The Dollar Is The New VIX, And The Bitcoin Connection

Over the last few months I have been hammering on the idea that the U.S. Dollar is a better gauge of risk in the global financial system than the so-called “Fear Gauge” – the CBOE Volatility Index (VIX). When on CNBC I have prefaced most of my equity market commentary with the view that as long the U.S. Dollar remains stable then the financial markets should remain calm. But if the U.S. Dollar rises, it creates risks to the global economy that are not captured by the VIX index.

U.S. Dollar’s Role in the Global Economy

To understand why this is so, we need to understand the role of the U.S. dollar in the global economy. Since WWII, the dollar has been at the center of the global economy serving as the “reserve” currency. Reserve currency status is both a burden and a privilege. It means that most currencies, commodities and debt are priced in U.S. dollars. It also serves as a reference currency for the…