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07 January 2018

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Anna

"Similarly, with his Jerusalem decision he has sunk the two state fiction and shown the Arabs for their lip service to the Palestinian cause."
Thank you. Excellent.

Richardstevenhack

Agreed.

There is no "master plan" - just a con artist playing at being President.

And perhaps a guy who doesn't like spending $33 billion for no return on investment - which is certainly the case in Pakistan. No doubt he'd rather spend that much - and much more - on attacking Iran.

Richardstevenhack

Do you have any idea what a war with Iran will cost the US?

Take Iraq and Afghanistan and multiply by at least four. That's something like twelve trillion dollars spread over a decade or more - because war with Iran will last at least that long.

If that is being "serious about MAGA", then Trump is delusional.

blue peacock

To get a good foundation I would start with books like these which I read when I was at school:

The Economics of Money, Banking & Financial Markets by Frederic Mishkin

Macroeconomics by Dornbusch & Fisher

Exchange rates & inflation by Dornbusch

International Trade Finance by Bhogal

LondonBob

Two key elements of a reserve currency is the size of the bond market denominated in it, as well as the legal system that underpins it. Historically even when the economy supporting it is surpassed the reserve status persists for a long time beyond then. That said the increasing use of the dollar as an extraterritorial legal weapon is certainly spurring efforts to circumvent its use when there is no real need.

I've also read that another theory is that Pakistan said no to using their territory for operations against Iran.

jpb

The United States Empire enjoys exorbitant privilege from the USD role as world reserve and settlement currency. The reserve currency privilege forces world central banks to purchase US Treasuries, which funds are used to finance the bloated US defense budget. China maintains a large trillion USD Treasury Reserve. The US Treasuries enable the US to maintain an imperial containment and tribute policy in East Asia. The USD reserve system is a form of imperial tribute.

I suggest you read Major-General Qiao Liang on China's opinion of the imperial USD reserve system and their considered response. The USD's days as world reserve currency are numbered and when the exorbitant privilege is removed the United States will cease to be a world dominating empire. The military operates on money and we will no longer conger money from unearned and exploited privilege.

"Many people think that imperialism stopped after the U.K. became weak. Actually, the U.S. has conducted a hidden imperialism through the U.S. dollar and has made other countries its financial colony. Today, many countries, including China, have their own sovereignty, Constitution, and government, but they are dependent on the U.S. dollar. Their products are measured in dollars and they have to hand over their material wealth to the U.S. in exchange for the U.S. dollar." Major General Qiao Liang

http://chinascope.org/archives/6458/76

jpb


The problem of a sovereign nation's internal currency being used as an international reserve currency is known as Triffin's Dilemma.

https://en.wikipedia.org/wiki/Triffin_dilemma

You can link from the Wikipedia article to a speech by Zhou Xiaochuan, governor of the People's Bank of China which details the world reserve currency as the source of world monetary distress. I would not bother reading the apologist's for empire economists listed by a commentator on this thread.

The USD will be devalued to its role as an internal currency. I have calculated the USD is approximately 60% over valued, as a result of artificial dollar demand resulting from it's reserve and settlement currency role. IMO...the enormous debt accumulated in USD worldwide will be liquidated by devaluation of a large fraction of USD buying power.

Fool

Is it also possible that this is simply a favor to the Saudis -- given Pakistan's reluctance to lend its support on Yemen?

Jack

"forces world central banks to purchase US Treasuries,"

Who forces them? The dollar is freely convertible. They can exchange them for pounds or yen or euros or gold or bushels of wheat.

Chinese businesses don't have to accept dollars for sale of their goods. Why do they choose to do it?

Jack

"I have calculated the USD is approximately 60% over valued,"

Such a devaluation will end the US trade deficit and reshore the US industrial base and make American made products enormously competitive on world markets. Sounds to me a huge benefit to the US economy. And foreign holders of US debt get paid back in cheaper dollars. What's not to like about it?

kooshy

One big difference between wars of Iraq and Afghanistan, and any possible war with Iran, which often is not addressed or discussed by the so-called Iran analyst and commentators, is the fierce Iranian sense of pride and nationalism to their land(two think to avoid in Iran is insulting one’ Mother and Vatan= where your body belongs = Country) which was not present in previous US’ middle east wars. No other country in ME except Iran and Turkey have as huge sense of belonging to their “land" SarZamin.

jsn

There is an interesting confluence economically in Trumps tweet foreign policy too.

It was Charles De Gaulle who called Reserve Currency status an "exorbitant privilege" when export to the US ceased to yield gold stocks at the end of the year (1971 I think). Privilege for some, but De Gualle missed or wasn't concerned that the cost was in fact domestic US unemployment, hardly a privilege if you were part of the growing contingent that experienced it.

Through the Marshall Plan and Marshall Plan type programs, the US granted large chunks of the world dollars with which they bought US machine tools and re-built their industry. Once operational their industry had newer and better fixed capital than the US and their exports became very competitive with US domestic production.

But as they exported they received dollars in return for products produced in Marks or Francs or whatever. At year end when accounts were settled the Fed sent gold to cover the delta on US imports over exports until Nixon ended the Gold Standard. At that point, our foreign trading partners could have quit sending their stuff here, but they were unwilling to give up their end of the "exorbitant privilege", demand for their manufactured goods.

Rather than re-balancing their economies to support domestic consumption of domestic production, they instead bought Treasuries which re-patriated their dollar earnings into the dollar economy and ipso fact expanded the accumulated Federal "deficit". The inadvertent fiat Marshall Like Plan the US trade deficit has been ever since has exported US demand through the fiat of expansion of the US Treasury balance sheet liabilities, the National Debt.

The US could have stopped this at any time by limiting the supply of Treasuries for sale to foreign buyers. This would have forced our trading partners to purchase actual things from the US to get rid of their dollar export earnings rather than recycle demand through Treasury purchases, but US elites liked being able to command the worlds material resources with dollars almost as much as they liked the increasingly slack US demand for labor that resulted.

For China to take over as "reserve currency" it will first have to have a broadly distributed currency, which its One Belt One Road begins to do, and then hold a higher trust level among investors than the US. So far it is far from either and doesn't really appear to want "reserve" status because the Chinese Communist Party still has a healthy fear of its domestic labor boiling over into violent political protests: there are almost constant strikes and labor protests most having some violence in China. China needs demand for its labor more than it needs the worlds resources, but that may change if they succeed in "rebalancing" away from export dependent production. Then investor trust will become the primary barrier.

When you hear the words "free trade", ask free for whom? Money now moves around the world in nanoseconds while people remain tied by all kinds of barriers, and maybe those human barriers, things like emigration controls, family bonds, language, culture and religion matter. And maybe they matter more to healthy societies than the free movement of money, and that maybe money shouldn't move so freely either. But there is an imperial logic to the "free trade" dogma that imperial elites tend to gravitate to: Great Britain was as all about free trade when it was hegmon as the US has become now that it is, but Hamilton set up systematically protectionist policies precisely to prevent Britain from being able to prevent US technological and industrial development, which free trade does to resources extraction economies, which the US then was.

With the positions Trump is taking on trade, he is pushing toward a world of economic autarky, which will be a good one for well run governments looking to improve the material well being of their population and to preserve their culture and traditions. While I disagree with superficial aspects of Trumps policies, which are mostly an artifact of the world he came to power in, so far his MAGA campaign is coherently playing out in his foreign economic and political policies if you grant, as I do, that he is doing what he intends to do.

If/when he turns out to be a real patriot, he'll realize the US can't really be great again until the living conditions of most Americans is materially improving: he has inherited from Bush 2 and Obama an America in which life expectancy is declining year on year for the first time since the 30s.

jpb


The PBOC is 'forced' to buy USD from Chinese business who sell goods for USD, to maintain the currency peg to the USD. If the PBOC did not accumulate USD Treasuries the USD would decline and the Yuan would appreciate making Chinese goods overvalued in the world markets.

The perpetual US trade deficit underlies the value of the USD, which makes it attractive as a 'temporary' store of value. You are right...China chose to accept USD to build their industrial base and control internal inflation. In the future, China will stop accepting USD and let their currency free float....paying the piper until they call the tune. The US dollar exchange rate is key, if it were not supported by the foreign central banks (PBOC), it would lose its attractiveness as a store of value for the private sector world wide.

China is 'forced' to accumulate USD to buy oil which is denominated in USD by agreement with Saudi Arabia. China begins to transition from this state of affairs by buying oil from Russia and Iran with Yuan. The Chinese government encourages its citizens to buy gold as a store of value replacing USD as a store of value.

China, Russia, etc. are accumulating gold until they determine to 'clean float' their currencies. This will stop their 'forced' need to buy USD treasuries to maintain a fixed exchange rate. The flip side is the USD will devalue and we will have a lowered exchange rate for USD. This is DJT's plan for improving the competitiveness of US goods. It will bring jobs home to the USA, as Chinese goods are inflated in price.

The Chinese, Russians, Iranians, etc. will lose buying power from their USD reserve, but will compensate from the increased price of gold in USD. The Yuan revalued upward in the 'cheap float' will buy more oil than the artificially pegged low Yuan exchange rate. The USA will experience increased internal inflation, but increased attractiveness of its lower priced goods overseas.

These monetary, economic, and political events are inexorable and perhaps they can be managed without chaotic disruption of world trade and politics. We will find out in the next decade. IMO..China, Russia, Iran etc.(SCO) will pay the price to stay sovereign and independent of USD hegemony.

eakens

A response from one senior commander of Taliban forces....

https://www.youtube.com/watch?v=Ql-2te3_THQ

jpb

Excellent comment! The USA exceptionalist elites exchanged the well being of American workers in their bid for 'full spectrum dominance' of a world empire. DJT's policies intend to reverse this policy and abandon the dreams of world empire for increased well being of American citizens.

IMO...the reversal of empire to becoming a normal nation among nations will be welcomed and aided by the rest of the world. I am optimistic that DJT will MAGA, inspite of internal elites resistance to abandoning the globalist vision. DJT will be aided by foreign powers such as China, Russia, Iran, and Europe who will pay to make America a normal country....without WAR!

Augustin L

The front goy might think he's a mad genius but he will inevitably accelerate the internal collapse if the empire retreats in the face of rising eurasian powers. Right of seignorage and Triffin dilemma's are implacable. One need not be a quant to see where all this will materially lead for a pleb of deplorables, our virtual economy is overvalued by a factor of X... Can't fix stupid, the orange dotard is playing checkers, his eurasian adversaries multi-dimensional chess and Go.

jpb

There are many who think the Yuan will replace the USD as world reserve currency. I do not! The Chinese do not want world hegemony and Triffin's Dilemma problems.

The BIS and IMF propose a neutral world reserve and settlement currency. This could be SDR, gold, or some combination of SDR and gold. A neutral monetary reserve will prevent any nation from 'exorbitant privilege' abuse such as practiced by the USD empire globalists.

IMO....the battle between DJT and 'deep state' globalist elites of the CFR will determine the well being and survival of humanity over the next century. I only wish more Americans were aware of the stakes in the internal battle against the privilege of oligarchs, which is essentially rooted in the 'exorbitant privilege' of the USD reserve status.

jpb

Yes...I have been buying shares of American industrial companies. These companies are world class and will experience an American renaissance of manufacturing due to devalued USD increasing USA competiveness. American workers will be benefit with good jobs!

The elites share of USA income and assets will decrease, especially the FIRE sector and holders of USD denominated bonds; hence the billionaire's and pensioner's resistance to DJT tax plan, trade policy, and geo-political maneuvers.

Valissa

blue peacock @ 25,

It is not the Chinese way to directly challenge the US. Instead they quietly nibble at the corners, increasing their economic empire at a slow but steady turtle (rather than hare) pace. They take the long view, and their political culture is more patient.They are slowly making "bilateral financial agreements" with countries on a very selective basis. This seems like a very intelligent approach. I do not think they desire to replicate the role of the US & US dollar. Perhaps China takes the multi-polar non-interference concept seriously. Who knows? But I think a paradigm shift is a foot, not a simple change of hegemon.

Jack

One thing I learned when I worked in finance is that it is not at all easy to forecast price movements in forex. I recall well the Plaza Accord to bring down the value of the dollar relative to yen. It crashed the credit boom in Japan and promptly the dollar took off. The Chinese peg their currency because they don't want to float it. It seems every time they try to relax the window there is a surge of capital out. Who knows, if the Chinese float, the yuan could tumble as investors may be very concerned about their credit edifice.

I agree that it would be much more beneficial for the US not to have the dollar as a reserve currency. Single global currency is just not practical for a host of reasons while it does have appeal in theory. Gold-backed currencies achieved that but government don't want to be tied on how expansive they want their fiscal policies. Bilateral trade in other currencies will continue to grow. I recall India buying Soviet arms in the 70s in roubles. Even the Saudis sell their crude in many currencies. These types of deals have been going on for a long time.

Jimmy Goldsmith was dead right in his analysis of what would happen when the GATT became law. Maybe the first step is to end all these so called free trade agreements and move more towards bilateral arrangements. Unfortunately there are no panaceas.

EEngineer

Indeed. Keynes tried to get the world to shift to the "bancor" for international settlement at the Bretton Woods conference in 1944, but the British position was too weak to prevail. The US was able to force the use of the gold backed dollar as the reserve. It was fun while it lasted...

The Chinese seem to be trying to avoid that mistake by promoting the SDR to serve that function. Also remember that today's free flow of capital was something that economists of that time rightly feared as destabilizing to a domestic economy. Great for the bankers though...

ked

Before investing time in “Art...” I suggest reading more current articles by the ghostwriter, Tony Schwartz.

integer

Barbara Ann said... "What is needed to backup this theory is examples of his using such tactics in his former business life."

You might find this interesting:

https://www.vanityfair.com/style/2016/12/how-donald-trump-beat-palm-beach-society-and-won-the-fight-for-mar-a-lago

jsn

Henry Dexter White, who was Keynes counter party in the negotiation of Bretton Woods, had managed the central bank coordination between the US and its' Soviet ally during the war. McCarthy tried to brand him a traitor for this, which emotional hearings more or less killed White.

It is however quite possible this old New Dealers sympathy with his Soviet allies, who were taking most of the bullets at the time of the negotiations, combined with his understanding of "flow of funds" financial models (modelers who used these tools all predicted the Global Financial Crisis but had already been barred from MSM because such tools reveal "equilibrium" theories as the religion they are) to make him oppose bancor in the hopes a reinstated Gold Standard would destroy capitalist finance as it had in 1929.

The Chinese definitely understand "flow of funds" finance and won't repeat our mistakes. They'll make new ones.

English Outsider


Jack - I know it's not what you're saying but I'm uneasy with this idea that the rest of the world is forced at gunpoint to use dollars. I don't think that's how it works. Nor is there anything odd about the fact that the dollar is so widely used. You say -

"Chinese businesses don't have to accept dollars for sale of their goods. Why do they choose to do it?"

Goods can be sold for any currency, or the money obtained can be exchanged for most other currencies, but:-

1. The clearing system for payments is still mainly in New York, with the BIS lurking in the background keeping things (we hope) on an even keel.

2. Once the money is got it has to be stored somehow by the countries that get it, stored until they need to buy goods with it themselves. If it's not stored as foreign assets, a store ultimately as unreliable as currency or financial instruments and less readily convertible, then where else but in dollars in one form or another? They can always try euros or pounds or whatever, if it's longer odds they're after.

I think those are the two reasons why the dollar is still the predominant currency. That's not liked by some countries for a number of reasons, amongst them:-

1. Balances held in the States or in other Western countries can be frozen.

2. Basing the clearing system in New York means other countries are effectively forced to operate under, or have regard for, US law.

3. The threat of withdrawing the clearing facility can be used as a means of putting pressure on other countries.

In other words the banker, the US, is no longer seen as operating a neutral and useful facility but as using that facility to pursue US interests. It's as if my banker were to say to me "I'm not clearing your cheques or giving you access to your balance any more unless you behave as I want you to." If in addition one were to suspect that the banker himself might slowly be going bust things would be starting to get edgy.

For these reasons some countries are attempting to get alternatives ready but they are working against the inertia of a system that is already in place, that works, and that still has the confidence of most. That is what keeps the system as it is. I'm not forced at gunpoint to use my bank for clearing my cheques and keeping my balance handy until I need it. It's just what I'm used to; and it would be remarkably inconvenient for me to set up a working alternative outside the present system. Inertia matters. See "London Bob" above -

" Historically even when the economy supporting it is surpassed the reserve status persists for a long time beyond then."

So as long as it's not abused too much, and as long as the US is considered to be good for the money, there's no immediate reason for changing things. And the notion that has so much support at the moment, that suddenly stopping using the dollar as the primary international currency would be a salutary brake on the neo-cons, is plain wrong. Any shock to the financial system and there go savings, pensions, and welfare. And not only in the States. The resultant instability could lead to further military adventurism, not less.

There is therefore no quick fix, no brave new financial world we can leap into and leave behind us all the menace and corruption of the old. Maybe like you, I do happen to believe that the financial system we have is approaching overload and is itself inherently unsound, but even if there is a will to put that right that should if at all possible be a matter of slow transition and not of sudden change. There's a reason mid-flight engine rebuilds aren't in the manuals.

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