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TheHill.com

Dear Yellen: Saving the planet is not the Fed's job

BY CHRISTINA PARAJON SKINNER, OPINION CONTRIBUTOR — 04/16/21 11:30 AM EDT  403
THE VIEWS EXPRESSED BY CONTRIBUTORS ARE THEIR OWN AND NOT THE VIEW OF THE HILL
 
Dear Yellen: Saving the planet is not the Fed's job
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On March 31, the Financial Stability Oversight Council (FSOC) had its first principal meeting under the new leadership of Treasury Secretary Janet Yellen. Climate change was the top agenda item. In terms of “emerging risks,” Yellen was clear in her remarks: “Climate change is obviously the big one.” According to the secretary, climate change “is an existential threat to our environment, and it poses a tremendous risk to our country’s financial stability.”

The secretary is right that climate change is a challenge confronting the government, especially and including the fiscal authorities. But one question is whether Yellen has her eye on the Fed’s balance sheet and its new monetary tool of quantitative easing (“QE”). Other central banks are pursuing what is now referred to as “Green QE” — using the central bank balance sheet, through asset purchases, to proactively make the financial system greener. Green QE has been considered by the European Central Bank, and the Bank of England’s Monetary Policy Committee now has within its monetary policy remit the obligation to consider price stability in terms of what is “environmentally sustainable.”

The Fed, like these other central banks, wheeled out QE as an “unconventional”tool for monetary policy to fight the fires of financial and economic crisis in the past decade.  The efficacy and legitimacy of QE is still debated. A crisis-time use of QE to calm markets, hit inflation targets or stymie aggregate demand – by buying government-backed bonds – is one thing. The notion of a steady-state use of QE to accomplish policy items on the executive’s agenda, by funneling credit to some private corporate issuers and not others, is quite another.

Many commentators have argued that it would be “mission creep” for the Fed to offensively tackle climate change in this way. If the executive were to put pressure on the Fed to engage in mission-creep around climate, one wonders what could be next and who will draw the line. The FSOC’s first meeting begs the question: Is the executive keen to morph the Fed’s now expanded wartime balance-sheet powers into a peacetime tool for making climate credit policy? 

We should be wary of heading in that direction. The Fed’s independence from the Treasury was hard-won long ago in the so-called Fed-Treasury Accord of 1951. But today the Treasury may well have a new vehicle for exerting policy pressure through the secretary’s leadership (and other Council members in agreement) of the Financial Stability Oversight Council. The FSOC is a multi-member council, but as spearheaded by the Treasury secretary, it can reasonably be expected to reflect or reinforce executive priorities.

More >> https://thehill.com/opinion/finance/548611-dear-sec-yellen-saving-the-planet-is-not-the-feds-job

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DAILY

Requiem for a Currency… The Slow Death of the U.S. Dollar

April 16, 2021

By Kim Iskyan

It was November 25, 1980, when Sugar Ray Leonard II pummeled defending champion Roberto Durán for nearly 24 minutes during their World Boxing Council welterweight championship bout (billed “The Super Fight”).

With 16 seconds left in the eighth round and knowing he was going to be beaten, Durán uttered no más, no más – Spanish for “no more, no more” – as he turned away from Sugar Ray.

Durán waved his glove at the referee and retired to his corner. It was the first time in more than 15 years that a champion had quit a title fight.

And no más might be what global investors say to the U.S. dollar soon…

The steady debasement, through ever-escalating mountains of debt, the dollar is increasingly threatening its status as the world’s reserve currency.

At some point – and this is historically inarguable – the dollar won’t be king of the castle anymore.

Tectonic shifts like this happen over decades… and almost invisibly. And it’s happening now. The good thing is, there’s still time to prepare.

The U.S. Dollar Makes the World Go ‘Round

Though many Americans may not realize it, the U.S. dollar is the cool kid of the global economy: Everyone else wants to be around him… craves his attention… and wants a piece of him. For more than a century, it’s been the world’s primary reserve currency.

Central banks around the world hold reserves – in currency or precious metals – so they can trade goods abroad or invest in other countries. Some central banks also use it to maintain exchange-rate pegs. Around 59% of the $7 trillion held by governments around the world in reserves are held in U.S. dollars. Seven different countries use the U.S. dollar as their official currency, while 65 others peg their national currencies to it.

And greenbacks are the world economy’s most important medium of exchange, unit of account, and store of value. If they don’t use U.S. dollars, it’s a lot more difficult – and expensive – for countries, companies, and people to buy oil or gold, sell toys or cars, or invest in hotels or bridges.

When a Vietnamese (or Argentine or Canadian) company wants to buy goods from Brazil (or South Africa or Singapore), they’ll likely use U.S. dollars… because it’s the common currency between the two parties in most global transactions.

Similarly, when a tourist from Mexico City visits Moscow… or someone from Sao Pãulo goes to Sydney… she’ll take dollars with her, not her local currency. Uncle Sam’s money speaks every language on Earth, and no matter where you go or what you want to do, you can use your U.S. dollars to buy other money.

The Dollar Privilege

Because everyone wants dollars, the U.S. government – that is, the Federal Reserve, the American central bank – has enjoyed a unique advantage: It’s been able to borrow, seemingly endlessly, from everyone else to create new dollars. And the government has been able to defer repaying its lenders by constantly rolling over – and increasing – its debt, seemingly forever.

In the 1960s, French politician Valéry Giscard d’Estaing called the benefits that accrue to the United States thanks to the U.S. dollar’s status as a reserve currency an “exorbitant privilege.”

Thanks to its privilege, the U.S. national debt stands at $28 trillion (up 20% in 2020). For context, U.S. GDP – that is, economic output – totaled $21 trillion in 2020. That’s around $85,000 for every single American citizen.

And there’s more. We’re moving into a brave new world where trillions (that is… 12 zeros) are discussed with the nonchalance that was recently reserved for mere hundreds of billions, as COVID-19 relief packages revise the notion of big numbers. Total COVID-19 aid has amounted to $5.3 trillion, only some of which is included in current debt figures.

Put it all together, and 78% of all dollars that have ever been made, have been created over the past 12 months. (And… none of that, of course, includes the proposed $2 trillion infrastructure plan announced by the White House in late March.)

The federal deficit is forecasted to hit 15% of GDP in 2021, the biggest deficit since World War II. That’s compared with 2.4% as recently as 2015… and 9.7% in 2009, in the depths of the global financial crisis.

It’s like the United States has had an open tab at the global money bar… and it’s been on a historic bender, evading hangovers with endless Bloody Mary hair-of-the-dogs – and then starting all over again.

Other countries – countries that aren’t the United States (with the partial exception of the Japanese yen and Europe’s euro, the RC Colas of reserve currencies) – can borrow only as much as others will lend them. As they borrow more, the price of that borrowing increases.

And the cost of borrowing for the U.S. has been rising in recent months – along with the risk of inflation. If the U.S. was a normal country – one that, say, had to pay its bar tab and eventually show up at work the next day after a long night at the pub, bleary-eyed and headache-y – it would have gone bust years ago.

Since the dollar is the world’s reserve currency, that’s not going to happen. It can just sell more debt. But meanwhile, the decline of the dollar’s status is accelerating.

America’s Declining Market Share

The U.S. dollar has long been in the pole position as the global reserve currency because the U.S. is by far the world’s biggest economy and the dominant player in global investment and finance.

Correction: It was the global economy’s 800-pound gorilla. Over the past few decades, America’s share of global economic output fell from 40% in 1960 to around 23% today. The U.S. now trails the EU and China in terms of the overall volume of exports and imports.

That’s partly pure mathematics. The Chinese economy grew by an average of 10.4% for the two decades after 1991, while the U.S. economy grew by an average of only 2.5% over that period. Now China’s economy accounts for around 17% of the global economy and will likely overtake the U.S. as the world’s biggest within the next five years. (And according to one, lesser-used, methodology to tabulate economic output, it already has.)

So it’s not surprising that the global reserve currency holdings of the U.S. dollar, as a percentage of total stockpiles, at 59% is at its lowest levels since the 1990s.

The recent decline happened “amid questions about how long the dollar can maintain its status as the pre-eminent reserve currency,” explained Bloomberg in late March. And the world’s economies feel the need to reduce their U.S. dollar “overweight” reserve exposure to the U.S. dollar, as the American economy loses market share.

Reserve Currencies Come and Go

We – that is, anyone reading this in 2021 – only know of a world where the U.S. dollar has been in the cockpit. But just over 100 years ago, it wasn’t… and if history is any guide, soon it won’t be.

The past six centuries have seen six different reserve currencies. Each lasted for about a century, give or take a decade or two. The Portuguese real was the world’s main currency from around 1450 to 1530. Then a royal succession crisis distracted Portugal, opening the door for Spain’s currency to become the world standard, for around 110 years.

Subsequently, the Dutch guilder took over as king of the hill, until the Bank of Amsterdam issued too much debt in the early 1700s, and lost the confidence of the market and investors. France assumed the throne, followed by Britain in the early 1800s.

The British pound’s reign as a reserve currency ended with the declining importance of Britain in global commerce – compounded by the decline in global economic interdependence after World War I.

That’s when the U.S. dollar became the dominant currency in the global economy. Its position at the top was solidified in 1944 when the Bretton Woods accord established the ground rules for the global monetary system.

A number of conditions – inflation, high debt, bad policy management, and just plain greed – can play a big role in ending a reserve currency’s run. That, and the calendar, suggest that it’s after the seventh-inning stretch for the U.S. dollar as the start of the global financial system… and it might already be in the ninth inning. And we’d be kidding ourselves to think – hope – that we’re going into extra innings.

What’s Next?

“One can hardly pick up a financial newspaper these days without seeing a story about the dollar’s impending loss of international prominence,” wrote University of California economist Barry Eichengreen… in 2005.

Right now, it’s almost as if the U.S. government is doing everything it can to accelerate the extinction of the U.S. dollar as a reserve currency… escalating debt, increasing inflation, and rising deficits are all toxic to the longevity of the dollar as a reserve currency.

If not the dollar, though, then who? The options are limited. The euro – hostage to the EU’s political infighting – always seems to be one debt crisis (or charismatic anti-Europe populist) away from calls for its dissolution. And the No. 3 reserve currency, the yen, has as its home an economy that’s in the midst of a multi-decade drift into irrelevance.

With the rise of the Chinese economy, the renminbi is an obvious contender. But the renminbi isn’t even freely convertible and is still subject to capital controls. It’s nowhere close to becoming a global currency – let alone a reserve currency.

What is more promising – or, for the dollar, threatening – is currency digitalization. Many countries have been struggling to figure out how the rise of cryptocurrencies and the blockchain will impact currencies. Most central banks, including the Fed, have alternately ignored, threatened, and weakly embraced elements of the blockchain.

But China, always attuned to an opportunity to exercise ever-greater control, has since 2014 been developing a central bank digital version of the country’s currency. Its digital version of the yuan will function like cash – and be completely centralized and controlled by the country’s central bank.

As a commentator wrote earlier this week in the Financial Times

… [the digitized renminbi could] hasten the decline of the dollar’s dominance as the world’s leading reserve currency. It could also hasten the acceptance of the renminbi as the main rival to the U.S. currency… if China captures the first-mover advantage to meet the world’s demand for use of digital currencies to settle international financial transactions and own digital assets, the appeal of its [currency] could rise sharply.

Fundamental to cryptocurrencies is the element of anonymity afforded by the decentralized blockchain ledger. A digital currency controlled by the Bank of China and the Chinese Communist Party – denominated in a currency that’s as useful outside of China as fish sunglasses – isn’t (ever) going to overthrow the U.S. dollar as the world’s reserve currency. It may, though, become widely used in the developing countries, if China were to make receipt of Belt and Road Initiative (formerly One Belt, One Road) investment contingent on using its digital currency.

Most likely is that the U.S. dollar continues to be nudged out of the ring. The other reserve currency options – euro, yen, renminbi, digital renminbi – may become more palatable in relation to a debauched dollar. And in time, bitcoin – or a future cryptocurrency standard-bearer – may also be used as a reserve currency.

What to Do?

There’s one asset that’s held its value over time – and which will continue to do so, regardless of the Fed and China and European bureaucrats: Gold.

Your wealth will be much safer if you’re holding at least a portion of it in gold… not in anticipation of the price of gold rising (though it likely will), but just as a way to preserve your capital. (Check out Stansberry Research’s precious metals monthly advisory here.)

Bitcoin is another – though more speculative – option. If one day the cryptocurrency blue-chip becomes only a sliver of a reserve currency holding for the world’s central banks, its value will explode. That probably won’t happen… but in the meantime, it’s the one currency that isn’t subject to the whims of central banks and politicians. (Trish Regan has been writing a lot about bitcoin lately… And recently sat down with crypto expert Eric Wade. You can learn more.)

And finally… reduce your exposure to the dollar (and the United States). Open a bank account abroad. Buy some foreign real estate, and shares of companies outside the U.S. If you’re really feeling extreme, look into giving up your U.S. passport – though only after acquiring another citizenship first.

It’s not no más for the dollar yet… But you want to be ready for when it is.

More >> https://americanconsequences.com/kim-iskyan-the-death-of-the-dollar/

 

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LewRockwell.com

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Are Monarchies Better for Economic Growth? Here's What the Empirical Evidence Says.

By Lipton Matthews
Mises.org

April 24, 2021

Hans-Hermann Hoppe has argued that monarchies take a longer-term view of their national economies and therefore are more likely to pursue more stable and secure economies. That is, among monarchs, the desire to maximize wealth promotes more farsightedness than exists in democratic regimes. Due to the lower time preference of monarchs, they are less likely to succumb to the whims of economic populism.

Hoppe outlines this argument in a 1995 article:

A private government owner will predictably try to maximize his total wealth, i.e., the present value of his estate and his current income…. Accordingly, a private government owner will want to avoid exploiting his subjects so heavily, for instance, as to reduce his future earnings potential to such an extent that the present value of his estate actually falls. Instead, in order to preserve or possibly even enhance the value of his personal property, he will systematically restrain himself in his exploitation policies. For the lower the degree of exploitation, the more productive the subject population will be; and the more productive the population, the higher will be the value of the ruler’s parasitic monopoly of expropriation.

A Comparative Analysis

Quite interesting is that research confirms the assumption of Hoppe. According to Mauro Guillen monarchies are more effective than democratic republics at protecting property rights primarily because of their long-term focus. “Monarchies tend to be dynasties, and therefore have a long-term focus,” Guillen says. “If you focus on the long run, you are bound to be more protective of property rights…. You’re more likely to put term limits on politicians that want to abuse their powers.”

Similarly, Guillen in his study points out that monarchies can curtail the negative consequences of internal conflict on property rights:

For instance, the case of Spain has received considerable scholarly attention in terms of both the continuities in the process of transition to democracy during the late 1970s, and the sequencing of political and economic reforms with the crown playing a key role…. The continuity of monarchy in Spain was a major factor in preserving property rights during the political transition. In Portugal, by contrast, a comparable country that made the transition from dictatorship to democracy at roughly the same time but had become a republic back in 1910, nationalized 244 banks and large enterprises during its transition to democracy.

Moreover, Christian Bjørnskov and Peter Kurrild-Klitgaard in their publication “Economic Growth and Institution Reform in Modern Monarchies and Republics: A Historical Cross-Country Perspective, 1820–2000,” present fascinating information: “While large-scale political reforms are typically associated with short term growth declines, reflecting what has become known as the “valley of tears,” the data indicate that this valley does not appear in monarchies. In fact, if anything it has the opposite effect.”

Moreover, the rating agency Standard and Poor’s asserts that monarchies have stronger credit scores and impressive balance sheets relative to republics. Credit analyst Joydeep Mukherji submits that there is no difference between constitutional and absolute monarchies in the assessment of their debt risk. “However, absolute monarchies score higher than constitutional monarchies in external risk and fiscal risk, largely reflecting the strong general government balance sheets and high external asset positions,” he noted.

Like Gullien, Victor Menaldo in “The Middle East and North Africa’s resilient monarchs” posits that monarchies are linked to respect for the rule of law, protection of property rights, and economic growth. As Menaldo shows, the predictability of the political culture embedded by monarchies positively affects the decision to invest: “Given the emergence of a stable political culture … elites and citizens will be encouraged to protect their planning horizons due to longer executive tenures and an institutional succession process. Both elites and citizens will be more likely to make the investments in physical and human capital that encourage capital accumulation and increases in productivity.”

Another argument in favor of monarchies is their relative intolerance for wars, since involvement in warfare has the potential to eviscerate wealth. Though comparing political systems based on the likelihood to wage war is rare, one study written by leading political scientists intuits that premodern monarchies were less likely to fight wars:

There seems ample empirical support for our conjecture that monarchies were less conflict-prone in the pre-modern era. This contradicts the usual impression offered by mythic and historical accounts of kings who make war as a matter of occupation. When Charles Tilly declared that “states make wars and wars make the states”, he was doubtless thinking of kings as instigators. And it is true that the great monarchies (England, France, Spain) had considerably more wars to their credit than their smaller republican neighbors. However, we have seen that this is a product of grandeur rather than truculence. Small monarchies were more peaceful than similarly sized republics.

Suggesting that monarchies display superior characteristics relative to democratic republics does not mean that we should return to the past. However, one cannot criticize monarchy without understanding its strengths and limitations. In much of the world today, there’s a built-in prejudice against monarchies, but the evidence suggests that monarchies—especially small ones—are more peaceful, stable, and protective of private property than their republican neighbors.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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LewRockwell.com

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Peter Schiff: America’s Consumption Economy Is a Bubble Economy

SchiffGold.com

April 24, 2021

America has turned into a consumption economy. The problem is, economies can’t run on consumption. Peter Schiff explains in this clip from a recent interview.

Consumption economies are bubble economies.”

A vibrant, healthy economy needs production.

Because you cannot consume what is not first produced. Since our economy is so weak and we’re unable to produce the things that we’re consuming, America relies on strong international economies that are able to produce what we consume.”

The question is how long will the rest of the world subsidize America’s standard of living? How long will other countries prop up a dysfunctional, weakening US economy by supplying it with goods it cannot produce for itself?

And then the dollar crashes and that’s the end of this game. Because to the extent that we can only spend our dollars on the things that we produce ourselves, that’s where it hits the fan, because we’re not producing things.  And then price increases are going to explode in a much more visible manner.”

Peter said this is already happening.

Prices are going up all over and we want to pretend that, well, this is a one-time thing. It’s transitory. It’s because of supply shocks or shortages. No. It’s a surplus of money. That is the problem. And we’re creating even more.”

When you break it all down, all of this is inflation. Money printing and shopping are driving the economy. Americans are sitting at home getting stimulus checks and spending the money. But they’re not making anything. There is little production.

Americans are buying stuff that they didn’t produce. There’s no productivity related to this money printing. And so we’re going to see a surge in prices.”

Peter reminds us that the surging prices are not the inflation.

They’re the consequence of the inflation. The inflation is created by the Fed as it inflates the money supply to buy up all the bonds the government is selling so the stimulus checks don’t bounce.”

Reprinted with permission from SchiffGold.com.

 

Copyright © SchiffGold.com

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So much better with Democrats steering the ship away from the rocks ....AGAIN !

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BREAKING: Consumer spending rose 4.2% last month, the fastest pace in nine months, while incomes, boosted by stimulus checks, soared a record-breaking 21.1% in March. The gains offer more evidence the economy is poised for a robust recovery.
 
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The vaccinations are also a contributing force for people going out to shop.  Businesses doing better because covid is waning.

Unfortunately too many are taking the stimulus and squandering it instead of saving.

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11 minutes ago, hamradio said:

The vaccinations are also a contributing force for people going out to shop.  Businesses doing better because covid is waning.

Unfortunately too many are taking the stimulus and squandering it instead of saving.

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The CNN Business Report said the opposite this morning.  People are spending roughly half of the stimulus checks and saving the rest which they thought was even a better sign that the economy was doing better than expected.  And what would you "squander" it on in the middle of a pandemic BTW?

There are still over 600 people dying every day from covid.

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HEY JOE ... WHERE DID THOSE HIGH PAYING UNION JOBS GO? ... HEY JOE THEY WENT TO MEXICO ... HE HE HE ...

 

 

 

 

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I live in a region where oil and gas is a big part, if not the biggest, of our economy ... a lot of this is smoke and mirrors ... there's a good chance it will take weeks if not months to fully resolve the problems ...

 

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“Whomsoever controls the volume of money in any country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
― James Garfield

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