“Chris, how concerned are you about the US losing global reserve currency status in the foreseeable future? Have you ever heard of Stansberry Research? This guy predicts US monetary and fiscal policy (massive debt, cheap money, etc.) is already causing flight from US dollars around the world. As the trend continues, the day will come when we’re no longer the reserve currency, and there will be a massive inflationary shock to US economy with enormous erosion in incomes, asset values, etc. He advises investments in gold, silver and non-US based assets. He lays out a well-reasoned, fact-based analysis. Very interesting. Do you have a take on this?”
Yes, I do have a take on Stansberry’s opinion. I don’t agree with it. It is built on false premises and faulty analysis.
The false premise is that “US monetary and fiscal policy (massive debt, cheap money, etc.) is already causing flight from US dollars around the world.” It’s not. The dollar remains by far the leader in international reserves: almost three times bigger than the euro ($3.8T vs $1.4T). Here's the link: http://www.imf.org/external/np/sta/cofer/eng/
America’s debt is not yet "massive", Treasuries are Aaa (unlike Japanese, French and British government bonds), and dollar credit is not cheap in real terms. America remains a very attractive place for foreign money. Furthermore, East Asia has nowhere else to invest their reserves. No other bond market is deep enough, except for Japan, and everyone is full up on JGBs. (What do you think the ECB uses as its reserve asset?)
In order to intervene effectively in the FX market, central banks need to own large quantities of assets that are liquid, safe and stable in value. This means foreign government debt. No other government security in the world can compete with Treasuries. Remember, the reserve asset must have a liquid market at all times. That’s Treasuries, and nothing else. Remember: neither the ECB nor the EU issue bonds. Euro-denominated government bonds are issued by the member states of which Germany is the benchmark.
At a time of escalating global turmoil, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided.
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Stansberry says that, when the world wakes up to the worthlessness of the dollar, there will be a massive inflationary shock to the US economy. Now that’s really dumb. If the world should ever dump the dollar, the shock will be deflationary, not inflationary. A dramatic rise in bond yields is deflationary and will produce a monetary, economic and fiscal convulsion. Yes, the Fed can offset this with inflation, but that its a counter policy. Rising real interest rates are inherently deflationary.
Why do you suppose that when there is a financial crisis, the world's central banks ask the Fed for dollar swap lines? Because their banks are indebted in dollars, which they can’t print. The dollar is the currency of global finance; it has no competition.
Furthermore, a factoid that the gold community tries not to mention is that the dollar has appreciated for the past two years while gold has depreciated. If there is a run, it is from gold into dollars. How liquid do you suppose the bullion market is, when you need $30 billion on a moment’s notice?
Who are the competitors of US Treasuries? Basically, JGBs, gilts and Bunds. JGBs yield nothing, and the Bund and gilt markets are not big enough for the conduct of major monetary operations. When the BoJ or the PBoC want to intervene in the FX markets, they use Treasuries, not Bunds or gilts or gold. Both the euro and the yen are, today, story paper. Central banks don’t buy story paper (not even in Latin America). The almighty dollar is still the almighty dollar, with a growing economy, low inflation, and a rapidly declining fiscal deficit. There is no alternative.
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With German voters clearly demanding comprehensive change, the far right has been capitalizing on the public's discontent and benefiting from broader global political trends. If the country's democratic parties cannot deliver, they may soon find that they are no longer the mainstream.
explains why the outcome may decide whether the political “firewall” against the far right can hold.
The Russian and (now) American vision of "peace" in Ukraine would be no peace at all. The immediate task for Europe is not only to navigate Donald’s Trump unilateral pursuit of a settlement, but also to ensure that any deal does not increase the likelihood of an even wider war.
sees a Korea-style armistice with security guarantees as the only viable option in Ukraine.
Rather than engage in lengthy discussions to pry concessions from Russia, US President Donald Trump seems committed to giving the Kremlin whatever it wants to end the Ukraine war. But rewarding the aggressor and punishing the victim would amount to setting the stage for the next war.
warns that by punishing the victim, the US is setting up Europe for another war.
Within his first month back in the White House, Donald Trump has upended US foreign policy and launched an all-out assault on the country’s constitutional order. With US institutions bowing or buckling as the administration takes executive power to unprecedented extremes, the establishment of an authoritarian regime cannot be ruled out.
The rapid advance of AI might create the illusion that we have created a form of algorithmic intelligence capable of understanding us as deeply as we understand one another. But these systems will always lack the essential qualities of human intelligence.
explains why even cutting-edge innovations are not immune to the world’s inherent unpredictability.
A friend sent me the following email:
“Chris, how concerned are you about the US losing global reserve currency status in the foreseeable future? Have you ever heard of Stansberry Research? This guy predicts US monetary and fiscal policy (massive debt, cheap money, etc.) is already causing flight from US dollars around the world. As the trend continues, the day will come when we’re no longer the reserve currency, and there will be a massive inflationary shock to US economy with enormous erosion in incomes, asset values, etc. He advises investments in gold, silver and non-US based assets. He lays out a well-reasoned, fact-based analysis. Very interesting. Do you have a take on this?”
Yes, I do have a take on Stansberry’s opinion. I don’t agree with it. It is built on false premises and faulty analysis.
The false premise is that “US monetary and fiscal policy (massive debt, cheap money, etc.) is already causing flight from US dollars around the world.” It’s not. The dollar remains by far the leader in international reserves: almost three times bigger than the euro ($3.8T vs $1.4T). Here's the link: http://www.imf.org/external/np/sta/cofer/eng/
America’s debt is not yet "massive", Treasuries are Aaa (unlike Japanese, French and British government bonds), and dollar credit is not cheap in real terms. America remains a very attractive place for foreign money. Furthermore, East Asia has nowhere else to invest their reserves. No other bond market is deep enough, except for Japan, and everyone is full up on JGBs. (What do you think the ECB uses as its reserve asset?)
In order to intervene effectively in the FX market, central banks need to own large quantities of assets that are liquid, safe and stable in value. This means foreign government debt. No other government security in the world can compete with Treasuries. Remember, the reserve asset must have a liquid market at all times. That’s Treasuries, and nothing else. Remember: neither the ECB nor the EU issue bonds. Euro-denominated government bonds are issued by the member states of which Germany is the benchmark.
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At a time of escalating global turmoil, there is an urgent need for incisive, informed analysis of the issues and questions driving the news – just what PS has always provided.
Subscribe to Digital or Digital Plus now to secure your discount.
Subscribe Now
Stansberry says that, when the world wakes up to the worthlessness of the dollar, there will be a massive inflationary shock to the US economy. Now that’s really dumb. If the world should ever dump the dollar, the shock will be deflationary, not inflationary. A dramatic rise in bond yields is deflationary and will produce a monetary, economic and fiscal convulsion. Yes, the Fed can offset this with inflation, but that its a counter policy. Rising real interest rates are inherently deflationary.
Why do you suppose that when there is a financial crisis, the world's central banks ask the Fed for dollar swap lines? Because their banks are indebted in dollars, which they can’t print. The dollar is the currency of global finance; it has no competition.
Furthermore, a factoid that the gold community tries not to mention is that the dollar has appreciated for the past two years while gold has depreciated. If there is a run, it is from gold into dollars. How liquid do you suppose the bullion market is, when you need $30 billion on a moment’s notice?
Who are the competitors of US Treasuries? Basically, JGBs, gilts and Bunds. JGBs yield nothing, and the Bund and gilt markets are not big enough for the conduct of major monetary operations. When the BoJ or the PBoC want to intervene in the FX markets, they use Treasuries, not Bunds or gilts or gold. Both the euro and the yen are, today, story paper. Central banks don’t buy story paper (not even in Latin America). The almighty dollar is still the almighty dollar, with a growing economy, low inflation, and a rapidly declining fiscal deficit. There is no alternative.