What could this mean for equities and stocks? Callow speculates that an “out of control dollar rout with the euro in the high $1.40s heading to $1.50” could send the yield on the U.S. 10-year above 6.00 percent and spark a 15-percent pullback in the U.S. stock market.

After all, equities would be faced with rising interest rates and inflation, which are both historically negative factors for stocks.

Jim Glassman, senior economist at JP Morgan Chase in New York, offers another view.

“These doomsday scenarios make no sense,” he says. “It’s like we are in a pre-Copernican age in which everyone thinks the world revolves around the trade deficit. The U.S. is not doing anything wrong. The trade deficit is where it is because China has linked to the dollar and Japan is trying to get out of their deflation scenario.

“The problem is that a very large part of the world has linked to the dollar to stay competitive,” he continues. “[Asian countries] want stable currencies so they will look like attractive places for companies to come and build factories. We are buying their goods, but they aren’t buying ours. We aren’t the cause of the problem. The problem is the underperforming world economy.”

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