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Dollar Liquidity Swaps & The Financial Crisis

2008 witnessed a spectacular rise in the US dollar. During 2008, the US dollar index  went from the low 70s to high 80s in just four months. After reaching a high of 89.62 in March of 2009, the dollar resumed its long-term downtrend. Yet the mainstream media is still painfully oblivious to what actually happened. All the talk about a flight to safety doesn’t really explain anything aside from the fact that most people who work for the financial news media know next to nothing about how the financial markets really work.

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The reason behind the dollar rally was an extreme dollar shortage that was caused by foreign banks dollar denominated claims' spectacular expansion in the preceding years. The dollar liquidity swaps initiated by the Fed were a measure used to counteract the liquidity crunch and they have been very successful. I have spent quite a bit of time looking into this and have produced a short report that is available to read for free: The Dollar Swaps & The Financial Crisis: A Brief Overview of the Dollar Shortage of 2008. Readers are welcome to point out factual, conceptual and other errors and suggestions via the comment section right here or by e-mail: kristjan@kristjanvelbri.com

Nota Bene! This report is not an official document and was put together by a non-professional. The facts used and claims made in this report are known to be true as far as the author comprehends the issue at hand. Although the report goes into some detail in regard to financial innovation and derivatives, the author acknowledges that his understanding of financial instruments is limited at best. Furthermore, it is not the aim of this report to give a comprehensive overview of derivatives.

Disclosure: No positions