decide to cut rates to fend off a major market meltdown.

I wrote,

“In my opinion, if the US enters a stagflation depression (severe recession with rising costs), The Fed may cut further from their 2% (Ben Bernanke has indicated through speeches and thesis on the 1920′ 30′ Great Depression that a lack of liquidity was the reason the depression was as severe as it was) . This could essentially send the US dollar into a currency crisis as the world will shift the peg from the USD to the EUR, or a basket of currencies.”