On Sat, 1 Jun 2019 at 18:48, Srini RamaKrishnan <[email protected]> wrote:
> You seem to be taking a very literal approach, which I'm afraid misses much > of the picture. Let me spell it out a little more. > When you said "The US Dollar is backed by the might of the scariest military in the world. It may not be the gold standard, but in fact it is even better." I took you at your word, and I have pointed out why it's wrong. The superficial layers like the bond markets or federal reserve are not > stand alone, I see that they are ultimately inherited from military power. > And I have pointed out that falls apart under analysis. > In fact nobody trusts the Federal Reserve anymore than they absolutely have > to. > That's another bald, unsupported assertion, and it's also false. No one "has to" trust the US Federal Reserve, and the value of the dollar is an indication of how much or little they do trust it. If the Fed loses trust, the dollar loses value precisely because no one "has to" trust it. > The US can create dollars (QE) as needed with little blowback. Certainly the Fed can increase the money supply, but I'm not sure what "blowback" is, why you seem to think it's bad, or what it has to do with US military might versus the power of the Fed. There are both possible positive effects of increasing the money supply (primarily stimulating economic growth) and possible negative effects (inflation or lowering the value of the currency relative to other currencies). > This ability > to manipulate at will is what makes it a strong currency, not the exchange > rate. If Russia or the Swiss tried it they'd be laughed at, and then > sanctioned to perpetuity. False again. The Swiss used QE in 2008 at at the same time the US was doing so, and did so at a larger rate than *any* *other* *country.* Far from being laughed at or sanctioned, exactly nothing was done. > In fact the Swiss and the Russians have been > sanctioned by the US for much tinier currency manipulation. > The US has only ever designated three countries as currency manipulators - China, Taiwan, and Japan. > Sanctions are enforced by the military. > No, sanctions for currency manipulation are addressed by negotiation and economic sanctions, not the military. > Since nearly all American external debt is held in dollars it is the only > country that can print its way out of a Dollar denominated debt. This > behaviour is tolerated by the rest of the world because the US has placed > itself at the heart of all economic exchange using the big stick. Anyone > who dissents will lose access to most of the international economy. Like > any good imperialist the US no longer needs to pull out the military for > every little thing, everyone knows the stakes and plays along. > Which means that the dollar is not backed by the military, it's backed by the power of the US Federal Reserve, which is what I said. The WSJ article cited in the email you quoted points out this very thing - and what countries are doing to reduce that power and get around that stick. In particular what European countries are doing to pull the teeth of the USA in unilaterally sanctioning Iran against the wishes of our European allies. The US military will not be useful in addressing the European response. > In fact nobody has any idea exactly how many dollars are out there, and > that's how the US likes it. So much the easier to dump plane loads of cash > over Afghanistan or Columbia. > Wut? The Fed has a pretty good idea how many "dollars are out there" and so can you if you want to read their monthly H.6 report. As of April 2019* there are 14,513,500,000,000 dollars out there. > They don't control the World Bank, IMF, Wall Street, LIBOR. Supposedly > independent institutions that in reality answer to America more often than > not. > Now you've veered off into tin foil hat territory. I'm not going to play sinister global conspiracy games, especially because they have nothing to do with whether the US dollar is backed by the US military or not. > The Swiss only recently got off the currency manipulator warning list > maintained by the US (the biggest currency manipulator) for buying up Euro > and USD to maintain the CHF. It costs the Swiss real money to hold up the > Franc, The Swiss were removed from the monitoring list as of the most recent report** (as was India FWIW) the current list is China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, and Vietnam. they can't print CHF like the US prints dollars. Nobody would wear > it. > This is factually incorrect as I pointed out above. In 2008 they "printed CHF" (used QE to increase their money supply) to the tune of 100% of their GDP. The largest such percentage in the world. No one said "boo." They did print it and everyone did wear it. (Note that QE is materially different from the currency manipulation criterion of buying foreign currency.) Look, I know you were engaging in hyperbole, but facts matter. The US dollar is backed up by trust in the Fed and the US government, not fear of the US military. The US does wield outsize power but that's not primarily from the size of its military, it stems from the fact that much of the world economy is based in US dollars and goes through US banks. It has been convenient to have a single currency and single clearinghouse for transactions. But because the US has recently abused that position of power (in the eyes of our allies) they are building and using alternatives, and the US military is not involved, and will not be involved. -- Charles * https://www.federalreserve.gov/releases/h6/current/default.htm ** https://home.treasury.gov/system/files/206/2019-05-28-May-2019-FX-Report.pdf
