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Nomi Prins joined Jason Burack on the Wall Street For Main Street Podcast to discuss the impact of a strong US Dollar on the global economy and what kind of damage it could cause big banks that are already failing stress tests. Wall Street For Main Street takes on themes of finance, investing and the economy and offer a natural setting for important, independent discussions from economic insiders offered from Nomi Prins and others. The conversation delves into what to expect in the political and economic year ahead for 2017.
When asked what type of damage could a strong U.S dollar do to the global economy she noted, “First, the fact that the U.S dollar is as strong given how long the Federal Reserve has completed quantitative easing (QE) policies and bought securities is very troubling in general because it indicates that the rest of the world is far weaker on a relative basis.”
“It also indicates that is it not necessarily a policy that drives dollars stronger. What’s occurring is, outside of the U.S for example, in emerging market countries, they have had funding that has been denominated in dollars over the years.”
Nomi Prins a former managing director on Wall Street. Prins’ is currently working on her latest book, The Artisans of Money which is set to be out later in 2017. Before stepping out of the world of Wall Street, she worked at Goldman Sachs and Bear Stearns, among other banking giants.
“Increases in funding from 2014 and 2015 because of the expectations that rates would rise in the U.S and money would be more expensive to come by in terms of lending opportunities. These have leveraged themselves in debt that will have to be paid in U.S dollars. We saw this in the 90’s with major debt crises, in particular within emerging markets like Latin America. That was based more on government debt that was owed to the United States and U.S private banks.”
“Now what we have is a situation where a lot of the debt is corporate in nature which makes it a different type of debt. That is still a debt denominated in dollars, and the more expensive it because the more difficult it is to repay. What we are seeing is an increase in global corporate defaults. We have had as many corporate defaults in 2016, which were 40% increase over 2015, as we have had in any year since the global financial crisis. That trend is upward. That is going to feed into the general financial fabric of the world and markets outside of the U.S.”
When asked about the failed central bank policies that seem to continually get doubled down in efforts to curb economic problems the author remarked, “Whatever aspect you choose to look at the financial system, it is being bolstered by fabricated money – what I call artisanal money. These institutions whose leaders are appointed, and not even elected, have tremendous impacts on economies globally. On a coordinated level, they have become much more powerful. The Fed started this when bringing rates down to zero.”
“The coordinated efforts, such as currency swaps, are backdoor ways to provide, effectively, money to an external central bank. The idea on the surface is to purchase and sell currency, but the reality is that you are providing capital and liquidity that is fabricated. It is not earned by companies, it’s not even produced from tax revenues. It is simply fabricated and has an artificial impact on markets and economies. It is simply going from balance sheet to balance sheet of central banks. It is a way to ensure that government has the appearance of being in control of their economies.”
When asked about the threat of big banks and the stress tests involvement in attempting to curb financial crisis, “If everything’s fine, except for one factor going wrong they will have enough capital to handle it. A crisis is not one “little thing” going wrong and banks need enough capital to protect themselves. That being said, last April 7 out of 8 banks in the U.S under review basically failed their stress tests. Some failed both tests given, but 7 out of 8 banks are not doing well enough at the moment to survive on their own.”
Mr. Burack in discussion regarding the banking climate and the liabilities prompted Prins’ to remark, “The only reason it the financial conditions don’t appear to be hurting us everyday is because there hasn’t been an actual, acute additional crisis. Just the fact that these cheap money policies have existed for so long indicates that the financial system does have the ability to go into crisis mode, and quite easily. That is a problem.”
“Whether you are a conservative or liberal, when a market crashes and your retirement fund gets pillaged by lower values because the values were tossed up by an artificial means, that impacts everyone. That is part of the problem because it is global. People can feel that inherent fragility in the system.”
To catch the full conversation on banks failing stress tests, the global financial outlook for 2017 and more with Nomi Prins together with Jason Burack at Wall Street For Main Street, CLICK HERE.
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