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Note (2:05pm EDT) : The podcast was put out just prior to the FOMC announcement. In my opinion, the Fed just announced some relatively hawkish predictions with rates going above neutral. Plenty of rate hikes for 2022. Look for the USD to strengthen somewhat.
Beware of premature warnings of the dollar’s demise
-The USD should prevail until war. China WILL NOT be a net beneficiary from war as its economy will suffer, and the yuan is not yet ready to take main stage. Given what is needed for a country to make its currency a global reserve, the yuan may not be ready for years, if ever.
-The US is being set up for a humiliating military defeat, and its strawman politicians are purposely being presented as buffoons. Moreover, the US has recently shown a reluctance at defending its allies and is being portrayed as soft in military affairs. Yet, this has only helped to set the table. There is no currency currently available that will be able to take the USDs mantle.
The characteristics of a reserve currency
-The dollar’s process in becoming the global reserve was decades in the making; going back from Bretton Woods to until recently.
-Any nation whose currency is the global reserve needs to supply the world with enough of its currency to conduct trade efficiently. This means;
- This country must be willing to endure persistently large balance of payments deficits and ever larger fiscal deficits (Triffin Paradox and Triffin Dilemma),
- This nation must also be willing to offshore its productive capacity,
- This nation must be willing to have porous borders as global citizens will be encouraged to enter this country to seek this currency to bring home.
-Is China willing to accept these circumstances in order to make the yuan the reserve currency? I say no, at least not before WWIII
-PLEASE STOP USING THE TERM PETRODOLLAR. It doesn’t apply as the US is the largest energy producer, and at one point was a net exporter of energy. The term is an anachronism and almost sounds childishly simple.
My predictions for asset prices as the dollar loses this status
-Stock prices continue to be well supported despite current circumstances. I tell you why
-Housing prices continue to rise despite mortgage rates rising 100 bps higher. I tell you why.
-What will happen to house price-to-income multiples in the US as the dollar fades in the global arena.