travkohn on Nostr: March 2020, the FED printing trillions which caused inflation which they then swore ...

March 2020, the FED printing trillions which caused inflation which they then swore to fight this they then began hiking interest rates on March 16th 2022 and began QT later in the summer.
QE has stopped new money from flowing out into the system which had constant demand for them. Worse yet, they were hiking completely blind.
Although the FED are very far behind the curve, other countries are even further behind.
This is the basis for the Dollar Milkshake theory.
The US has built-in demand for its currency. No other Fiat currency has this. This comes from foreign central banks that need dollars for foreign exchange reserves and import/export firms that need dollars to settle trade invoices and sovereign wealth funds that need a secure/liquid place to invest their capital.
As the dollar rises, a vicous feedback loop emerges where countries need to dump increasing amounts of their own currency to get their hands on USDs.
This rise in DXY increases borrowing costs for countries and businesses with debts denominated in dollars which puts severe strains on economic growth and forces more capital to flee to the US to seek safe harbor.
Worse yet, the more the FED raises rates the more strain it exerts onto the system. By hiking domestic rates above foreign rates (Japan is at 1% and Euro zone at 4%) the FED is incetivizing what's called Carry Trades.
Since there is a spread between the Yen and Dollar in terms of interest rates, it is profitable for traders to borrow in Yen and then buy Dollars which can earn interest.
DXY rises and the Yen falls in a vicous feedback loop thus capital flows out of Japan and into the US.
America sucks up the Dollar milkshake draining global liquidity. This has seriously dangerous implications for the global financial system.
Everytime the FED stops printing money and hikes rates too quickly, it causes havoc on global trade as seen in the currency markets because not enough dollars are flowing out to satisfy demand from the carry traders.
This was evident in the currency crisis of the Yen, Euro, and the Pound in September 2022.
The FED must then restart QE and open up dollar swap lines unless it wants to sour a collapse on a global scale.
Remember, all these countries need to buy, borrow, and trade on a currency that they cannot print.
The largest factor by all is their desperate need for dollars. The FED knowingly or not is basically in charge of the global financial system.
When they raise rates, they trigger a margin call on the entire world. They need to bail them out by then supplying fresh dollars to stabilize their currency.
In other words, the FED has to run the loosest and most accommodating monetary policy worldwide in the long run. They must keep rates as low as possible and print as much as possible in order to keep the global financial system running.
If they don't do that, sovereigns begin to blow up. If this happens they will not only need to bail out the US but virtually every global central bank.
The money needed for this would be easily in the dozens of trillions.