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The "deflationary Vortex": Global Dollar Economy Suffers Biggest Plunge Since Lehman, Down $4 Trillion

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One of the macroeconomic observations that has gotten absolutely no mention in recent months is the curious fact that while global economic growth has not imploded in recent quarters, it is because GDP has been represented, as is customary, in local currency terms. Of course, this comes as a time when local currencies (at least those which are not the USD) have been plunging against the greenback on the back of the expectations that the Fed will hike rates some time in the summer or later in 2015. Which also means that in "dollar economy" terms, i.e., converted in USD, things are not nearly as good.

In fact, as the chart below shows, the global dollar economy is not only shrinking fast, but it is doing so at the fastest pace since the Lehman collapse, having shrunk by $4 trillion, or a whopping 5%, in just the last 6 months!

By way of comparison the dollar economy lost $7 trillion, or a 10% contraction, during the Lehman crisis. Should the USD continue to appreciate, the global dollar economy collapse may surpass the plunge observed just as the great financial crisis struck. SocGen calls it "a deflationary vortex"; CNBC would call it a "global recovery."


Here is SocGen on this largely undiscussed topic with "The deflationary vortex of a shrinking dollar economy"

As the ECB prepares to race faster in a bid to export deflation, the risk is that the dollar economy (world GDP measured in US dollars) will shrink further. The dollar economy is down by just over 5% since July, marking a loss of just over $4tn in nominal terms. The last sharp contraction of the dollar economy took place in 2008. Back then the economy shrank by just over $7tn, marking a loss in excess of 10%. The foreign trade mix of the US fairly closely mirrors the composition of world GDP. As such, if the trade weighted dollar is appreciating, then this exerts downward pressure on the dollar economy on a near one-to-one basis. Any offset then comes from nominal GDP growth in local currency terms. Since July, the trade weighted dollar has gained just over 10%.

Is the global dollar economy contracting? Is anything replacing the dollar or are we entering a the swirling vortex of the deflationist black hole?

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Nothing is replacing US$ whatever tin foil hatters forecast. Its still in a multi year bull. Not straight line.

The dollar will be the last major currency to implode for sure - but I wouldn't be at all surprised to see the BRICS type countries move to some sort of gold-backed alternative, prefacing the final death throes of the dollar.

The Chinese must know that they are going to be completely screwed on their dollar debt holdings and the Russians are well aware that continuing to trade their commodities in dollars makes the US stronger vs themselves at a time when the US is strongarming them using dollar printing and Anglo supremacy in the financial system to attack them non-militarily.

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