The dollar continues to strengthen

The dollar continues to strengthen. As I said in my essay the day before, the Trump administration is pushing for a policy that is contradictory. It’s trying to drive global investment into the United States, and it’s trying to create unrivaled growth in the U.S. economy. But I don’t want a strong dollar. And of course the dollar is going to strengthen when the world’s money flows into the United States. It’s trying to stop the dollar from strengthening. It’s because the trade deficit is getting stronger. I want the U.S. to grow. I want to get a lot of investment… I don’t like the strong dollar… The desire to have everything… That’s where the problem comes from.

The U.S. economy is so strong that the dollar is going to go up, but there’s definitely going to be some way that the dollar is going to be relatively strong as other countries lose power. And one of the reasons is that the U.S. economy is so strong that it’s not able to lower interest rates as much as it wants because it’s maintained high interest rates, and then the emerging economies are struggling, so there’s definitely going to be a factor in the dollar’s strength as the currency of that country weakens and the dollar strengthens. And it’s 350 billion dollars, and it’s this kind of so-called “pinge-wiping” that’s going to be a factor in the dollar’s strength. Anyway.. Trump’s move to take away the wealth of other countries… It seems to create a lot of noise.

Do you remember the word TACO? It’s not a very old word, but it’s gradually disappearing from our memories. When we talk about Trump’s policies these days, we hear these words: “How strong is Trump a human being to concede? There’s no reason to back down…TACO has always been about Trump stepping down. Trump now, at least, doesn’t seem to have anything to do with TACO. The reason why Trump was reeling at the time was because the government bond market was shaking and the risks related to SEL AMERICA increased. If the trend of the asset market continues too solid, will it be difficult to expect TACO in the short term? He’s been tough on resolving the shutdown, and he’s been tough on ICE, immigration and visa policies, foreign tariff policies, etc. I’m reminded of TACO, which was once the target of ridicule.

But in spite of this toughness, you called Brazil… The eurozone raised tariffs on steel… China has also entered rare earth export regulations. There are talks about that. There seems to be another reaction in front of non-TACO push. And the cracks that appear here increase the possibility of another TACO. In the short term, what is being said about APEC… And let’s see how the shutdown negotiations work. Excessive dollar appreciation, or constant shutdown issues… These are factors that have a negative impact on the growth of the United States.

It’s not early in the morning. We had a Fed FOMC minutes release early the day before. I took my time to open it… There were people in the media who insisted on a rate freeze… Some people, like Miran, insisted on a 50bp cut, but the majority noted that the 25bp cut was consensual. Although it didn’t get the attention, the FOMC minutes have a part that briefs on economic and financial market conditions. That’s where the comments come in on the stock market and the short-term financial market… It is worth paying attention to this in every future FOMC minutes.

First of all, the short-term financial market was a discussion of a reduction in reserves that has been talked about in the market recently, and it’s now below $3 trillion.. At the current pace of quantitative tightening, it was said that it would fall to 2.8 trillion dollars in March next year. No one knows what the right level is, but for Waller, who is known to have strong influence in the Fed, about 2.7 trillion dollars is also good. Then, it makes me think that the recent suspension of quantitative tightening and the transition to early quantitative easing are not easy. Yes, there are still concerns about inflation… Switching to QE can be a big risk for the Fed. Of course, I remember doing something like quantitative easing when prices were high. When the debt problem in the U.K. rose in September 2022 when the U.K. became a problem in Liz Truss’s cabinet, government bond rates soared… We did quantitative easing to prevent the collapse of the government bond market. But now we don’t have any serious problems with the financial system. It seems like the financial markets that cheered themselves on that they would cut interest rates by 200 basis points in 23 years from October 22nd (they actually froze rates for 23 years) are raising expectations for quantitative tightening.

And the size of the reverse RP is now falling to its lowest level since April 2021, and we’re also paying attention to the fact that liquidity on this side is greatly reduced within FOMC. This means that if we reduce the reserve for payment as it is, it will be 2.8 trillion dollars in March next year. From the fact that we’re considering the schedule, it seems like we’ve started to think about when to stop the quantitative tightening… Time may not be as fast as the market expects. One more… Right now, the Fed is doing what’s called a standing repo. It’s a system to support banks in trouble if there’s a lack of liquidity in the short-term financial market, such as reserves. If you have this… Short-term financial market turmoil kills banks… The entire financial market freezes in an instant as you look at this. I don’t think it’s going to be easy.

And there’s a lot of leverage across the financial markets, and the implications of the collapse of the financial markets for growth are really huge. And I’ve supplemented one thing that could cause something to go wrong because it’s scary. It’s the so-called space defense atmosphere. But, there’s one thing that I’m personally interested in. In the past, banks used to be liquidity providers. Now, there’s more to it than banks… Non-bank financial institutions play a huge role in supplying loans and investment funds. Among them are asset managers and hedge funds. Watching the ever-rising asset market, the way they borrow money and make leverage investments… in the short term