Saturday, August 22, 2020

On the Role of the US Dollar as a Reserve Currency

Matt Wittemann emails:
I’d be interested in your take on Charles Hugh Smith’s article that says the Fed’s “prime directive” is to defend the dollar’s supremacy in order to defend the empire:

My counterpoint to what he writes is that what he is describing is really the prime directive of our military (through direct threats and the enforcement of sanctions).
RW response:

It would take a book for me to properly respond to all the points is Smith's essay that I disagree with.

Here are two of the most important points he makes.

He writes:
[W]hat all those proclaiming the death of the USD are saying is the Imperial Project is consciously choosing suicide, all to boost the U.S. stock market
Who said the Empire is consciously choosing suicide? I doubt there is anyone in a position of influence that understands how mad money printing can destroy that role of the dollar as a reserve currency. Currently, it is as though the Fed and Trump administration economists have bought into Modern Monetary Theory that there are no consequences to mad money printing.

I have a book coming out on MMT in roughly two weeks where I discuss the multitude of problems with MMT.

It appears that Smith gets that mad money printing is, well, mad, but then he takes a Keynesian perspective that it needs to be done:
We get it: digitally printing trillions in excess of actual productivity eventually destroys the purchasing power of the over-issued currency. We also get the need to keep interest rates at near-zero so governments can fund endless trillions in stimulus and other giveaways--billions to the billionaires and a trickle of bread-and-circuses to the debt-serfs.
No there is no need to keep interest rates at near-zero. It is just another destructive move by the Fed. Smith should read my book when it is out, I cover this.

Aside from these two points, Smith continues on about the Fed and the role of the dollar as a reserve currency but it is from a perspective that is uninteresting to me and would take me much off track from my current projects to deal with properly.

So I will just leave it at Smith looks at the economy from a fundamental perspective that is far different than me and that there is no need for a monetary Keynesian manipulation of interest rates to near-zero or any other rate.

The dollar as the world's global money does allow the US government to muscle many countries and I am far from a big fan of that but the muscling it does because of its role at issuing the global reserve currency is muscling that would be much more difficult to do in many cases with military might.

That said the US government using the dollar's reserve currency status or the military to manipulate the globe are just different techniques to do so. For some efforts using the dollar's reserve status is a more effective technique for other programs the military is a more effective technique.

From my perspective, I see no necessary role for the US government in money manipulations for global or domestic purposes or for military adventures anywhere overseas.

All this madness should be shut down.



  1. "No there is no need to keep interest rates at near-zero." But, RW, he just told you that there is a perfectly logical reason to keep interest rates near zero. And from his perspective he is absolutely correct. At near zero, the Treasury can finance it's debt at zero (direct) cost! No cost to taxpayers and no crowding out. See, money does grow on trees and water does flow uphill. The money cranks are loose in the land again.

    1. zero interest rates serve the oligarchy and no one else. Charles spells out the crony world as well as anyone and he spells out the layers of dysfunction impact better than any!

      Fiscal policy is living in wonderland and the multinationals and the PACS they own run this world. RW's speculation is about as impactful as the boys finger in the Dyke. Just ask Millie Weaver.