Euro – Capital Flows or Speculation?

QUESTION: Is the euro really going up on capital inflows or speculation leverage?

ANSWER: We are not picking up any real net capital outflows from the USA to Europe. It appears to be speculation on the currency markets in anticipation of higher interest rates coming down the line. But real capital has not begun to move and will not seriously move in until there are higher positive rates.

More concerning has been net outflows from the USA to emerging market debt. This has been a trend led by pension funds trying to earn higher yields. They need higher returns to try to cover net losses in interest income because of the lower rates. This is very dangerous for when the dollar reverses and rises into 2021, that emerging market debt will go into default. This will only further the Monetary Crisis we see coming in the 2020-2021 time period. Meanwhile, Excess Reserves at the Fed rose during 2017 up from the low in 2016. European banks have been parking cash at the Fed since 2016 to avoid the negative rates at the ECB. We need to see that rate rise at the ECB back to a positive return before the banks will return that capital.

Latest Posts

Tariffs are NOT Reciprocal

How did the Trump Administration come up with these tariff rates? Why would a nation like Madagascar, for example, with a small economy, be hit with a 47% tariff? Reciprocal [...]
Read more

Eric Adams Leaves the Democratic Party

New York City Mayor Eric Adams, the man who fought tooth and nail to maintain sanctuary city status for migrants, has abandoned the Democratic Party. The Democrats have become so [...]
Read more

Trump vs Putin

https://www.armstrongeconomics.com/wp-content/uploads/2025/04/Zelensky-Reniggs.mp4   QUESTION: I take it you agree with Putin that Zelensky is not legitimate and that Trump is wrong. Would you care to explain your position? WG ANSWER: I [...]
Read more

Market Talk – April 3, 2025

ASIA: The major Asian stock markets had a negative day today: • NIKKEI 225 decreased 989.94 points or -2.77% to 34,735.93 • Shanghai decreased 8.12 points or -0.24% to 3,342.01 [...]
Read more