Entering text into the input field will update the search result below

The Currency Race To The Bottom Just Got A Lot Steeper

Mar. 09, 2020 9:52 PM ETFXE, GLD, SLV, UDN, UUP22 Comments


  • The Fed's most recent 50bps rate cut has made it unprofitable for FX swap traders to sell the euro and buy the dollar.
  • For the first time ever, the overnight Federal Funds rate is higher than the entire yield curve from 1 month all the way out to 30 years!
  • This will most likely force the Fed to cut even more at the next FOMC meeting on March 18th.
  • In order to keep other rates above the Fed Funds rate, 50bps will not be sufficient.
  • The next cut is more likely to be 75bps, and that will clobber the dollar index. The euro may have to follow. Hence, the slope downward has steepened.

All fiat currencies exist within the plane of a rigged slope downward against all goods and services. All central banks, with the exception of those that maintain currency pegs, explicitly target a 2% general price inflation rate, which means that the explicit goal is for currencies to lose value over time. As each central bank tries to balance the rate of decay of its own currency against others, we have what is known colloquially as the “race to the bottom” with central banks the world over trying to manage the rates of inflation of each national money.

The key to managing this race to the bottom is to make sure that no single player in this race gets too far ahead of the others. The destruction of the value of currencies must be slow, methodical, insidious and coordinated. As Austrian School Economist Murray Rothbard writes in his book What has Government Done to Our Money? (page 68):

What governments want, after all, is not simply inflation, but inflation completely controlled and directed by themselves. There must be no danger of the banks running the show. And so, a far subtler, smoother, more permanent method was devised, and sold to the public as a hallmark of civilization itself - Central Banking.

Subtler and smoother yes, until now. I believe that due to significant developments in the bond markets and what will most likely be a recession ahead, thanks to the paralysis caused by the global reaction to the coronavirus, central banks may soon lose control of this race for good.

The two most important runners in this race to the bottom are the US dollar and the euro. In order to keep forex markets basically stable, these two currencies must disintegrate against other goods and services at similar rates. Up until now, this has been

This article was written by

Austrolib profile picture
A gold-based approach to protecting wealth and profiting off Fed inflation

I invest in the light of Austrian Business Cycle Theory and cover monetary trends for the purpose of timing the credit cycle. My marketplace service The End Game Investor helps subscribers manage the risks of, and profit from the ongoing fiscal and monetary crisis precipitated by the COVID-19 pandemic. I use gold, silver, and associated stocks and investment vehicles in a low-risk high-return setup.

Analyst’s Disclosure: I am/we are long GLD, SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.