New World Order

Few people like to use the term post the Bush administration but currency con-fabs are attempts to direct New World Orders. The present situation has served the players well enough but is now under serious strain. We expect the Special Drawing Rights (SDR) concept to garner plenty of fans into the end of April and beyond.

Governments and Central Banks are dominant players in capital markets everywhere. This activity increases the need to entertain a greater role for SDRs. The reason is simple. The exchange value of the dollar, the prevailing standard, is in secular decline. Under the dollar regime, the current account deficit was viewed in terms of rising global trade. A large capital account surplus was the less talked about mirror position. Now the synchronicity is breaking down.

The price of oil is the new wrench in the Fed tool box. Somehow keeping a straight face, Dovish officials are pointing out the economic headwind of high energy costs. The idea that monetary policy calibrated to Spinal Tap's amps is behind the rise seems to evade them. As Ben "Nigel Tufnel" Bernanke would say, "But this one goes to eleven!" As fiscal policy gets cut by the Congress and the debt ceiling debate is used as leverage, the Fed will need risk markets to pull back to assist their expectations gambit. A brief moment of the worst case scenario manifested last week.  Stocks, bonds and the dollar were all down together. The trouble dissipated quickly but raised eyebrows in the trading community immediately.  We will be following the New World Order story closely.

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