I honestly don’t know how much clearer it could possibly get. The mainstream continues to struggle to identify the causes of the “rising dollar” when in all cases it is decidedly simple. The more the dollar goes up, the more whatever counterparty country is paying for those dollars. The entire world is in a synthetic short position created decades ago, and amplified enormously after the dawn of the 21st century (coincident, not coincidentally, to the “giant sucking sound”). The more shorts there are, the higher the cost of being short whenever the whole position is squeezed by availability.

In this case we are talking about “dollars” that are more dear and therefore expensive as they become harder to source in regular and efficient fashion. If the dollar is forced up then the “value” of the other side currency goes down. It is just that simple, whether Thailand, China, or Mexico.

The past few days have seen even more intense speculation surrounding that last country. The latest should, if it turns out true, put to rest any doubts about the euphemism of the “rising dollar.” Yesterday it was reported that Banxico, Mexico’s central bank, has been in touch with the Federal Reserve about possibly requesting swap line assistance. So far Mexican officials deny the reports, and I have not seen any statement from the Federal Reserve which in all likelihood would indicate the same refutation anyway.

And yet, for what is clearly a “dollar shortage” situation for Mexican banks we are still subjected to blatant and likely intentional stupidity:

Circumstances surrounding a possible request are made even stranger by the fact that it is this very Trump talk — renegotiate Nafta, build a border wall, deport more undocumented immigrants — that has driven much of the selloff in the peso over the past year. Mexican officials, in other words, would be turning for help to the same country that is causing much of its troubles.

It is the same absurdity that has governed commentary the whole of this “rising dollar” period stretching back just about three years now (with its predicate roots dating to 2013). In all that time, it is utterly incredulous how the mainstream can carry on to put two together with two and come up with Trump, 2a7, or export “stimulus” as once was described of when China was slammed. As I write for my column tomorrow:

How many more examples do we need of the dollar shortage before its continuing destructive impacts force someone with standing to do something about it? Mexico can’t readily source “dollars.” The rest of the world can’t readily source “dollars.” We know without a doubt that it should not be central bankers left anymore to deal with this consistent problem, for they have had this last decade to figure it all out and have responded instead with their heads tucked firmly in the warm sand of econometric models that quite intentionally disregard offshore currency as even a possibility.

The first “rising dollar” was actually July 2008 to March 2009, not coincidentally spanning the full panic period. It greatly affected Mexico then, too. Not surprisingly, though it probably is for the mainstream, Banxico was granted swap lines at that time.

That period was actually divided in two by what were really two separate liquidations. Though a massive injection through the Fed’s swaps with fourteen central banks occurred, up to $600 billion at one point, the second liquidation happened anyway (it wasn’t deterred by ZIRP or QE1, either). Here’s the relevant point, though: the liquidations have not ended. If anything, the list of places falling victim to them continues to grow. It was just about a week ago I asked:

Is Mexico about to go down the same road as China, Brazil, and so many others have the past few years? The more interesting question may be what took so long, if they are…

 

All of which leaves Mexico in position to be Brazil 2013 or China 2014 all over again – even after the peso’s huge fall so far. In other words, even though the forex hedges are settled in peso’s they are designed so as to get Mexican banks to short (synthetically) even more “dollars” during a trend where being short is already a massive problem. As with Brazil’s cupom cambial, it doesn’t matter how it is done for what will is what it all accomplishes. It doesn’t solve Mexico’s “dollar” problem, but it has all the potential to make it that much worse (but at least put on a regular schedule, I suppose).

Even the Trump administration, which has taken several clearly positive steps so far, including being insistent in pointing out that the current state of the economy is entirely unacceptable, is in danger of undoing them. On China, for example, rhetoric as to currency manipulation has only intensified. Like Mexico, the Chinese would prefer CNY stay stable if not appreciate, rather than continue to “devalue.” Their problem is the eurodollar, not Communist thievery. They have expended enormous resources for that view, where the PBOC itself has been forced to de-dollarize its own balance sheet because of it, leaving the Chinese economy as well as markets hugely destabilized for all the chronic trouble.

And that is the most striking point in all this – the persisting nature of it. In conventional narration, the panic ended (for reasons of Bernanke’s courage) in March 2009; the re-crisis in 2011 ended in 2012 with Mario Draghi and US QE3; the crisis in 2013 ended in early 2014; the crisis in 2015 ended in 2016; etc. Treated in isolation, you end up with the Bloomberg ridiculousness that places blame for the peso on Trump (or last year’s troubles on 2a7 reform) rather than being helpful in recognizing what really should be obvious by now (how many years and instances will it take?). The reality is that the “dollar” problem that first appeared in 2007 has never ended. It remains ongoing, for all that has changed is at times the tempo, intensity, and geography of it.

If Banxico were to appeal to the Fed for a dollar swap line on behalf of its short banks, while that in all likelihood will make things worse (for everybody; see: third liquidation in 2009) the silver lining might be to confirm yet again where the world’s problems really start and end.