You’ve heard me say this before (but not this strongly) that the monetary machinations of the global central banks (led by the Fed, and buttressed by the European Central Bank and the Bank of Japan) are flooding the world with liquidity and causing all sorts of malinvestment. In the video above, Ed Yardeni agrees, perhaps even stronger than me, and says we need to get over it–the world is what it is. Yesterday’s major headlines were all about the Fed, and Janet Yellen’s (chairwoman of the Fed) decision to remove the word “patience” from the forward guidance. The Fed didn’t say they were raising rates yet, but all signs now say we are “one and done,” in Yardeni’s lingo. He expects the Fed to raise interest rates one time in 2015 and be done for the year.

The monetary picture is the main driver in financial flows currently; make no mistake that the almost unprecedented rise in the value of the dollar is due to the combination of some expected modest tightening in the U.S. this year while BOJ and the ECB are both printing money like this:

The dollar has risen rapidly this year, even exceeding the panic into the dollar we saw during the financial crisis:

Suffice it to say its not usually a good thing when we see a financial asset price go vertical; there will be real changes to economic activity that will lead to a painful reversal.  When the asset is the world’s reserve currency, the reversal has global repercussions. Earnings are already under pressure for many U.S. multinational corporations as their foreign earnings are contributing less to their profits.  Economic activity seems to be slowing from a more robust 3rd quarter last year, and the rise in the value of the dollar will increasingly tie the hands of the Fed.

The question for the Fed still remains, how do we ever get back to normal?  In the meantime, we are now into year 7 of zero interest rates for ordinary American savers, while Wall Street is able to make leveraged bets with easy money.  But as Mr. Yardeni says, it is what it is.  This won’t end well.