Contra Corner is not about investment advice, but its unstinting critique of the current malignant monetary regime does not merely imply that the Wall Street casino is a dangerous place for your money. No, it screams get out of harms’ way. Now!
Yet I am constantly braced with questions about the US dollar and its impending demise. The reasoning seems to be that if America is a debt addicted dystopia—-and it surely is—- won’t the US dollar sooner or later go down in flames as the day of reckoning materializes? Won’t you make money shorting the doomed dollar?
Heavens no! At least not any time soon. The reason is simply that the other three big economies of the world—Japan, China and Europe—are in even more disastrous condition. Worse still, their governments and central banks are actually more clueless than Washington, and are conducting policies that are flat out lunatic—–meaning that their faltering economies will be facing even more destructive punishment from policies makers in the days ahead.
Indeed, Draghi, Kuroda and the commissars of red capitalism in Beijing make Janet Yellen and Stanley Fischer (Fed Vice-Chairman)Â appear to be slightly sober. So as trite as it sounds, the US dollar is the cleanest dirty shirt in the laundry. And on a relative basis, its is going to look even cleaner as two decades of monetary madness around the world finally hit the shoals.
You have to start with a stark assessment of the other three major economies.To hear the Wall Street analysts and economists tell it, Japan, China and Europe are just variants of the US economy with different mixes of pluses and minuses, experiencing somewhat different stages of the economic cycle and obviously shaped by their own diverse brands of domestic politics and economic governance. Yet despite these surface difference, the non-US big three economies are held to be just part of a global economic convoy heading for continued economic growth, rising living standards and higher stock market prices.
Actually, not so. Japan is a bankrupt old age colony. China is the most monumental credit and construction Ponzi in human history. Europe is a terminal victim of socialist welfare and statist dirigisme. All three are attempting to defer the day of reckoning via a resort to a final spasm of money printing and central bank manipulation that is so desperate and crazy that it can only end in disaster.
So there is no global convoy of inexorable economic growth and progress. Instead, we are entering a new era of spectacular financial disorder and credit fueled booms turning into unprecedented deflationary busts. And it is the three big economies outside the US which will hit the wall first, causing the US dollar to thrive on a relative basis.
Consider the absolute monetary madness in Japan—-where the current policy of the BOJ is to expand its balance sheet each month by what would amount to one-quarter trillion dollars on a US scale GDP. Yet this madcap money printing cannot possibly help the Japanese economy because it already has essentially zero interest rates and has had them for nearly two decades. So Kuroda can’t possibly induce Japanese households and business to borrow more money and stimulate growth because they have long been at “peak debt†and couldn’t borrow more if you paid them.
