US Dollar as “Global Reserve Currency” amid Fed’s QE and US Government Deficits: Dollar Hegemony in Decline

Other options also shaky. Central banks leery of Chinese RMB, its share still irrelevant.  Euro’s share is stuck. But the yen’s share has been rising.

By Wolf Richter for WOLF STREET.

The US dollar’s position as the dominant global reserve currency is an immensely important factor in supporting the ballooning US government debt, the Fed’s drunken money-printing, and Corporate America’s ambition to offshore production to cheap countries, thereby creating huge and ever-growing trade deficits. They all have become dependent on the willingness of other central banks to hold large amounts of dollar-denominated paper. But from the looks of things, those central banks might be getting a little nervous.

The global share of US-dollar-denominated exchange reserves – US Treasury securities, US corporate bonds, US mortgage-backed securities, etc. held by foreign central banks – fell to 60.5% in the third quarter, according to the IMF’s COFER data release. This is the lowest since 1995. Over the past six years, the dollar’s share has been dropping at a rate of about 1 percentage point per year:

The dollar’s 20-year decline.

Dollar-denominated global foreign exchange reserves do not include the Fed’s own holdings of dollar-denominated assets that it bought as part of its QE, such as its $4.6 trillion in US Treasury securities and $2.1 trillion in US mortgage-backed securities.

The decline in the dollar’s share began 20 years ago when the euro assumed the place of the predecessor currencies, including the Deutsche mark, that used to be in the basket of foreign exchange reserves. But that 20-year 10-percentage-point decline pales compared to the near 40-point plunge in the dollar’s share from 1977 (85%) to 1991 (46%), which was followed by the 25-point surge till 2000.

For now, the motto among these central banks, jointly, seems to be: easy does it. No one wants to trigger a sudden crisis (2020 = Q3):

The euro stuck at a 20% share. Dreams of “dollar parity” put on hold till further notice.

The combined countries of the Eurozone have had a large trade surplus with the rest of the world, and particularly with the US. Their currencies were already reserve currencies. So ever since the euro became an official currency, and with its members expanding from originally 5 to now 19, there was talk about the euro eventually reaching “parity” with the dollar as a reserve currency. But the Euro Debt Crisis put an end to that talk when euro-denominated sovereign debt, issued by Greece, defaulted.

The euro’s share has since been stuck in the range between 19.5% and 20.6%, though the Eurozone now comprises 19 member states. In the third quarter, the euro’s share was 20.5%. The euro was the last effort by a single currency to dethrone the dollar.

The Chinese renminbi still doesn’t count.

The RMB became an official reserve currency in October 2016, when the IMF included it in its basket of currencies that back the Special Drawing Rights (SDRs). There has been talk that it would be the next currency to dethrone the dollar. But by the looks of it, this will require more patience than mortals are expected to possess.

After four years of being in the SDR basket, the RMB’s share in Q3 was still just 2.13%. But, but, but… it has edged past the Swiss franc (0.17%), the Australian dollar (1.73%), and the Canadian dollar (2.0%).

If the share of the RMB continues to rise at the pace of the past two years, it will take 110 years for it to reach 20%. At this pace, it’s not going to be a threat to the dollar in the expected lifetime of the average Gen Z member. But things move slowly until suddenly they move fast; and we can’t draw a straight line for 110 years. The RMB is the short red line in the spaghetti near the very bottom (more on that spaghetti in a moment):

The rise of the Japanese yen.

To look at the spaghetti at the bottom in the chart above, we have to pull out our magnifying glass, and the chart below does that. What sticks out is the rise of the yen, now at a share of nearly 6%, up from 3.5% in 2015, far outpacing the rise of the RMB. This has made the yen the third largest reserve currency.

Japan is fiscally in the worst shape of any country in this group, or of any major country; and Japan has also been the most relentless money printer of any major country. But it normally tends to have a large trade surplus with the rest of the world, and faith in the yen, including by the Japanese themselves, has remained unshaken.

The share of the pound sterling (GBP) has remained roughly flat at 4.5%, despite the Brexit chaos since 2016, making it the fourth largest reserve currency.

The Eurozone and Japan – with the #2 and #3 reserve currencies – normally have large trade surpluses with the rest of the world. This shows that the economy of a major reserve currency doesn’t need to have a trade deficit. The US didn’t have persistent trade deficits until the early 1990s. There were years before then when it even had a trade surplus. The persistent trade deficits didn’t take off until the mid-1990s and exploded from there on amid the rampant “globalization” of Corporate America. The dollar being by far the largest reserve currency has enabled the US to easily finance its big trade deficits, which enables the US to even have those big trade deficits.

If the dollar’s status as top-dog global reserve currency deteriorates a whole lot, it would shake up that equation. At the pace of decline of the past six years, it would take a decade for the dollar’s share to drop to 50%, with other currencies picking up the slack. But for the equation to be shaken up, the dollar’s share would likely have to drop well below 50%.

“Easy does it” is still the motto with reserve currencies. And it works until suddenly, for whatever reason, things go off the rails. But until something does go off the rails, the movements are slow and steady and span decades.

An increasingly important question, because someone always has to buy this debt – and it’s not just the Fed. But the share of foreign holders is waning. Read… Who Bought the Monstrous $4.2 Trillion Added to the Incredibly Spiking US National Debt in 12 Months? Everyone but China

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  299 comments for “US Dollar as “Global Reserve Currency” amid Fed’s QE and US Government Deficits: Dollar Hegemony in Decline

  1. John says:

    Wolf,
    Thanks for your thoughts on currencies. So Britain is at 4.5%. So the pound being stronger today I thought any ADR’s or ADS’s would be higher today along with the dollar weakness, and the shares in Britain lower. It doesn’t seem that way though. Could you possibly explain that or is it that markets are irrational here. Thanks for your writings and sharing of your knowledge.

    • Seneca’s Cliff says:

      In “ the Sun Also Rises” Hemingway describes the process of going broke.

      How did you go bankrupt?
      “Two ways. Gradually, then suddenly”

      • Happy1 says:

        You beat me to this comment!

      • Right. Nothing happens until it does.

      • kam says:

        Usually, you are broke for a long time. “Suddenly” is merely the cold recognition of the fact.

      • Heff says:

        “If something cannot go on forever, it will stop.”

        Herb Stein

        • Auldyin says:

          Kudos Wolf, another superb statistical exposition. This time how nations vie for dominance over time. The current driving force seems to be, who can be most “economically efficient” Who makes most widgets most cheaply? Economics is called the ‘dismal’ science for a reason, because it’s a dismal way to live. When I was a child 70yrs ago in Scotland there were at least 40 different makes of UK cars 30 makes of motorcycles. Aircraft, everything. The railways had a thousand types of different locomotives some as fast as today’s. Women and men wore thousands of different outfits from thousands of different individual shops. Not just jeans & trainers etc etc, etc, OK we didn’t have online pizza delivery or selfie phones but that’s a trade I had no desire to make Life was a cornucopia of real individual variety in everything. Bristol was not Newcastle. Nowadays in the name of global profit optimisation everything, everywhere is standardised and the same. The more mass produced, the more economically efficient. Dull and boring. Life doesn’t have to be like this, it’s a choice, people managed before. Design of all things is now so heavily proscribed and regulated that a designer is ‘bold’ if he puts a different origami fold in a panel. I’m old, it’s too late for me to give a damn, but I like to think Britain could now be ‘different’ and ‘individual’ again in a same, same world and to Hell with the miseries of economic and bureaucratic efficiency. We could be the first to change things again, like we did in the first industrial revolution when we started the whole process in the first place. What’s a few quid a week less if you actually enjoy a relaxed and interesting life? Even USA will get it eventually.

    • Anthony says:

      Of course the Pound will go up. It dropped over 20% after the Brexit vote because they thought it would be the end of the world to leave the EU. So, over the next year expect the Pound to go up 20% as this is England and nothing much has changed for many a hundred years and will not change that much over the next 500 years… lol

      • Gandalf says:

        Anthony,
        A hundred years ago (1920), the British Empire was still intact, and the British pound WAS the world reserve currency, i.e., well over 50% of world trade was conducted in the pound sterling. Not the USD, not even close.

        All that will be left of Great Britain after the full weight of Brexit has hit will be not so merry old England.

        The massive loss of blood and treasure from WWI and WWII cost Great Britain its Empire, and nearly bankrupted the UK – did you know that the UK still had food rationing post WWII until 1954? Yeah, the 1950s, a time that American think of as the “Great” period of Make America Great Again, the time of American Graffiti, Happy Days, etc., was a period of stringent belt tightening for the Brits as they watched their Empire slowly dissolve away to independence, and the watch the USD take over as the world reserve currency.

        Which should be an object lesson for American politicians – nothing is written in stone forever – the USD will be a world reserve currency only so long as nobody else’s economy and financial structure is as strong.

        • Anthony says:

          Sorry you don’t get it….For most people here in England, nothing has really changed for ever….Yes we went through wars and our currency fell but nothing has really changed for the ordinary people. The world hasn’t ended..we still do the same things day in day out that we have for a thousand years…we get up, we work, we get a bit drunk at night, we laugh at ourselves and especially everyone else who we laugh at all the time….this is England, nothing really changes…. If it does change, through say the coming mass world unemployment, then you know its ten times worse for people in other countries(apart from maybe Switzerland where things don’t change as well) and that includes the USA and their tent cities……

        • Thomas Roberts says:

          Englands economy has been hallowed out over the decades in favor of being a finance economy. While, that may not have impacted most brits yet, it could hit at any moment. The remaining manufacturing in England is dependent on the EU.

          The real result of brexit is that England is no longer in control of its economy. England is dependent on EU countries and companies routing money through England. If EU leaders decide to bring that finance home, England no longer has a say in it. Once a finance economy begins to faulter, it could easily lose finance from the rest of the world as well. After brexit, any advantages the UK had for finance will begin to disappear, especially, as automation kicks in. Automation could eliminate most finance jobs and make it easy to route money through new countries.

          If England’s economy begins to take a hit, we could also see northern Ireland and Scotland split off, further destabilizing England, potentially, scaring off the remaining manufacturing.

          It’s hard to say exactly what or when things will happen, but, it’s upto the EU now. I fail to see why England is in any way resilient now that it’s lost all leverage and has nothing economically going for it, once finance disappears. England’s society is also not a beacon of egalitariianism. It also has a fake democracy.

        • VintageVNvet says:

          Good start Gandalf, and I for one really appreciate your prio comments, and hope you will continue with your ”reports from the dirt,” as is my description of yours from operating rooms, etc.
          This time, I suspect you are out of your lane, and I suspect, based on starting with digging ditches for pipes under the slab, and ending with being fairly respected but very well paid analyst we are not only in line for some serious and hurting corrections, but that those corrections will come sooner AND later, and at this point WE the Peed ons cannot do a damn thing to prevent or stop them.
          SO, only thing to do is to prepare as best you can within your current situation…
          Save cash if you can,,, PMs if you can after cash,,, and after that, if you can, plant ”tree food” types, especially those that will provide enough vitamin C to prevent scurvy, and, most of all those tree foods that do well in whatever latitude in you wish to live .
          Here’s a recent photo of a FL avocado to encourage you to plant and cultivate all the local tree foods you can.

          C:\Users\Bill Z\Pictures\SS PHOTOS\2021-1-1 FL avos.JPG

        • DoublevD says:

          I don’t know about any fiat currency maintaining any kind of “share” of anything of value, once the Great Reset starts picking up steam. They’ve all been debased below $0 based on unsustainable debt creation. It’s coming time to Pay The Piper & cryptocurrencies (the right ones truly private & secure) will rule as the last bastion of defense against corrupt & fraudulent governments.

          Part of their “Plan” is a New World Order digital currency where everyone is subject to surveillance & tracking, Making paper currencies a thing of the “past”. With all the FOMO uphoria in BTC over the last 2 weeks, it’s a sign that a lot of Big Money players are moving their money into Crypto to safeguard & grow that money. I expect that more & more people will want to join the party soon as they see it become more and more mainstream. And the benefits of investing in it esp. some of the great small cap names. But more importantly it’s deciding that it’s better to choose freedom over slavery.

        • joe2 says:

          You are right whatever the shutdown quarantined unemployed clucks say.
          Kind of like the US patriots who think they are not Marxists now.

        • Gandalf says:

          My juxtaposition of the USD as the current world reserve currency, in the context of Wolf’s article about the recent decline of the USD as a reserve currency, and the historical bit about the collapse of the British pound as a world reserve currency, was deliberate. The USD is not going to be the world reserve currency forever, especially if the US does NOT manage its finances more carefully, and deals with the very real threat of China as a competitor (India and Brazil are also up and coming competitors).

          Essentially, as far as I can tell, the main thing still going for the USD right now is that all of its current competitors are more screwed up than the USD is right now.

      • Frederick says:

        Pound Sterling go up 20% from here very doubtful actually I’m surprised that it’s come back this much to be honest It’s more of a dollar weakens story not a sterling strength story I wouldn’t be surprised to see parity with the Euro for Sterling going forward

        • Mikey says:

          City of London has its own rep in parliament that can veto anything ( the old Roman city of London) uk also had thirteen island colonies where much of the worlds money is laundered. No change from brexit except maybe euro trading

        • char says:

          Laundry can only be done in places advantages under control by the powers to be. Using a British laundry for EU wealth will in the future be very noncompetitive compared to an EU laundry. And the EU (and giga-laundry US) will also make sure that the UK will be less competitive for wealth extracted from the South America, Africa and Arabia. IMHO the UK laundry industry is death in 10 years outside Britain itself and paria state

    • Arthur Laramee says:

      Thing is, I think Wolf’s view of the Renmibi is wrong. Xi Jinping launched The New Silk Road, also known as the Belt and Road Initiative in 2013. It is a brilliantly conceived strategy and excellently executed plan to make China the dominant country in the world with the intended side effect of replacing the dollar with the Yuan as the world’s reserve currency. A key part of this was requiring every country that accepts loans from China must use their own currency or the Yuan in their purchases guaranteeing they cannot use the dollar as has been the practice. Trump interfered with the success of China’s plan to a degree, slowing it down, but with Trump gone that interference s gone. China will continue to surround and absorb America, using our own funds derived from the trade imbalances, while doing the same to the rest of the world. Some like Australia recognize China’s evil plans and are struggling to defend against their plans but trump was the only one in a position of power in the USA that did anything about it.

      • char says:

        In what way is the plan evil?

        This sounds like a McD employee calling Burger Kings plan to become number 1 evil.

        • Winston says:

          “In what way is the plan evil?”

          The US is far from perfect, but when a totalitarian police state with 100% Stasi characteristics aided by 5G enabled surveillance and tracking and facial recognition cameras everywhere becomes the world hegemon, you may understand why it’s evil. Life will be a dystopian mix with characteristics from Brave New World, 1984, and Fahrenheit 451. Read any of those?

        • char says:

          That is China internally, or did you mean the UK? But what would the difference be between the US and China for other countries? It is still way to expensive to run Stasi while foreign powers rarely care about the way a country is run outside a few key issues, and China has fewer of those key issues than the US with its policy to destroy any non-capitalistic country

      • Thomas Roberts says:

        Arthur Laramee,

        It is indeed a very evil plan, but, there are a lot of problems with it.
        The first problem is that the construction of most of the BRI projects is of extremely low quality. For instance, the CCP builds coal power plants that have very low efficiency, creating much more pollution and with a higher fuel consumption. A much bigger problem though, is they have created dams in areas where it is very dangerous to do so. These dams are often located in areas prone to earthquakes (they could also break on their own, because, of poor construction) and when some of them eventually break, could release enough water to kill many thousands. One of the dam they built in Educator?, which was supposed to be a major power station for the country, actually blew the nations power grid (because of poor construction) and still generates far less power than it should. The CCP has a history of building terrible dams, which, in 2020 made flooding and many natural disasters in China much worse. In China, there is actually very terrible flood control even in the more major cities, in order to prevent bigger cities from being flooded in 2020, they actually would blow certain sections of levees or smaller dams, so that smaller cities and villages would instead be flooded. They also would not tell the villagers ahead of time (this did result in deaths), this was happening. The Banqiao Dam which broke back in 1975 in China killed 230,000 people and everything about it was kept secret for decades. A more recently built dam though is the three gorges dam; which, was under severe risk of breaking in 2020 and is now damaged, if it breaks it could result in the deaths of millions and flooding could occur both downstream and upstream, effecting over 500 million people and many of the most important cities in the country. If they would build such terrible dams in their own country, imagine how bad they ones they build elsewhere are.

        The second major problem is that most of the BRI projects, don’t make actual economic sense and are instead designed to debt trap countries and are signed on by corrupt politicians. Despite, the claims that trillions are destined to go into the BRI plans. So far only a few hundred billion has been spent (much of that has been stolen by corrupt politicians), and if the CCP runs out of money or enough resistance builds towards BRI, they may be forced to stop.

        The third major problem is that the CCP and China are much weaker and have less leverage than they themselves and others think. Because, in the past, the CCP received little to no consequences from the international community for it’s actions it thinks it can get away with stuff forever. Right now, because, of the pandemic the CCP caused and tried to exploit, most countries are going to wait until it’s over, before starting to push back. Right now, most countries are not yet in the same coold war mindset that the CCP is, but, as countries begin to think the way the CCP does, the CCP won’t be able to respond. This past year, the CCP has taken many actions against Australia, to show the rest of the world the wrath of the CCP, however, China is heavily dependent on iron ore exports from Australia, and Australian iron ore exports cannot be replaced by the any other country in the foreseeable future. Recently, the CCP blocked coal exports from Australia, causing ships to drift at see in a show of force, however, many cities in china are already experiencing rolling blackouts from coal shortages. If Australia were to block iron ore exports to China, China’s economy would crater.

        The best thing to counteract the CCP right now, would be to create momentum for a bill to congress, that would require all US corporations, large companies, and universities to publish an annual report to the public that detail their involvement with China and the CCP; this report would detail any agreements made, potential future problems that could be caused by their dealings with the CCP for their organization and America and other countries, and much more; certain executives for the organization would have to sign it, there would have to be actual criminal penalties imposed for lying on it. Also all pharmaceuticals will have to be made in America.

        • Say It Aint So says:

          Great post Thomas and I agree with your suggestions…however, when the top corporations; Amazon, Apple, and others all use China for manufacturing you will not see this happen, maybe slowly, but hardly at all. Conspiracy theorist around have even suggested that Amazon was in partnership with CCP to bring down the Trump administration as well as Apple and all the others who rely on China for their last mile of growth…Most Americans have now engaged with China through Amazon and they have adopted “bunker mentality” due to Covid…which most believe was a conspiracy by our own Government in partnership with China…to bring us under control…

        • Thomas Roberts says:

          Apple is actually diversifying away from China. Amazon makes some stuff themselves, but, they are a store. So they aren’t deciding where stuff is made. They can pick some stuff for their store, but, that is a topic for another day.

          The social media companies and Google are the ones to accuse of election interferrence and conspiiring with the CCP.

          The big thing is to ban pharmaceuticals from China and require them to be made in America, during the pandemic they caused. The CCP threatened to cut off pharmaceutical supplies to America. Anything needed for daily life like certain plastics needed for food and other things like that, will have to be produced in America. Also anything high value or requiring the use of high value machines would not be allowed to be made in China. All in all, not really a huge amount of stuff needs to be moved out of China, that fast, but, any leverage they have over America, needs to be quickly and forcibly moved out. Exposing the CCP as less powerful than they claim and cutting off their control of America institutions will not be very difficult, but, very important. Many corporations in America, might actually want a law, exposing the CCP’s attempt to exert leverage over them, as it will prevent the CCP from largely doing so. Right now, the CCP can individually and secretly coercce US companies, but, if US companies were forced to expose their dealings, then the CCP’s leverage over them, could be greatly reduced or eliminated. The companies themselves can never push for such a law; as the CCP will try to punish them.

          We have to remember that originally the CCP offered US corporations relocating their manufacturing operations to China, a sweet deal, that deal has greatly soured. While, US corporations are not likely to bring their operations stateside anytime soon; them relocating to somewhere else, is not that hard of a sell. Especially, as more and more move.

        • yewtaipan says:

          America is now a Third World country. America do not even have their own robotic and automation design and manufacturing company.

          China Advanced Robot & Automation 2018
          Blame the massive transfer of wealth from the middle class to the rich to Bill Clinton the conman. It was Clinton who give China Permanent Most Favored Nation Status in 2000 that enrich the Wall Street bankster, by sending million factory jobs to China.

          It’s Time to End China’s Most Favored Nation Status
          December 1st, 2020
          http://savingusmanufacturing.com/blog/?mc_cid=f3de3082a7&mc_eid=8857b69a4d

          Senator Cotton’s press release states: “The China Trade Relations Act would revoke China’s permanent most-favored-nation status and return to the pre-2001 status quo, whereby China’s MFN status must be renewed each year by presidential decision.
          Congress could override the president’s extension of MFN by passing a joint resolution of disapproval.

          https://www.washingtontimes.com/news/2020/sep/11/normalizing-trade-with-china-back-in-2000-was-a-co/
          Normalizing trade with China back in 2000 was a colossal mistake
          Open markets have led to massive U.S. job losses

          Americans are suckers and boobies and listen too much to the advice of people like Kissinger and the late Brzezinski.

          AMERICAN UNITED WORKER FRONT

    • NBay says:

      Another big thanks here. That was a damn good read….damn good. I’ll stay out of the blaming, solutions, fears, the making of more of one’s personal money, and basically fortune telling stuff that is most likely below.

      It’s still “The Coin of the Realm” is my only comment.

      • NBay says:

        Oops! Read a little further and saw Gandalf has returned.

        One of the top commenters here, Doc, IMHO.

        Still recall your comment here about the German National Health Service, and still agree 100% with them, according to your carefully worded general characterization of it.

    • MooMoo says:

      Yerra, sure. The ‘hegemony’ is in decline…but that has an end game that is years away. Or at least one conflict with China away.
      We’ve gone 1.61.-1.03 vs EUR (essentially the DXY) over a decade. The move is no big deal. The demand for physical Dollar paper is there.
      But the USD decline did one thing…it helped pump the DJIA and NASDAQ and S+P.

      Did the seller of stocks on ‘fundamentals’ forget the numberer???

    • Anthony says:

      Stock is replacing valuta, dollar, euro, yen as money store and currency

      Once you realize this, all falls into place

  2. Micheal Engel says:

    1) We don’t care about the US deficit bs.
    2) We want more for a single mother of four, on food stamps,
    because $10,000 is for losers, crumbs.
    3) If u don’t vote for her there will be more Monaco Club bicycles attacks. The police stop only fat bikers.
    4) Jobs are for immigrants. Our job is justice & revenge from gov.

    • RightNYer says:

      Your comments give me a headache.

      • Anthony A. says:

        Just ignore them like I do. Most don’t make any sense without some explanation.

        • RightNYer says:

          That’s the issue. I think he actually has good ideas, but he presents them in a stream of consciousness way that comes off like trolling.

        • Shiloh1 says:

          “The Secret Lies With Charlotte”

          “We had to steal The Declaration Of Independence to save The Declaration Of Independence”

          “Is she Pregnant?”

          “The Legend Writ, the stain affected, the key in Silence undetected, 55 iron pen, Mr. Matlock can’t offend”

          “Heere at the Wall”

          “But when a long train of abuses and ursurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new guards for their future security.”

      • Micheal Engel says:

        Happy New Year, without me in 2021.

        • Sam says:

          ME,

          You are the brightest light (comparable to Senor Wolf) here.
          Thank You for all you provide.

        • Sierra7 says:

          Micheal Engel et al:
          All good soups need a “secret ingredient”!
          I enjoy ME’s comments even if somewhat “pithy”!
          Happy New Year all!!

        • No1 says:

          Don’t go! Your comments are clever. Only lazy people aren’t willing to spend a moment interpreting them.

        • Anthony A. says:

          No1, no, not lazy, just some of us are not that intuitive or smart enough to decipher it, like me. Clearly, Michael means well, and I am sure is very good at what he does and is very clever, but some of his stuff just goes way over my head.

          I’m just an engineer/MBA type slug who made it into retirement after a very hard working career in business. Most of the commentators here take the time to provide easily understood background and explanation on why the stuff Wolf is presenting is happening and what it may mean for “us” going forward. The information presented here is excellent and I can’t find anything remotely like this valuable stuff anywhere.

        • Stephen C. says:

          ME, your presentation makes one stop and think.

        • kam says:

          Micheal
          “If you can keep your head, when all about you are losing theirs……”
          Kipling, not for the squeamish.

        • andy says:

          Oh, come on. Cheers.

    • Robert Mullennix says:

      When government policy has been socialism for the rich for the past 40 years, do not castigate the poor for wanting their piece. Your underwear is showing Michael.

    • MFG says:

      5) Re-education camp (diversity training) will be mandatory.

  3. 2banana says:

    And it’s usually after a major conflict.

    Britain lost it right after WWI.

    France, before that, lost it right after the defeat of Napoleon.

    Etc.

    “Easy does it” is still the motto with reserve currencies. And it works until suddenly, for whatever reason, things go off the rails. But until something does go off the rails, the movements are slow and steady and span decades.”

    • Foghorn says:

      Digital currencies with block-chain technology could be the reason “things go off the rails.” China, Russia, Iran and many other countries would love to see an end to America’s “exorbitant privilege” of a reserve currency.

      • kam says:

        “China, Russia, Iran and many other countries would love to see an end to America’s “exorbitant privilege” of a reserve currency.”
        And they certainly are welcome to dream of Santa Claus, too.
        With the possible exception of Russia, China, Iran and many other countries are debasing their currencies as fast as or faster than the USA.
        A currency has relative value and must be perceived to to hold RELATIVE value against all others.
        I wouldn’t want to be travelling anywhere in the world with a pocket full of renminbi or rial.

        • char says:

          A currency has to be stable, but every year 10% inflation and 11% interest is also stable.

  4. lenert says:

    Doesn’t a lower dollar help exports and thereby reduce the trade deficit or was that always a myth? Or did it work that way in the past but it’s different now?

    • John says:

      Lenert
      Weaker dollar helps in exchange rates for corporations selling abroad like Philip Morris. Like Wolf says we are more a service and consumer economy, buying from China, with less exports.

      • lenert says:

        From the Aug 5 BEA report, service exports were $55B, goods $103B.

        • cas127 says:

          Lenert,

          US goods exports pale in comparison to US goods imports…the annual trade goods deficit runs into the hundreds of billions and has for many, many years.

          The cumulative trade goods deficit is likely above $10 trillion at this point (it has been a while since I’ve done the sum across years).

          A cheap dollar does help exports (and it makes imports more expensive, also helping the trade deficit).

          But…

          1) The domestic US cost structure is so high that many industries simply do not produce in the US anymore…at all…so there is nothing to export, despite a cheaper dollar.

          Eventually, though, the US consumer inflation caused by a cheap dollar (making US imports more expensive) should resurrect some degree of US production in these currently vanished industries. But it might take a while and require DC stability (heh).

          2) Export oriented economies (China, at a scale unprecedented in human history) have *also* competitively devalued their currencies…blunting the trade balance benefits of a cheap US dollar.

          From maybe 1995 to more or less today, China used domestic macro economic manipulation (moronically ignored by WTO rules and the US gvt) to keep the US/China trade balance from ever even *remotely* moving toward balance.

          This has also very, very badly blunted the trade balance benefits of a cheaper US dollar.

        • lenert says:

          cas – Thank you.

          Got it – we’re well past the point of resurrection.

          (you can see it here back to ’85 when we were just going negative – http://www.census (dot) gov/foreign-trade/balance/c5700.html)

    • Wolf Richter says:

      If you no longer manufacture this stuff in the US, destroying the US dollar doesn’t help exports; it just makes imports more expensive :-]

      • MCH says:

        Boeing begs to differ…

        Oh wait, no one buying planes…

        • Ed Clark says:

          But, but Honeywell, big in Aerospace, is at all time highs? WTF? I am a HON retiree. They treat their domestic employees horribly. They still use that horrible Jack Welch inspired employee evaluation and decimation system — where roughly 10% of employees are forced to be rated as underperformers and treated accordingly.

        • Frederick says:

          MCH Boeing Cant carry the load by themselves can they? For the most part the US doesn’t produce much manufactured goods Better?

        • Millie Brown says:

          Boeing is going down with the dollar because Boeing is funded with inflation. This is what a death spiral looks like. Boeing needs cheaper dollars to get the war time inflation funding, see military industrial complex, from congress. The problem with debasing the reserve currency is eventually you will sacrifice the people at the bottom that depend on the margin of their purchasing power. Congress isn’t wrong that inflation is how you get poor people to pay taxes when they can’t work. What we can’t see and what Congress refuses to look at is the people at the bottom aren’t in the US and it’s all but guaranteed that we face the same hunger and housing epidemic. Our current situation is caused by many factors. The only thing keeping us in the situation is USD. It’s criminal.

        • Dan Romig says:

          As I see it, Boeing did three things that make me lose respect for the company.

          First, they moved corporate HQ to Chicago.
          Second, they outsourced far too much on the 787.
          Third, they went ahead with the 737 Max engine swap & software scheme.

          Oh yeah, one more. Fourth, they borrowed money to buy back stock.

        • MCH says:

          So, if Boeing is no longer safe, would everyone be ok with flying the C919?

          After all, the tickets might be cheaper cause the airplane itself might be cheaper….

        • BrianC - PDX says:

          My strategy, since 9/11, is to *never* fly. Which has worked pretty well the last couple of decades. I can count the flights I have *had* to take on the fingers of one hand.

        • Shiloh1 says:

          They moved their HQ to Chicago to get the Crook County Courts on their side, just in case.

      • 91B20 1stCav (AUS) says:

        Closing laps in the race to the bottom?

        may we all find a better day.

      • timbers says:

        Maybe the US should apply for an IMF loan to develop an infrastructure to support factory and industry production.

      • kam says:

        Wolf:
        Nevertheless, without solid middle class incomes from manufacturing jobs, endless deficits are the only replacement on the National Income side of the equation.

        Offshoring may well provide short term enrichment for a select few Americans, but it destroys the nation in practice.

        Happy New Year.

      • MooMoo says:

        and stock prices higher.

    • Robert says:

      I think that’s right. The pound will sink lower after Brexit to attract foreign business. They will eventually come back up but it will take a decade at least I think.

    • Most important US export is culture. Culture is created when you have full and free access to technology. The economic value of culture is always secondary. China fuels our culture, has none itself. Japanese are the most efficacious at capturing American culture, or lighting in a bottle. Dawn Wells dies of Covid last day of 2020, headline America.

    • char says:

      The US is strong in industries were being native has massive advantages but were there is also a big scale effect. The two most obvious are the software & medicine industry. But the movie industry is a more obvious example.
      It is much easier to make a funny, emotional gripping movie in the native culture of the viewer. But movie making costs money and spending more money on a film does make it better. So making a movie for the biggest market in the world (US) allows you to also spend a lot of money on it which makes it better. So an American movie can be competitive in other cultural markets because there has been much more money spend on it. But if the dollar drops then the difference between spending on it becomes less and American movies become less competitive.
      China is now the biggest market in the world (financially in dollars) so it is to be expected that slowly the blockbusters movies will change from being American made to Chinese made.
      There is a short term and long term answer to the question if a lower dollar is good for the trade deficit. It is obvious that they help with deficits on a short term, but short term simply doesn’t matter. Long term a cheap dollar will increase the deficit as most of America’s exports is in industries were there is both a massive scale and and a massive local advantage.

  5. RP says:

    Great big-picture analysis. Thanks Wolf. Helps me see where things are going.

  6. Bev kennedy says:

    There are significant advantages in being the major reserve. And this is not likely to be given up voluntarily. Until it becomes too costly to maintain (e.g. British Empire)
    The switch away from the gold standard also is another barrier.

    • RightNYer says:

      Right, but being the major reserve comes from having been the most productive. You abuse your status, you eventually lose it.

      • cas127 says:

        RightNYer,

        Exactly.

        In the final analysis, people only hold a currency for the things (including productive investments) that particular currency can buy.

        If China produces X% of world goods (and the US X-25%) and the Chinese factories/infrastructure/real estate are shiny and new…and the US factories/infrastructure/real estate are run down sh*tholes, currency demand for the Chinese Yuan will inevitably grow…and demand for the USD inevitably fall.

        The US Fed’s Disneyland dollars don’t go in China…you’ve got to use Beijing’s Great Wall Yuan.

        For now it serves China’s interest to keep the Yuan very, very artificially cheap (via domestic macro economic manipulation the WTO idiotically ignores)

        (Why? In order to further engross its empire of new factories…currently – but not eternally – export oriented)

        But China can change that policy overnight.

        • Happy1 says:

          The Chinese currency can never be a world reserve currency until its own citizens trust it as a reserve of value that can’t be confiscated by the government. And no one in China puts trust in their currency, especially those with real wealth, they are all putting wealth in hard assets overseas. Hard to see that changing anytime soon.

        • kam says:

          cas127

          “The US Fed’s Disneyland dollars don’t go in China…you’ve got to use Beijing’s Great Wall Yuan.”

          Without the U.S. dollar peg to the Yuan, 80% of China’s imports would halt. It is only this peg that keeps the Communist Party in power.

          Here’s a little test. Take a wallet full of U.S. dollars to China and very carefully, discretely so what you can buy with them. Then take a wallet full of yuan to any Western Nation of your choosing and see the laughter for yourself.

        • Cas127 says:

          “Without the U.S. dollar peg to the Yuan, 80% of China’s imports would halt.”

          Considering that the Yuan is still badly *undervalued* (the Chinese gvt is only ever pushing the Yuan *down* in the interests of exporting industries, using sweeping macroeconomic tools) you will have to explain your statement.

          Chinese savers who (like American savers) know exactly how full of shit their own gvt is, may want to escape the Yuan cage…but the CCP macro policies make it more or less impossible to do legally within China.

          *And* the multi decade flood of USDs into China (from export proceeds) should have pushed the Yuan far above the current exchange rate. But again, the CCP macro policies aborted this natural trend.

          “It is only this peg that keeps the Communist Party in power.”

          Basically, ditto from above…essentially all CCP pressure on the Yuan has been *downward* for 25 years…building an empire of new (initially export oriented) factories…*at the expense of Chinese savers*…who are not allowed to recycle USD export proceeds into consumer imports *from* America (the CCP forces conversion into Yuan) which forces Chinese interest rates down artificially (hurting savers but building factories) and goosing Chinese consumer inflation (due to forced conversion into Yuan, jacking the Yuan money supply).

          Response?

  7. a7 says:

    Look on the bright side: With continually reduced global demand for the USD denomination, in a few decades the U.S. may be able to competitively export domestic manufactures and narrow its trade deficit. Sprinkle in a little MMT and… “Tomorrow! Tomorrow! I love ya, tomorrow!” …and so on…

    • Trailer Trash says:

      Uncle Sam seems determined to reduce global demand for dollars as rapidly as possible. Every day they are seizing assets, sanctioning anyone who says “Boo!”, telling US business who they can trade with, arresting foreign business leaders, threatening regime change and/or invasions, and killing foreign leaders by remote control.

      US thinks piracy is good business, but a pirate’s only currency is violence. That is not a stable base for a global reserve currency.

      Soon US will be fenced into a corner surrounded by piles of Federal Reserve Notes that no one else wants or is allowed to have under the sanctions regimes. How then will we pay for imports?

      • VintageVNvet says:

        C’mon TT,,,
        with your nom de plume, you should absolutely understand that ALL guv mint is based on their superior ability to effect violence, local and global.
        As has been made clear on this site, and many other venues since,,, England, in the form of ”GREAT Britain,” was the ruler of the world and it’s currency the so called ”reserve” up until GB could no longer enforce their hegemony on the world due to the decimation of their warriors in WWs 1 and 2, after which the stupidos in guv mint of USA took over, and the USD became predominate over the globe.
        And We the Peed ons have suffered the consequences since while our owners/oligarchy have done what they needed to do to insulate them and their families from the obvious negative consequences of trying to be the police of the world.
        That there WERE good reasons for USA to take over from GB after WW2 is clear;
        that now there are good or any reasons for WE the Peed ons of USA to allow our greedy folks to continue, is not only not clear, but there is very clear evidence that it would be better for all working folks in USA who actually do some productive work, and not just sit in front of computers doing nothing of any ”real” value to insist on a re-evaluation of all work, is equally clear.
        I really have no hope such clarity will arise in what is left of my lifetime, (in spite of the optimistic ”life expectancy charts once one reaches 75,),,, but I keep hopium alive it will do so before USA tears itself apart, to the benefit of no one.

        • MooMoo says:

          well, let’s not be so thick skinned. Really. The tearing apart of the USA as a national entity could benefit a great deal of people. Hell, the best aspects of the USA may even re-assmble themselves…reconstituted in a new, break-away democracy, that no longer has Nancy Pelosi as part of it (lol).

          So before you speak for the planet (“to the benefit of no one”)…think of the the 95%.

      • MARK says:

        Sums it up pretty well.

  8. fred flintstone says:

    If only the candidates for president and congress were forced to address this article.
    Trump was elected in 2016 because of it…..but the press thinks that the common people do not understand…..they understand more than anyone thinks.
    Trump lost in 2020 because after all his talk the trade deficit last month was the largest in history.
    Going broke slowly does not mean you will not go broke. Hyper inflation is the substitute for a lack of political will.

    • OutWest says:

      FF:

      “Trump lost in 2020 because after all his talk the trade deficit last month was the largest in history.”

      Does the average American voter make decisions on that level? I think he lost because of his mishandling of covid. He could have used it to his advantage.

      • roddy6667 says:

        Trump lost by a tiny percent. If he had done just a couple things differently, it would have changed his image and the voting results. His stream-of-consciousness Twitter blather and knee-jerk responses to every piece of minutiae does not inspire confidence. Almost anything would be more Presidential, and Americans were looking for leadership.

  9. K says:

    I wonder what will happen to Americans’ spending when real estate prices plunge in most areas, at least in the high and middle of the market, and the US dollar loses even more of its purchasing power. How will the economy cope with the panicked reaction of most Americans to suddenly cut off all possible, discretionary spending?

    I suspect that we will have some kind of economic crash, here and in China if we continue buying our junk mostly from them. Our money printing is hastening that day, because I would certainly be unhappy with it if I held treasuries or dollars. I would be happy if I owed dollars, of course, which dollar-based borrowing might be less desirable to burned creditors by now.

    • Real estate won’t plunge, it will be acquired by stronger investmentors. The US is very friendly to foreign investment. As Michael Pettis explains, the capital account surplus equals the current account deficit. The Chinese are happy to run a goods deficit and recycle the funds into US farmland and assets that they own outright.

      • rip says:

        “Real estate won’t plunge”

        Sure, buddy, you keep on thinking that. Those were the same words uttered before the last crash, and the bubble is much worse now.

        Wait, before you reply, I think I know what you’re going to say.

        “It’s different this time”

        Nope, it’s never different.

        • historicus says:

          Inflation cometh….and soon.
          Weaker dollar…will bring inflation, by definition.
          Thus the Fed should / must raise rates….which will put a damper on real estate.
          Now that is assuming the Fed is acting as it should, based on their mandates….a HUGE assumption.

        • rip says:

          The FED lies about inflation, and will continue to until it is so blatantly obvious that they cannot avoid the truth. Only then will they begrudgingly start to raise, but I expect them to be well behind the curve at that point. The FED is sadistically and systematically destroying the middle and lower classes, rendering them into more riches for the wealthy. The homelessness epidemic lies on the doorstep of the FED.

        • OneSilverDollar says:

          I live in a sh*thole and I am interested in buying a house in Florida. Taxes on RE in the USA seems to me a bit like paying a rent, but putting money far away from my sh*thole government is wise. At first, I thought this time RE prices were going to crater, as it did in 2008. This time, the US has been printing so much money, that I wouldn’t be surprised to see a trend of higher prices. The good thing of living in a sh*thole is that you know prices can go up at the same time people have less money. I will never exchange my dollars for yuan, who can feel safe with money from a communist country? Probably not even the wealthy chineses. The Dollar fell 10%? Look around the US: the world would be on its knees with a high dollar and covid: too many debt chasing too few dollars was the problem, and before covid. I believe the US will lead the recovery: free speech (a bit less free than before), a disruptive Constitution, rule of law, and free people. I remember JP Morgan: anyone who is a bear on the future of this country – will go broke.

      • w says:

        Exactly!They have been buying our prime farmland which shouldnot be allowed.Also buying up food processors/co.s such as JBS in Iowa and Smithfield pork.They Know the value of securing the food supplychain!

      • Frederick says:

        Gerald, it will not plunge in terms of Dollars, but it sure will in Gold terms How has real estate done versus gold since 2000 Not very well honestly

        • VintageVNvet says:

          RE is SO local F, so it’s really difficult to do more than anecdotal reporting, so here are a couple:
          Port Royal area of Naples, FL houses were being built – construction only – for $12.50 per SF in 1961-62, now selling in the range of $800-1,000 per SF.
          Tract homes in St Pete & SRQ area were selling for $10 per SF, including lot in middle 1950s, now selling around $200/SF not necessarily improved.
          A friend bought a home in Berkeley in 1980 for $40K, sold recently for $800K.
          Lots of land in SOHUM (southern Humboldt county) sold less than $300/acre in early 1970s, now selling around $10K per acre.
          Surely, gold goes up and down as does RE, and will likely continue to do so, the corruption of the Fed and the banks and their greedy hedgie and PE partners not withstanding.
          The big difference IMHO is liquidity and mobility.

      • Trailer Trash says:

        “US farmland and assets that they own outright.”

        Until they find a way to move all that dirt to China, it won’t do ’em much good. Uncle Sam has a nasty habit of seizing anything it wants.

        One procedure is called “civil asset forfeiture” and is based on the “legal fiction” that the asset in question committed a crime, e.g., a horse that kicks someone walking too close has “committed a crime”. Since the “defendant” is property, and not a person, it has no rights. So good luck getting your stuff back, although it does happen sometimes.

      • roddy6667 says:

        “Real estate won’t plunge:. I used to say that back in the Eighties. As a Realtor, I was a True Believer. Property values in CT dropped 50% in most towns and took ten years to recover.

      • MooMoo says:

        Correction GC: Real Estate has ALREADY plunged and IS being acquired….

        by Private Equity.

  10. Brant Lee says:

    Just mark off 2020 as the end of the good times for a lot of reasons. Most insulting is that a pandemic from China has resulted in this very country becoming the industrial juggernaut of the world. Worse, we have no one in government smart enough to deal with these guys, much less the backbone. We have lost most bargaining power.

    Now, after seeing the world’s no reaction to Hong Kong, China will continue to build its military up massively. Let’s see if the U.S. will defend Taiwan now?

    It won’t be through free markets or popularity contests, China will power its way into monetary strength.

    • timbers says:

      “After seeing the world’s no reaction to Hong Kong, China will continue to build its military up massively.”

      Actually, it is the US that continues to build up it’s military massively, and the US is upset China’s has (wisely) not done so in kind but in a measured way.

      Also, “the world” reaction to HK was to agree in 1990, that she be returned to China under the Basic Law agreement, singed in 1990 by the relevant powers (UK and China). Not honoring that agreement which would be typical of the West, would constitute an act of aggression against China.

      • Gerrard White says:

        @Timbers

        Michael Hudson

        “Biden is pushing militarily aggressive people in his cabinet. There’s one kind of overhead that China is really trying to avoid and that’s the military overhead because if you spend money on the military, you can’t spend it on the real economy. They’re very worried about the military and they say, how do we deter the Biden administration from actually trying a military adventure in the China sea or elsewhere. They said well, fortunately America is multilayered. They don’t think of America as a group. They realize there’s a layer and they say, who’s going to represent our interests.

        Well, Blackstone and Wall Street are going to represent their interests.”

      • Happy1 says:

        China is violating the Basic Law Agreement by passing laws allowing for extradition of HK citizens to the mainland and illegally arresting dozens of activists and media people. My in-laws fled the mainland in ’49 with the shirts on their backs and lost everything they had. CCP also killed conservatively 50 million people in the Great Leap Forward and destroyed 10s of millions of lives in the Cultural Revolution. The West also has sins to account for, but China is an order of magnitude worse and to suggest otherwise is to tell a very large lie.

        The surest sign is to see what people in China do when they acquire wealth. Almost without exception they seek citizenship outside China for their children and hide assets overseas. It’s a terrible place to live if you care about free thought and private property.

        • Dave says:

          Yeah, China is such a terrible place that 2 million Taiwanese (10% of the population) live and work there.

        • Jack says:

          Happy!

          “free thought and private property”
          Might NOT be the exchange currency in the next 15-20 years in the US!!!

          Reading history should let you discover that political thoughts and regimes DO CHANGE.

          Also HK was, is and for the foreseeable future is CHINESE TERRITORY! and the Communists don’t like subversion No matter how the western powers cry!

          If the US couldn’t do Shit about Mr Kim of NK, then surely they can do F$&@ all about Chay Na!!

          With the Uk now formally separated from the EU’s perceived chains “Germany to be precise “!

          The Eurozone will revert gradually to its familiarity with small fiefdoms that pretend and acts above it’s classification!

          So to put it bluntly the use of military power against TAIWAN is now a real possibility in the next 5-10 years.

          Africa and the ME is largely in the pocket of the Chinese ( at least the most important powers Turkey and Iran)!

          Japan will now be forced to render large swaths of its constitution ( those pertaining to the armed forces irrelevant),

          and it has been consciously ( after failing to subdue its debt bubble of the 90’s under control) Inflating it to ZERO!!

          So the older generation of the Japanese society basically has been stripped of their wealth and are waited on to die out!

          The only real threat to Chinese hegemony was Russia in collaboration with either Europe or the US!!

          Those prospects have been managed pretty ordinarily by both the Uk’s “RABBID PURSUIT “ of the RUSSIAN DISSIDENTS!

          and across the Atlantic by the continued “ one eyed policy of destroying Russia by the DC’s elite who rely on Chay Na to increase their wealth and power over the HAPLESS American citizens.

          I know it’s hard to accept that Russian could be an actual ally of the US, but they have NO other choice if Chay Na is to be slowed to manageable level of power and create s more multi polar systems that should carry the burden of keeping the fragile peace in place for the next 50-100 years.

          I have a lot to say about Mr Trump’s policies vis a vis what actually he has achieved! But I’ll leave that to a later date.

          No matter how we’d like to separate the Economic ramifications of political actions taken by our government/s its those later that haunts our lives and pave the way to our prosperity or OTHERWISE.

          Happy New Year to the Manager, participants and ( observers) of this great FORUM :)

        • timbers says:

          No China is not violating the Basic Law by passing a law similar to American Patriot Act, because HK refused to pass an a law acceptable to China, which has final say in the matter.

        • MooMoo says:

          So, they are good at hedging.
          Make money in China and diversify outside…

          They sound intelligent

          ….compared to ‘others’.

      • polecat says:

        Shouldn’t that be termed ‘military grift’ ?? Because much of the M•I•C is mickymouse-like … unservicable, unreliable, expensive junk!

        What it Does seem to excel in, is overpriced CONtractors .. and
        High-$tared Wankers!

    • Petunia says:

      Too many lawyers in govt, paper pushers, and not enough business and tech people, doers. We really do need to replace the entire lot of them.

      • MarkinSF says:

        Government is about maintaining continuity and providing stability. Most working in government functions have slow, methodical & tedious jobs. They are not for everyone and it requires psychological mindsets that can endure a 20 to 30 year stretch of this steady stable but absolutely essential service. They usually get paid much less, do not receive bonuses. The reward for the loyalty and dedication is a pension. This seems to be a universal arrangement among governments across the globe.
        At the upper levels the reality is that there are not enough lawyers & professionals in government service. Over the last 20-30 years we have witnessed the decimation of the IRS and the SEC (2 name 2) either by cutting back on staff or the wholesale elimination of investigative & prosecutorial departments. The best are lured from service by private enterprise by the big bucks. And often to combat the very agencies who would be prosecuting claims against them. Which is why the IRS will only go after the helpless.
        Back in the 30s and on through the mid 60s the best and brightest came to take these positions and ensured that corporations could not assume such power as to throw the entire economy into instability and allow criminal behavior to run roughshod over the markets. Or file flagrantly false tax returns (or not file at all) without fear of punishment.
        We have plenty of business and tech people. They suck billions out of the economy into their bank accounts or whatever where it goes to completely unproductive (for society) use.

        • historicus says:

          “…. can endure a 20 to 30 year stretch of this steady stable but absolutely essential service. They usually get paid much less,…”

          and after 20, how are they paid? Pretty well. And a lot of husbanc and wife teams doing govt service and retiring very well on two pensions.
          If all you say is true about govt service, why is Washington DC and the collar counties some of the highest income areas in the nation?

        • Happy1 says:

          The pension that most government workers get more than compensates for slightly lower pay.

        • MarkinSF says:

          why is Washington DC and the collar counties some of the highest income areas in the nation?
          1 – Defense contractors. The winners of the CMIC.
          2 – Lobbyists for virtually every mega corporation in America (at least)

          The wealth in DC is to extract the most wealth from your government (I mean your tax dollars). The private sector vastly outweighs what the government employees take.

        • MooMoo says:

          “They usually get paid much less, do not receive bonuses. The reward for the loyalty and dedication is a pension.”

          …utter BS…

          they can leave after 20 years on full bennies and go get ANOTHER full time job.

          The can end-load their ‘retirement’ with overtime etc etc etc. Count on fabricate COLA, and pass bennies to souse.

          Its a scam

          and you are delusional

      • Lisa_Hooker says:

        China is run by engineers.
        America is run by lawyers.
        Probably won’t end well.

        • No1 says:

          America is run by billionaires.

        • Happy1 says:

          China is run by thugs. Also won’t end well.

        • Anders says:

          In China 1,3 billion lazy workers are managed by 100 million smart leaders, in the EU 500 million hard working smart workers are led by 50 million stupid leaders … Who do you think will win?

          That’s what a Chinese official once told me, when I complained about the lazyness of the Chinese average worker.

          Then I decided to shut up and take the pain of that answer.

      • Lou Mannheim says:

        Business people have no business in governance. Business is about competing, which at a certain level, means wanting to take from others. That’s what makes people successful in commerce.

        It’s a skill set, but does not allow qualities like empathy, which is in real short supply these days.

    • cas127 says:

      “Worse, we have no one in government smart enough to deal with these guys, much less the backbone.”

      For the past 25 years China has been playing chess, while DC has been playing…with itself.

      • rip says:

        No, DC has been whoring themselves out to the highest bidder. This isn’t incompetence, it’s intentional.

        • Sierra7 says:

          Rip (and others)
          Con permeso:
          “Arrogant Capital”
          Kevin Phillips 1994
          Describes in detail the growth in greater DC of $$, staffs, lawyers, etc. and how it has effected the nations’ lives.

        • polecat says:

          Yeah, but their junk is highly disfunctional, with the added knocked-on-up-effect … of making us LowerMokestanis economically ‘sterile’ via an epiDEMoc of that cruel disease – better known as “And-it’s-Gone! er, SeeYa!”

      • yewtaipan says:

        Anglo super elite have very very poor thinking abilities. They set up China as the world factory, and put all the eggs in one basket, all in the name of globalisation scam.

        President Clinton’s Remarks on PNTR with China

        Americans are suckers and boobies and listen too much to the advice of people like Kissinger and the late Brzezinski.

        Zbigniew Brzezinski on U.S.-China Relations: CHINA Town Hall 2011

        Instead if they got the brains, America could have a diverse source of supply chain from South East Asia, South Korea, Taiwan, India, Mexico, South America and Africa, etc.

        These supply chain countries will own US treasury bonds in a well distributed balanced global finance.

        By putting all eggs in one basket which is China, the greedy no brain Anglo super elite are just asking to be SHOT AND KILLED BY CHINA.
        China is a creation of the globalist super elite bastards from London, that sold out America and exported US manufacturing to engorge some fat f(*)k billionaires from Wall Street.

        Globalization scam has been sold by the last several Presidents, Congress, both Teams, and MSM.

        It’s literally a scam to make a few people super wealthy. The West created today’s China by allowing corporates to outsource to China due to own greed, and not having the foresight to see the negative effects that would have.

        Kissinger, Bush, Obama, Clinton, Biden etc.. have all made deals with China to sell US down the road to globalization.

        The Anglo super elite Predator Class transported US factories to China to make billions on wage arbitrage. The money is in the Cayman Islands and the factories are in China.

        The West is now face a powerful and highly nationalistic adversary that does not share a commitment to the rule of law and human rights.
        China can be weakened by severely reducing that outsourcing but it seems clear that it will react militarily.

        If the West will initiate a permanent move against the CCP within the next two years (removing the vast majority of its investments and manufacturing reliance) the CCP will collapse.

        If West do not do that, the West will collapse within 5 years. It’s our choice.
        AMERICAN UNITED WORKER FRONT

    • Swamp Creature says:

      I think China knows the new administration will not defend Taiwan. Our new leader cannot even read a teleprompter. I’m sure China is shakin in their boots. That could embolden them to do it now before the new administration even gets its National security team in place. These are dangerous times. If I were Taiwan I would prepare for an invasion. They will be on their own.

      • OneSilverDollar says:

        That would be a bad move. The West will take for granted that China is a threat and stop exporting jobs to China, and will instead consider India or maybe south america. The US could cut the Oil supply from the Middle East. The Yuan would crater overnight. I’m not sure Xi could stay in power for a long time, I’m not sure he is that dumb.

    • w says:

      Issue is Not about smarts.Who wins as China has been helped along in its ascent??Most Favored Nation or whatever years ago?Where did alot of our recycled materials go?They went to China to build their military,infrastructure,and our goods.Already been using its monetary strength to cow Australia when it insisted on China being investigated for the Wuhan outbreak by not buying certain goods or something.It uses its strength to buyup key co.s and use them for propaganda like it does through Disney movies released through China-owned AMC Theatres.It uses its monetary strength to buy Lots of gold and make side trade deals with Russia or Asian countries not denominated in Dollars.

      • yewtaipan says:

        It’s Time to End China’s Most Favored Nation Status

        http://savingusmanufacturing.com/blog/?mc_cid=f3de3082a7&mc_eid=8857b69a4d

        Senator Cotton’s press release states: “The China Trade Relations Act would revoke China’s permanent most-favored-nation status and return to the pre-2001 status quo, whereby China’s MFN status must be renewed each year by presidential decision. Congress could override the president’s extension of MFN by passing a joint resolution of disapproval.

        https://www.washingtontimes.com/news/2020/sep/11/normalizing-trade-with-china-back-in-2000-was-a-co/
        Normalizing trade with China back in 2000 was a colossal mistake
        Open markets have led to massive U.S. job losses

        America is now a Third World country. America do not even have their own robotic and automation design and manufacturing company.

        China Advanced Robot & Automation 2018

        Blame the massive transfer of wealth from the middle class to the rich to Bill Clinton the conman. It was Clinton who give China Permanent Most Favored Nation Status in 2000 that enrich the Wall Street bankster, by sending million factory jobs to China.

        Americans are suckers and boobies and listen too much to the advice of people like Kissinger and the late Brzezinski.
        AMERICAN UNITED WORKER FRONT

    • Jack says:

      Gandalf

      Please do me a favor and read up on topics like;

      – cyber warfare
      – AI Technology

      China at its current capabilities is able to overwhelm Taiwan’s infrastructure and grind it to a halt!

      The Chinese will Not conduct a simple military operation to regain Taiwan.

      They are only now interested in laying the ground ( POLITICALLY) on the world stage , the rest will be HISTORY.

      America WILL NOT defend Taiwan ( or any other ally for that matter against China.

      The United States only ever Won by entering both of the great wars after Germany blunted it’s own power by Not creating and maintaining a network of allies.and fighting on too many fronts at once!

      Without the Soviets and Geography of RUSSIA, Britain would be speaking Deutsch now, and Europe would be capable under Germany of defeating any threat to its mainland.

      The US couldn’t defeat Japan without the Two Nuclear Bombs it dropped on large CIVILIAN CENTERS.

      China is s 5000 year old civilization,
      and Notwithstanding their current political system, they will NOT for a moment hesitate to drop a NUCLEAR DEVICE ON TAIWAN ( albeit a tactical one ) if they need to send a message to Taiwan’s leaders.

      It will be enough to convince theTaiwanese!

      as it convinced the Emperor HIROHITO that resistance is futile.

      Let us pray and hope that these scenarios will never happen.

      • Gandalf says:

        Jack,

        Well, yes, you could go on and on all day and night about how much more powerful China is compared to little Taiwan. But think a little deeper for a change….

        First and foremost, my post was about how difficult it would be for China to put enough boots on the ground in Taiwan to physically take control of Taiwan, as it has with Hong Kong (basically by co-opting the Hong Kong police and politicians to do their bidding).

        Destroying Taiwan, physically or economically, is totally possible, but what’s the point of that? China wants political control of this island, not a smoldering or economic ruin. Destroying Taiwan either way would only trigger a cascade of international sanctions equal if not greater than what happened with Russia and its territory grabs in eastern Ukraine and Crimea.

        First strike nuclear weapons is off the table. If China ever did that, it would become a complete international pariah, and potentially trigger like for like retaliation, just like any country that did first strike nuclear weapons. Ask yourself, why didn’t Russia just rid itself of the Chechnya problem by nuking the place? Why doesn’t India just solve its Pakistan/Muslim problem by just nuking the country?

        And, there should be 100% no doubt that both Taiwan and Japan have the technology to make nuclear weapons of their own within just a few months. The basic outlines of how to do so are open secrets – the only missing details are the exact quantities, which any competant nuclear physicist could figure out quickly. They have the advanced tool machines to manufactue the precision parts needed to put such a bomb together. And, it isn’t that hard to turn the thing into a mega super thermonuclear Hydrogen Bomb either. Try reading books like “The Making of the Atomic Bomb” by Richard Rhodes, and “The Curve of Binding Energy” by John McPhee

        Both countries have nuclear reactors – that’s all you need to start breeding plutonium 239. Making a plutonium bomb with your existing nuclear reactors is actually a lot easier than making a uranium bomb with centrifuges, like the Iranians keep trying to do.

        The only reason neither country has started such programs is because of the US “nuclear umbrella”, treaties that essentially guarantee that if either country were attacked, especially with nuclear weapons, that the US would respond.

        That’s the main reason that the US still sends ships through the Straits and shows the flag through the disputed seas around the Spratley islands, etc. If the US did not do this, show its resolve against China with the US Navy, Japan, Taiwan, the Phillipines, the whole of East Asia would start to drift off to pursue their own defense and foreign policy plans, which, in the case of Taiwan and Japan, would probably include building their own atomic bombs.

  11. dr spock says:

    US corn and soybean production in 2020 was up 9 and 20% respectively and wheat production was down 4% and yet, oats, wheat, corn, and soybeans are at their highest levels in 6 years even though China is only buying in minimal amounts from the US. There are ample supplies of food worldwide, but if China does not buy from the US and buys from South America, then countries who normally buy from South America will have to buy from the US. Food prices at the grocery store are going up significantly, so what is the cause? Are people stocking up and hoarding food because of Covid? Are grocery stores gouging by raising prices during the pandemic? Psychiatrists and psychologists on WGN radio have commented about the rapid increase in food prices. I noticed prices for food going up for the last few years even before Covid, and I’ve noticed that the quality of many foods has gone down, which is a form of inflation Meanwhile, the economy grew at a 2.33% rate this year and a tell as far as growth is the price of copper, which is at its highest price in 7 years. Gold and silver prices are up around 25% this year. House prices are now exploding up in many areas of the country. Prices on products imported from overseas are being made more and more cheaply, ie, the quality continues to go down and down, and this is pure and simple inflation.

    Hospitals are bankrupting even people with standard insurance if they are in the hospital because of Covid for a month or longer. I’ve noticed a lot of fake news on TV. David Muir has many stories on courageous people recovering from Covid and leaving the hospital with the hospital staff cheering, but many of these people had no insurance or were bankrupted from the medical fees. Muir has nice little stories about “made in America”, while the trade deficit continues to explode up. I’ve noticed that services for your house and cars have gone up with “add ons” similar to hospital charges. Unless you can afford a lawyer or are capable of creating an iron clad, written and signed contract signed by both you and your service provider before any work is done, you are in trouble. New car warranties cover much less than 3 to 4 years ago, which is inflationary, and going back to the dealership where the car was purchased for repairs with a new can beat you up financially. Some dealerships will even charge you if the warranty covers the defective part by blaming your driving. I call this “blaming the victim”, a phrase that describes what hospitals and doctors like to do.

    • Heinz says:

      “US corn and soybean production in 2020 was up 9 and 20% respectively and wheat production was down 4% and yet, oats, wheat, corn, and soybeans are at their highest levels in 6 years even though China is only buying in minimal amounts from the US.”

      In reality, China has been buying a record amount of US soybeans this year, and greatly stepped up purchases of other ag commodities, including pork.

      They have also been seeking food supplies from many other countries and sucking them dry. They are also going to source and buying up food production companies directly.

      China has suffered crop losses due to flooding and other weather problems. They are on a mission to increase their national food security in uncertain years to come.

      Chinese food demands on American agriculture supplies will be a key factor in ongoing food inflation here in the States. And US gubmint seems willing to go along.

      • Heinz, then why the heck would seagoing shippers, maybe not of Chinese origin or control, be taking shipping containers across the waters back to the homeland EMPTY of any American agricultural products such as soybeans?? The left foot doesn’t know what the right foot wants? Bizarre.

        • Petunia says:

          They might be recycling the containers into tiny homes for export or consumption. I recently saw a tiny home they make that folds out like a box, really innovative. Its sides were made out of what looks like container material (some metal?).

        • Randy Oldman says:

          I don’t think they ship big agricultural commodities in containers, most likely in gigantic holds of mechanized ships.

        • T W Theron says:

          Any container of agricultural products would be a low cost commodity campared to electronics coming from China. Check Wolf’s previous article on China/US container rates.

        • historicus says:

          Soybeans and Corn and Wheat are not shipped in “shipping containers”

        • MooMoo says:

          ….nature of the beast. World Shipping can’t complete three day runaround with the supply chains in chaos. Has nothing to do with simple demand.

      • w says:

        Gubmint might go along but we do not have to!Buy farmland and keep it productive for us.Create nonprofit/co-op farms.Be aware of who owns which food co.Grow whatever food you can if you enjoy it or donate it to a foodbank,they are always happy to get local produce especially if it is organic.Become a niche farmer. You are right about China trying to secure land,water,co.s for foodsecurity.They had leased a Huge # of Ukraine acres a few years back and I believe they longterm leased acres in Africa,possibly S.America.Someone should track this situation.

    • The sad reality is that the US should be exporting food to China. When they substitute for Brazilian farm goods to strengthen their position relative the US, they do so at great catastrophe for the whole world. Farming the Amazon is not a long term proposition due to soils and we are chopping down the lungs of planet to learn.

    • historicus says:

      Sounds like inflation…
      call Jerome Powell

    • dr spock says:

      Correction: At end of first paragraph cross out”Prices on” and sentence should read ” Products imported from overseas are being made more and more cheaply, ie, the quality continues to go down and down with prices staying the same or going up, and this is pure and simple inflation.”

      • Wolf Richter says:

        private memo to dr spock,

        What I deleted was a paragraph that cited ridiculous nonsense fiction that someone just made up to get attention (and they sure got your attention). You can believe whatever you want. But I don’t allow my website to be abused for spreading this kind of stuff.

    • MARK J says:

      The Doctor is correct…the frog in the pot is cooking more quickly everyday.

  12. Martha Careful says:

    After a pointless wild goose chase, this is all I found under the currency microscope:

    Wholesale prices in Ireland tumbled 10.7 percent year-on-year in November of 2020, following a 5.1 percent drop in the previous month. It was the nineteenth consecutive month of falls in wholesale prices. The biggest declines were recorded for basic metals (-3.2 percent); food products (-5.9 percent… more
    2020-12-22

    Updated 21/12/2020
    Comparing January to September 2020 with the same 9 months period in 2019, the number of nights spent in EU tourist accommodation dropped from 2.4 billion in 2019 to 1.2 billion in 2020 (-49 %). During this period, all Member States recorded significant drops. The EU countries most affected were Greece, Malta and Spain where the number of nights spent decreased by at least 67 %, while the smallest drops in the number of nights spent were recorded in the Netherlands, Denmark and Austria (-30% or less) More .

    • Frederick says:

      Could the deflation have something to do with the strengthening Euro in 2020 and relatively low commodity prices

  13. Mira says:

    ⭐⭐⭐⭐⭐ Thank U for a most informative place to visit.
    🥳 Happy New Year to All 🥂🥂🍾🍾.

    2020 turned out to be a JINX year ..
    The crystal ball gazers got it horribly wrong .. 🥴 (what happened guys ??)
    2021 = 5 symbolising curiosity freedom change & represents the 5 senses of humanity & offers many opportunities for choices & decisions for the future – A new beginning.

    • Petunia says:

      Happy and Healthy New Year to All. Good riddance 2020.

      • Frederick says:

        Happy New Year to you as well Too bad the reality of 2021 may make our memories of 2020 fond ones

        • Peacefuldaizy says:

          Sadly, I agree. I think our bumpy ride hasn’t really started yet.

  14. timbers says:

    Every college kid and Joe Blow on the street I talk to who”s interested in sort of thing knows who’s going to King of The Hill, soon, and who isn’t. The only ones in denial are the folks who run this nation, and the Globalists don’t care. Others have gone off into the sunset and their people have lived good happy lives. I know our lives are irrelevant to the folks in Washington but we should still keep that in mind:

    LONDON (Reuters) – China will overtake the United States to become the world’s biggest economy in 2028, five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic, a think tank said.

    “For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China,” the Centre for Economics and Business Research said in an annual report published on Saturday.

    “The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”

    The CEBR said China’s “skilful management of the pandemic”, with its strict early lockdown, and hits to long-term growth in the West meant China’s relative economic performance had improved.

    But hey…weren’t those massive corporate tax cuts for the super rich supposed to make the mostest awesomest ever? What happened to that?

    • timbers says:

      The CIA and related agents of fake news appreciate your help in spreading this particular conspiracy theory. It means they don’t have to so much. Please donate a nickel to close America’s deficit and keep it A Numero Uno.

      • Petunia says:

        When they drag out the space aliens, which I personally love, you know they have lost control of the narrative.

      • timbers says:

        Lol. Just finished re-watching X-Files. All nine seasons. They dragged out the aliens many a time (the truth is out there). Perhaps a sequel is in the works to reunite Scully and Mulder. Plot: Covid was invented by the aliens to prep the population just prior to their invasion to take over Earth. Sounds more plausible than the already used plot of a hive of bees and polio vaccinations.

    • cas127 says:

      “China will overtake”

      On a price parity basis, this happened a few years back.

    • historicus says:

      “…. weren’t those massive corporate tax cuts for the super rich supposed to make the mostest awesomest ever? What happened to that?”

      Stocks closed on all time highs. What the Fed does is channeled to the benefit of stock holders, and has little to do with Main Street. The bifurcation of a nation, at the hand of central bankers.
      Biden promised that on “day one” he will undo the Trump tax cuts…..
      I’ll bet that doesnt happen…..

      • timbers says:

        Agreed, and there’s precedent to think as you do…Remember O and Hills clawing at each other trying to prove who would be the most-est best-est undoing the schrub tax cuts for the rich?….fast forward…O signed them into permanent law.

    • Happy1 says:

      China is 3 times the size of the US. They ought to be a larger economy.

      And any so called competence with COVID is vastly outweighed by how their government owned companies bully private enterprise. See recent treatment of Jack Ma. Remember Mussolini ran the trains on time and Hitler rained the Weimar hyperinflation.

      • Dave says:

        In spite of COVID and the US trade war against China, Taiwanese investment in China is up 47% over last year. Even US investment is up 7.6%.

      • timbers says:

        But Happy1, I thought you believe Marxist economy that bullies it’s economy & people can’t perform nearly as well as exceptional US capitalism, yet now you’re saying that is the reason China did better than America? How is that possible? Please do explain.

        • Cas127 says:

          I have no problem believing the Chinese population want to get the hell out from under the thumb of the “beloved leaders” of the CCP…that is one major reason that the Chinese save their asses off (despite CCP policies gutting interest rates)…they know their leaders’ promises concerning promised social benefits are even worse than those of US politicians.

          And the average Chinese citizen knows the CCP can snatch their savings away too (policy coming to America via wealth taxes?) – that is a major reason so much “illegal” foreign exchange activity takes place (keeping export proceeds in USD offshore, away from mainland forced conversion into a Yuan that the CCP manipulates for its own purposes).

          So a large part of the unprecedented explosion in Chinese productivity over the last 20 years is to get out from under gvt oppression.

          Do you want to make such oppression the latest import from China?

        • timbers says:

          “Do you want to make such oppression the latest import from China?”

          No.

          I want to separate facts and reality form someone who does not, and intermingles them to present an inaccurate narrative.

        • Cas127 says:

          Specifics Timbers…if you have any.

  15. Paulo says:

    From forexlive:

    The demise of the dollar will bring radical changes to the American way-of-life. When this economic tsunami hits America, it will make the 2008 recession and its aftermath look like a slight bump in the road. It will bring very undesirable changes to the American lifestyle through:

    1. Massive inflation,

    2. High interest rates on mortgages and cars,

    3. Substantial increases in the cost of food, clothing and gasoline and

    4. A much harder time financing its debt.

    Right now, there is a huge demand for U.S. dollars and for U.S. government debt since countries around the world have to keep huge reserves of U.S. currency lying around for the sake of international trade. However, what if the appetite for U.S. dollars and U.S. debt dried up dramatically? Or does past experience tell us that the U.S. has already considered all of the above and have a grand plan in place?

    That’s something to think about.

    The only grand plan that I can think of is escalating conflicts as the thrashing around commences.

    • RightNYer says:

      The one thing I can say definitively is that nobody in government, not anyone in Congress or the Fed, has any grand plan whatsoever beyond “Let’s just kick the can down the road and hope we’re all dead when this house of cards collapses.”

      • polecat says:

        Well, those 2 specie of Eloi … currently enjoined within the rank econocoitus position … might behoove themselves into thinking that one day – perhaps soon, the working-stiffed Morlockians will get their savorless pound of Flesh, if those on high don’t change their recipe!

    • Beardawg says:

      PAULO

      I always enjoy your comments – especially since you have the unique perspective of a Canuck. As for #2 above, is the expectation that the big tik items (cars / homes) will deflate in value due to the inability to get affordable financing while food / goods etc inflate ? Hence, a 2-prong economy like we have now with cars / homes INFLATING in price due to cheap $$ ? Related – if John Q Public has to use 20% APR credit cards to buy cereal, bread and gas for his car (goods), would not the expectation be that John Q will consume less and thus goods will also deflate in price?

      HNY to all you Wolf Cubs – may 2021 be sparkly and less confusing. :-)

    • Rcohn says:

      Interest rates are currently at or near 5000 year lows and yield negative real rates.By any rational standards , our current interest rate policy is irrational and needs to go higher.

      • RickV says:

        “Interest rates are currently at or near 5000 year lows and yield negative real rates.By any rational standards , our current interest rate policy is irrational and needs to go higher.”
        Maybe Capitalism, that is liberty and free markets to finance new ideas, is so effective that productivity has soared globally. Production of all goods is now so efficient that no new investment is needed to provide not only for basic, but also luxury goods, in the developed and semi developed world. This is a rational explanation of negative interest rates. If true, civilization needs a new game plan to fulfill society’s needs going forward.

        • historicus says:

          RickyV
          “Maybe Capitalism, that is liberty and free markets to finance new ideas, is so effective that productivity has soared globally. Production of all goods is now so efficient that no new investment is needed to provide not only for basic, but also luxury goods, in the developed and semi developed world. This is a rational explanation of negative interest rates.”
          Ridiculous…
          Rates are where they are because of Quantitative Easing and other magic acts…Central bankers have suspended the basic fundamental of free markets (supply/demand price discover) by absorbing this massive supply of debt and hiding it off books on a balance sheet “shoe box” shoved under the Fed’s bed.
          Where would rates be if central bankers were letting this debt load hit the market? Not negative, not zero….much higher. Nearly $20 Trillion in new debt in past 12 years? It took 215 years to get to $9 Trillion. (2009)

      • historicus says:

        The Fed has THREE mandates…

        the third most often ignored is “…promote moderate long term interest rates.”

        Moderate according to the dictionary means “not extreme”. We currently have EXTREMELY low long term rates, record lows. 5000 year low rates.

        Why would the Fed have a mandate to prevent “extremely low” long term interest rates? So as to prevent the “emptying out” of future generations by gigantic debt creation for immediate gratification allowed and promoted by levels of interest rates that do not deter such creation
        In other words, the third mandate of keeping rates from being extreme is designed to prevent the stealing from the future to “fluff” the present.

        The Fed IGNORES this mandate. One of three mandates. They ignore another one as well…stable prices…as they promote an inflation rate (2-2.5%) that rips 22% to 28% respectively from the dollar in ten years.

        The Fed is the problem, and also those who do not hold the Fed to the mandates, the agreed upon mandates, from which they derive their special powers.

    • Heinz says:

      I generally agree with your astute assessments on what the sad, blazing end of this debt super cycle means for average standard of living in US. It won’t be pretty.

      But to keep your sanity and good cheer when things go south is a sign of personal strength and maturity. Best of luck to all as we close out 2020 and usher in 2021.

      It is best to remember that if we can’t change the world (we can not) we can still do whatever is possible to prepare and improve ourselves and build resilience and self-reliance.

      The future will take care of itself and proceed according to its own plans with or without us. Let’s take a deep breath and get over it.

  16. Going into 2021 in a matter of hours, I get a sadistic kick out of the phrase: “Full Faith and Credit of the United States Government”. Based upon the behavior of our illustrious Government over the last 30 years, I think I am watching a Barnum & Bailey circus act on C-Span more than a democratic and fiscally functioning central government. This circus of poorly performing actors is what is backing the fulfillment of all outstanding obligations of the United States DENOMINATED IN DOLLARS??!!

    Loss of faith in the ability of any government in fulfilling its domestic currency obligations is a slow drip at first, UNTIL IT ISN’T.

    With both the U.S. Treasury and the U.S. Federal Reserve destined in the months ahead to be steered by two clueless MONUMENTAL MONEY PRINTERS that the counterfeiters of yore would be envious of, ME THINKS THAT THE DRIP IS DESTINED TO BECOME A STREAM THAT CAUSES STUDENTS OF HISTORY TO GREATHLY REDUCE THE DOLLAR’S STATUS AS A MAJOR RESERVE CURRENCY.

    One percent decline to two percent to five percent per annum, not pretty, but highly likely. Happy New Year to those without a fiscal compass or an appreciation for currency history.

    • historicus says:

      It is my distant recollection that at one time, the mission statement of the Treasury included phraseology that pointed to their obligation to defend and preserve the value of the currency.
      Anyone else remember? Can’t find it now….

      • Old School says:

        Janet Yellen got paid $7 million in the last two years for 50 speeches, some to Goldman Sachs. First she is a boring speaker. Second, does anyone think she knows how money works better than Goldman? I don’t think this is avoiding the appearance of conflict of interest even though I am sure she will say she will recuse herself. At NC State University the head Economics professor has an obligation to communicate with the public through talks or tv interviews as a public service. Guess DC doesn’t work that way

  17. No matter the outcome Treasury is going to float their paper based on the fundamentals. All those indicators are pointing up; ability to generate tax revenue, robust stock market, large well trained (obedient) labor force, ability to form and maintain foreign agreements, with allies and adversaries, all turning up. Japan has exhausted their post war miracle, Europe will be lucky to hold the currency together, they will jettison EU regs, and bond market sleight of hand. EM is balkanized the world over. SA next! Dollar is worlds only and cleanest dirty shirt, everyone else is shirtless.

    • Ambrose, please pass me whatever you are smoking:

      “No matter the outcome Treasury is going to float their paper based on the fundamentals. All those indicators are pointing up; ability to generate tax revenue, robust stock market, large well trained (obedient) labor force, ability to form and maintain foreign agreements, with allies and adversaries, all turning up.” Please point me to the established metrics, not hopium via the Biden admin, that support your premises here! Now our labor force has to be OBEDIENT instead of skilled in the traits that the world currently demands; I hope this doesn’t refer to a goose-stepping Labor Force.

      The argument that the Dollar is the prettiest witch in the covenant is very flawed. There are mediums of exchange (other than fiat currencies) that do not regularly crash and burn based on the stupid behaviors of their central banks and governments.

      • WES says:

        David:

        Americans have little to fear as long as Sparkle Socks is running the great white north!

        The last time I saw Sparkle Sock’s spending, he was running a $384 billion annual deficit!

        Since Canada is less than 1/10 the size of the US, that would be like Comgress running a $4 trillion annual deficit!

        Not sure what Europe and Japan are doing but likely more than the US!

        Clearly a race to the bottom but the US won’t likely get there first!

        Sparkle Socks would never allow that!

      • Bear market in the dollar should end, when revenue, deficits and GDP turn higher. If not by March then an intervention must be considered. Trends [annualized :)] matter more than nominal levels of debt, deficits, or growth. You can buy stocks at any price, while the trend in money flows is positive. Vectors which make up the dollar index have all been trending negatively, result of virus shutdown and micromanaging without considering the outcome.

      • cb says:

        David W. Young said: ” There are mediums of exchange (other than fiat currencies) that do not regularly crash and burn based on the stupid behaviors of their central banks and governments.”
        ____________________________________________

        What are those mediums of exchange?

    • RightNYer says:

      This is a joke, right?

      On what do you base our “ability to generate tax revenue?” The only thing I see here that bears any relationship to reality is a robust stock market.

      • Right, substitute “hyperventilating” for “robust” and then there is some reality. Trailing PE on S&P 500 of 38 to 44 times is more like “ready to bust” than “robust”. Would not invest in most stocks here with a ten-foot pole; even Warren is very leery of this market.

        • RightNYer says:

          Haha, right, I meant “robust” in the sense that “prices are high” and “People have this expectation that they represent productivity which will grow.” Not that they’re valued at a level even remotely reasonable.

    • Mora Aurora says:

      re: “…ability to form and maintain foreign agreements, with allies and adversaries, all turning up.”

      Other opinions outside the echo chamber beg to differ:

      The U.S. is ‘not agreement capable’ and ‘has no allies, only hostages.’ ‘Any deal made with the U.S. government or military will be broken at the earliest possible opportunity to further its goals.’

      • 91B20 1stCav (AUS) says:

        Mora-as a fellow VNV remarked to me several years ago when we were discussing our nation’s promises vs. practices: “…any country that decides to shake hands with Uncle Sam should count their fingers afterwards…”.

        may we all find a better day.

    • Rcohn says:

      Even using the “doctored “official government inflation numbers , the implied 10 year inflation rate is almost 2 %. Could someone please tell why anyone would invest in 10 year Treasuries with a a NEGATIVE real yield of minus 1.03%?

      • Gerald Croteau says:

        Because those investors run insurance companies and need to manage payment flows. They are managing terms and cash, not “investing” like the casual wolf streeter.

      • Old School says:

        If you truly need the money to show up at a certain time, you should match duration. One period of time stocks under performed t-bills for 29 years. If you are retired you can’t lose 70% of your assets in a single year if you are living on them.

  18. Yort says:

    It seems to me that the entire world has printed too much money, and thus price stability is gone on the things we all need to survive like food, shelter, and basic healthcare.

    The irony is the universe is naturally moving from order to disorder, and thus creating artificial stability breeds instability. As the govts and central banks of the world force unnatural long term stability on the world economies through printing money, the instabilites grow and grow and grow.

    At some point the money printing is going to affect our survival. For example, corn prices globally are up 58.1% from August to December 2020. Soybeans are up 64.1% this year from April to December 2020. “Something” is broke folks, as this is not the way it has been over the last 100 years for farmers. All the printed cash “had” been mostly flowing into hard assets, such as houses, stock market, land, precious metals, art, etc. Yet now we have the speculators (Large traders long, Commercial Hedgers short) driving the price of grains up as if it is a daytrader stock, and this will ultimately cause pain and suffering around the world as you can’t eat I-phones, but you can eat grains and animals fed on grains. The central banks are now monkey wrenching our food economy and such is not going to go well as people ultimately do group up and revolt when they get hungry, or have to beg the government for free food…

    Printing money will not work forever, yet no idea when it causes enough problems for society to stop the central bank madness…although I suspect when people can’t afford food and/or energy, they will revolt. Already people have difficulty affording housing and healthcare, yet I’m guessing food and energy insecurity will create an environment where the Fed will not be allowed to increase Elon’s wealth $149 billion in one year at the expense of the bottom 99.9%. What will be shown at some point is that printing money causes social revolt, not social stability. The billionaires know this and are running scared and commenting 24/7 in the MSM…and the $1.8 Trillion in paper wealth they accumulated in 2020 will be wealth taxed away at some point so what is the point, really?

    • RightNYer says:

      I think a lot of the elite are finally starting to recognize that if you don’t regulate your own behavior, some external force will appear that will regulate it for you.

      • Xabier says:

        Correct!

        That’s why they are working on means for crushing/distracting that external force.

        It went well in 2020, and 2021 will be even better now they have broken us in.

    • Gerald Croteau says:

      I’m sky is famous for discussing the mathematics of how stability inherently breeds instability.

      • Gerald Croteau says:

        I meant to write Hyman Minsky. The economist

        • Wolf Richter says:

          After this, you need to take your autocorrect out the back and shoot it :-]

          Or are you doing speech-to-text? Then I’m not sure what you need to take out the back and shoot…

      • Old School says:

        Minsky real economy curve vs financial asset curve is the most intuitive explanation I have seen. When you blow financial assets from 2 times gdp to 6 times gdp what is going to happen when there is economic shock? We keep finding out central banks try to print to keep it all afloat. Very unstable.

    • Stephen C. says:

      My feeling is that the US elite are waiting for the right time to bring a “strong man” forward, who will restore “social order” and bring about a compliant workforce with lower wages to match the rest of the world. They had a good run with a fake strong man who turned out to be just what he always was, an entertainer and publicity hound, but the time will come soon for a real jackboot-type. That in itself is problematic, but the real problem comes the elites lose control of their chosen one.

      • RightNYer says:

        That won’t work in a country so armed to the teeth like we are.

        Which of course is why the elites on both sides are trying so hard to disarm us.

        • Old School says:

          It is a big difference living in different parts of the country. Rural vs. city. When I grew up living in semi rural country law enforcement might take 15 minutes to respond. The sheriff and deputies would make sure that people knew at what point the homeowner could shoot an intruder and a few other tips if you shot a little too soon.

        • RightNYer says:

          Even in a city, the police will not be there when you need them to be. Look at the broad daylight attack on the people in the BMW in NYC the other day.

        • Frederick says:

          Somehow with the space weapons they are developing I doubt rifles and assault weapons will make much of a difference

        • Trailer Trash says:

          Old School,
          I was told a long time ago to “make sure you drag the body over the threshold”.

  19. Glenn McClendon says:

    It appears a reserve currency does best if from a country where people actually wouldn’t mind living. Who wants to live in China where even billionaires can go missing if they cross the communist party. Crisis always comes from where you least expect it. Covid? Next one?? There will be another!

    • Gerald Croteau says:

      Very critical point indeed

    • Dave says:

      Of course, my heart bleeds for the Chinese billionaires that ‘go missing’, but 90% of Chinese graduates of US universities return to China after graduation–voting with their feet.

      • Happy1 says:

        They can’t all get Visas to stay and the current admin has been very unfriendly to them staying. Vastly, vastly more would stay if they could.

        • Dave says:

          The trend of increasing numbers of Chinese graduates returning home began before Trump.

  20. DR DOOM says:

    When a German company receives dollars they convert them to Euros to pay wages and vendors using the Forex system. Not so with RMB. The Chinese Central Bank inflates it currency by printing more RMB. This is the “special relationship” the US and China has traded with from the start and is the tool for de-industrialization .The US exports its inflation to China for its production. The new EU / China trade deal will not have this mechanism. Congress does not give a rats ass about any of this. They will destroy the last 3% left of the dollar that existed Before the creature from Jekyll Island (Fed) started gnawing on it. We are screwed. Do not blame China .

    • Beardawg says:

      DD

      Perhaps you can expand on this statement:

      “….The US exports its inflation to China for its production. The new EU / China trade deal will not have this mechanism. Congress does not give a rats ass about any of this…”

      Are you insinuating that EU will not allow RMB to be printed excessively for trade, thus further deflating the value of USD as more EU trade with China takes hold under new EU / China trade deal?

      • DR DOOM says:

        Beardawg: Apparently the US objected to the trade deal as it would require more RMB in circulation for settlement . No US Treasurey debt would be required to sop up dollars held by China as excess reserves. How dare the Europeans horning in on our gig. Devaluation of USD to RMB could be a result. China is flexing independence and Europe is getting more comfortable every day tweaking the nose of US hegemony. Nord Stream 2 is a done deal as an example of Germany flashing some independence. Just another brick out of the wall. Congress and the Empire Connected have all the dollars they need, screw de-valuation. De-valuation is a leisurely topic Congress people discuss over cocktails in the tony watering holes such as in Georgetown.

        • Gerald Croteau says:

          Some US politicians still believe that our sacrifices in WW2 against totalitarianism matter to the current European leadership. Turns out they kick the can in Europe too.

      • Old School says:

        Was Euro formed so Germany could debt finance consumption in southern Europe? Oops too much debt.

        Was housing bubble in US created so US could debt finance biggest housing bubble of all time? Oops too much debt.

        Did central bankers QE the biggest stock and debt bubble of all times? Oops to much debt.

        Is that little gold coin worth $2000? Oops, wrong question. Is that all the gold I can buy with $2000?

  21. Don says:

    Why does there even need to be a reserve currency. What’s stopping computers in China and Europe from directly exchanging e-Yuans and e-Euros

    • Beardawg says:

      DON

      Great question ! It’s all 1s and 0s now anyway – right ??

    • MarkinSF says:

      There isn’t a need. Its called Empire.

    • Mel says:

      On another blog we were discussing the need for Federal dollars in Federal Reserve accounts. It seemed to boil down to convenience — the kind of convenience you might not get along without.
      The reserve accounts at the FED provide known standard assets for the day-to-day interbank clearing. On a day when, say, Bank A has cashed $10m more of Bank B’s checks than vice versa, they can transfer $10m between their reserve accounts, the FED does the bookkeeping, and the value of the asset is beyond question.
      Imagine the situation without the FED:
      A: OK, today we cashed $10m more of your checks than you did of ours, if you’ll just pay …
      B: Sure take this pile of Commercial Real Estate derivatives and we’ll call it square.
      A: Uh-uh. We’ll take 10,000 ounces of gold …
      B: We’re not giving out gold. Say we throw in this handful of Oil Exploration Bonds …
      A negotiation like that might never resolve, and they’d never get to do a second day of business.

      I imagine that reserve currencies play the same role in international trade: widely acknowledged assets that can be swapped in myriad ordinary business deals every day, without having to think about it much. And the FED doing the bookkeeping, I suppose.

      • WSKJ says:

        Mel, that’s a persuasive model you sketched out, of the usefulness of the role of the Fed, and reserve currencies, in the world economic system.

        Would love to see your model of how a new, reformed, better Fed would operate. How would you reform the Fed ?

        • Mel says:

          I don’t have very good arguments there. My vision of a Central Bank would be one that sticks to administering the clearing system. I guess, too, that it should carry out prudent bank lending on behalf of its customers — the Treasury, the national private banks, and foreign central banks.
          That word “prudent” is carrying a lot of weight. I don’t know enough to define it better.
          Choosing winners and losers in the economy — which a bank does when it lends — should be controlled by the government for the public good.
          Pretty vague, and, how many ways could it go wrong, if it’s controlled the wrong way? :(

    • Happy1 says:

      Stuff has to be dominated in a currency, and the dollar has that spot. For now.

      • Trailer Trash says:

        Iran and Venezuela didn’t get the memo. They are now doing deals without dollars. Uncle Sam can only beat his chest and howl in protest. Russia and China have also been working on alternative arrangements. More arrangements are coming.

        Currency is convenient, but hardly necessary to trade actual goods.

  22. Jeff T says:

    As we leave 2020 and enter 2021 I would like to give a shout out to Wolf and all of you. I enjoy his analysis and much of the discussion. It seems that many of us are older and well enough off at this point. As I reflect, it comes to mind, I have never seen a hearse pulling a u-haul trailer. Worry less about money and enjoy life more in 2021. Happy New Year.

    • MarkinSF says:

      Well like they say – the last check you write should be to the undertaker. And that check should bounce.

      • smart@ss says:

        @MarkinSF
        YEAH! Screw that jerk for taking on the unenviable task of escorting your carcass to its final rest. Good luck timing your death to the minute like that, though. Or just let us know if you need some help.

  23. K says:

    Dear Timbers,

    As discussed in CNN’s “China’s defense budget shows Xi’s priorities as economy tightens,” China’s military budget increased at least 6.6%. I say at least because I have some familiarity with various tactics that the CCP uses. Read the Art of War by Sun Tzu and public statements from Chinese leaders and generals as to the recommended tactic of hiding strength and using surprise.

    Their military spending might have increased much more because their reported economic and other numbers are usually fabricated. Xi’s recklessness has actually helped put the wise in the world become aware of the CCP megalomaniacs’ ambitions.

    On another subject, as so many commenters have partially pointed out, US inflation of various goods and I contend, probably, hyperinflation are already here. Hyperinflation can occur only of the goods and services that are in demand with those that have money to spend on them. If food or oil or gas is plentiful or if there is a large, unpurchased supply of it, it is not likely to increase in price.

    Even in Weimar Germany, I am sure that less desirable goods and services would have appreciated less, at least before mass panic set in and massive hoarding began. That means that we already have seen the first of hyperinflation’s beginning: in the prices of stocks, which rose regardless of the PE ratios and rational forecasts of those company’s future income growth, in the prices of Bitcoin, which enable international, often hidden monetary transfers and are Ponzi like in that when Bitcoin becomes unfashionable its last investors may lose their investments, in the prices of real estate, which has become unaffordable to more and more portions of the population, in the prices of computer goods which became essential to telecommunication in 2020, etc.

    Mass panic has not yet occurred in the USA. Until it does, think about how beneficial the weakness of the US dollar and the unreported inflation is to the banksters: their banks or financial institutions each have, e.g., say $1 trillion dollars in investors or savers’ funds, which are really liabilities of the banks, not assets. If inflation or dollar value depreciation occurs, then they can more easily pay off those liabilities with inflated money, which has less real value, while they can charge more to lend, etc., due to the inflation.

    That is what is occurring. That will occur until there is enough of a loss of faith in the US dollar. When will that happen?

    I think that China’s aggressive actions will keep many foreigners in the US dollar, because Taiwan or South Korea or even Japan might be invaded or intimated into the Chinese CCP’s rule through, for example, the CCP’s continuing takeover of the South China Sea. If you were an EU investor, would you want to invest in one of those countries now and have the CCP take them over and repudiate all debts, or have those countries issue war bonds to defend themselves?

    Nevertheless, even that fear has limits. If it were not for the fact that the CCP has recklessly mishandled the Chinese economy, I suspect that the banksters’ and Wall Streeters’ dreams of working with it to fleece American and EU investors by getting a cut while selling them worthless, uncollectible, Chinese securities would have progressed much further than it has.

    So far, they have only managed to fleece pensions and other institutions by putting corrupt, unaudited, Chinese companies’ securities on indexes to cause those institutions to then invest in them. When will Americans realize that Wall Streeters and banksters represent, effectively, a separate nation, like Taliban members hiding within the continental USA. They have their own goals; they pursue things that benefit them. They do not care and would not bother to do things to benefit ordinary Americans unless there was some benefit to them from such acts: e.g., appearing magnanimous.

    Read Anand Giridharadas’s “Winners Take All: The Elite Charade of Changing the World.” The ultra-rich banksters, Wall Streeters, and their enablers are only a small, thieving, entitled, corrupt group that is living parasitically off of the rest of us, Americans and Europeans. They are like the CCP’s communist party members and their wealthy cronies in China, which also consists of a bunch of entitled, thieving, corrupt spoiled, deceitful parasites that work to mislead their populations into believing them to be beneficial, not parasitic.

    • Dave says:

      Dear K,

      All the facts lead to the conclusion that China is going from strength to strength.

    • Lisa_Hooker says:

      “… if there is a large, unpurchased supply of it, it is not likely to increase in price.” This is the labor situation. Much labor, little demand. The jobs and raises we became accustomed to will not be available as in the past.

    • timbers says:

      Thanks, K.

      Thanks for your response. Didn’t notice it because looks like it got misfiled.

      Old saying: Power corrupts and absolute power corrupts absolutely. Please be aware who has most recently held absolute power. It’s not China. Yes it can be said China is bad. But she pales vs US because because she does not yet have the absolute, yet.

      My reference to China regarding defense spending, is its very wise choice not to increase it’s nukes (about 300?) to match ours (abt 5,000?) despite the U.S. almost explicitly publicly urging it to do so. China thinks deterrent 300 is just as affected and much less costly than 5,000. The U.S. knows an arms race could hurt China more than the U.S. which is already drunk on lobbyist driven arms spending with an over rated ability.

      The Chinese and her northern neighbor spending carefully and strategically aimed at US weakness, and they both know spending more is not the same thing as increasing their defense. That’s why they can often cut their defense budgets, and do.

      Regarding your views on China, please be aware that could do copy/past and replace many or your China references with U.S. references, and it have equal validity.

      It seems too, that their one amongst the 2 nations that is an aggressor which places itself above law and treaty and it’s own declarations maybe because it has declared itself exceptional to all others.

      That is changing, and is likely the cause of much angst. The US can deal with that change, or thrash about and cause a lot of damage by opposing that which it can not stop.

      • historicus says:

        Thucydides Trap.
        Here and now.
        The Chinese learned a very important lesson…our Congressmen are for sale. (maybe even former VP)

        • polecat says:

          Yes,of course! Our precious and honorably ‘seditious’ Congrease volkin, stretchhhhhing back some ways, and means … and if one were to include their Lobbying interludes. Totally bought. Totally corrupt.

      • Happy1 says:

        When the US has deliberately starved 10% of its population to death and destroyed a generation of it’s PhDs and destroyed all religious buildings in the US, then we can talk about moral equivalency between the US and China.

        • Dave says:

          The US has murdered millions in Vietnam, Iraq, Afghanistan… Does that count?

        • Lisa_Hooker says:

          Don’t confuse morality with ethics.

        • timbers says:

          There you go again Happy1, projecting what America has also done onto others as pretending we haven’t done similar and insisting it’s all someone elses fault never ours too.

        • timbers says:

          Dave,

          Don’t forget what we did to Native Americans. Also scholars now think maybe 1 million in Indonesia in the 60’s.

      • MonkeyBusiness says:

        Chairman Mao was probably the first leader to understand that there’s no difference between infinite destruction x 300 and infinite destruction x 10K.

        But then again the man did bring about the Great Leap Forward and the Cultural Revolution, so ……………..

        • Lisa_Hooker says:

          I think Stalin spoke of this first, a tragedy versus statistics.

        • Cas127 says:

          “no difference between infinite destruction x 300 and infinite destruction x 10K”

          Every single action DC takes indicates this is DC’s honest opinion of how the debt and the value of the dollar should be viewed.

          ZIRP via money printing makes the annual cost of a 200% debt-to-GDP exactly the same as 20% ratio.

          Zero.

          The only cost is artificial inflation…which DC/MSM will frame someone/anyone else for.

      • K says:

        Dear Timbers,

        I agree with all of that you say about abuses by the US, and most Europeans, for that matter. I could list even more atrocities throughout the world, e.g., the Belgian King’s genocides in the Congo. As long ago as the Mongols in the middle ages, disease was reportedly deliberately spread (bubonic plague in that instance) by catapulting infected corpses into an Italian-controlled city.

        Thus, after seeing all of the natives die from diseases in Hispaniola, I am very certain that Cortes and the other conquistadors knew that bringing in someone infected with small pox, which was still killing relatively resistant Europeans then, would result in a genocide of the native, Mexican populations. It did, as was probably planned.

        Nevertheless, you are missing the key point: the danger of the mainland China CCP’s current atrocities is that they are CURRENTLY behaving just like the Nazis or conquistadors toward all of their neighbors but Russia. Assuming that they have not engaged in tactics like covert use of non-nuclear weapons of mass destruction already, and their statements and behavior in 2020 are both pregnant with admissions of guilt (“negative pregnant denial” definition), I am sure that they will if that will accomplish their objectives: takeover of the South China Sea, so they can control and intimidate South Korea, Japan, Taiwan, etc., with threats of embargoes through cutting off of their shipping.

        That is why reportedly they just fired a long range missile at a moving ship in the South China Sea: to intimidate Japan, Taiwan, South Korea, the Philippines, Australia, and the USA. They are developing the weapons of mass destruction that they will need to blow up Japan, South Korea, Taiwan, etc., if they do not bow to their will.

        Given their genocides, organ harvesting reportedly even from young children, prison camps for people of different faiths, oppression of religious groups (changing the bible of Catholics there to claim Jesus was a murderer like the CCP members) etc., they are not morally distinguishable from the Nazis after they started operating their concentration camps. The US is not about to invade other countries anymore: we have pulled out of most countries, except for those important to certain groups in the US in the Middle East.

        We have been burned enough that I do not think that most, rational, US leaders are going to plan another invasion of any country, not even communist China. Sadly, I fear that we might win (e.g., if we invade Iran) and then face another decades long, multi-trillion dollar, failure of an occupation that results in a huge increase in the level of hatred against the US throughout the region.

        What we should be looking out for is a way to cauterize the CCP infection. If we could covertly blow up the CCP leaders, for example, in a deniable way, that might stop the future casualties that I predict will occur due to the CCP’s current plans for intimidation and conquest. It would be like killing Hitler in 1934. Since the Wall Streeters and banksters are now the CCP’s allies, that would only work if they had no idea of any such plans.

  24. Cobalt Programmer says:

    Dear Wolf street readers,

    Before European Colonization of the 1600s, China and India were the top GDP countries among the whole world. Now China will regain their status soon (India may not be. Just sayin… ). Europeans were poor until 1800s and even 1900s. Only poorer people came to US! There were two currencies. Your character and Gold. For example, the Libyan Dictator Gaddafi wanted to introduce a new African currency similar to Euro. What happened to him? Everyone knows what happens if $ is threatened. Economics is a pseudoscience and biology is the real science after all…

    Hindsight 2020 gave us a lot of thoughts.
    No more comments from me for this year.

  25. makruger says:

    Happy new year everyone. I’ve learned so much from this site over the last several years. A big thank you to Wolf and those who comment. Since Covid-19 made such a mess out of 2020, I wish everyone the best for 2021.

  26. George says:

    the only one threatening the USD is “Mississippi” Jay Powell. To further obfuscate his printing for the Weimar redux the Fed quietly announced on December 17, 2020 that it is redefining the M1 and M2 Money Supply Measures. They’re shifting the savings deposits component into M1 from M2. Now why would he do that? Could be because people are yanking “term” deposits at banks and dropping them into their “demand” deposit checking accounts not unlike a silent bank run. This is the setup to spend their debauched currency ASAP before it no longer buys zilch. You were wondering why real estate is becoming untouchable?

    • Wolf Richter says:

      Concerning the M1 to M2 topic: Just shifting things around how they categorize it in the data releases. Those kinds of shifts are announced and happen quite a bit. Nothing changes in reality. Instead of showing it in this account, we’re going to show it in that account… that sort of thing.

      • Yort says:

        It was kind of odd the Fed is also changing from weekly averages to monthly averages. Less transparent for “some reason”. I have dug deep ito theories of why M1 spiked $1 trillion in a single month, and there seems to be 3-5 valid reasons.

        That said, Bloomberg had a chart that showed the supply of money in the 12 biggest economies went up $15 trillion in 2020, and it seems somewhat suspect that the global stock market index also went up $15 trillion in 2020. If the world keeps printing an additional 19% global money supply each year, I would guess that everything will continue to go up in this “Everything Bubble” to some degree, minus savings and other “wasteful” productive uses of our soon to be toilet paper “faith based currencies”.

        In this new real-life Earth based game of billionaire monopoly, what will really get the velocity of M2 movings is if the govt changes the “pass go” stimulus from $150 ((1200+600)/12) in 2020 to say $2000 monthly in 2021 (a current team blue proposal). I know that seems unlikely due to present gridlock, but still possible with a duel blue win on the January 5th Senate run-off.

        Markets need continued grildlock euphoria to “4000-humans-like-rounded-numbers” level on SP500 in short order. Thus next week could get exciting as right now Wall Street is 80% (over-confident) that team red wins on January 5th…

    • Franz Beckenbauer says:

      Because a bank run at home is not quite what you’d like the world to see if you’re still clinging to your status as “the world’s reserve currency” ?

  27. George W says:

    Happy depression everyone.

    Oh wait, that will not happen until next year.

  28. Lisa_Hooker says:

    A very Happy New Year to Wolf and all the great writers here.
    The only thing I’m sure of for 2021 is that none of us know what will happen next; logic fails. Good fortune to all in the coming year.

  29. Joe in LA says:

    This is what I learned in 2020:

    Neoliberalism is in total control: PE doesn’t matter because stocks (like houses) are now part of a self-referential neoliberal economic system of valuation. Their price is a function not of inherent worth but of their ability to attract leverage.

    This entire market is determined by liquidity/leverage. The neoliberal CBs are willing to provide infinite liquidity (promises on the future) to keep pulling equity valuations forward and upward.

    The “crisis” moments, like March, are actually moments of the consolidation of power, not signs of weakness. This year made that so easy to see. After 2008, everyone was expecting structural reforms, but nothing happened. This year as we had QE-infinity, and there wasn’t so much as a peep in the mainstream press. “It had to be done.”

    The belief that CB liquidity MUST be provided whenever needed is now absolute consensus — the entire system (not just the banks) is “too big to fail.” Neoliberalism (with its unique style of valuation by leverage) is completely in the driver’s seat now.

    So, if that’s all correct, I would expect a steady upward creep for stocks over time, with every serious debt crisis immediately papered over with more debt. Can this ever stop? Maybe, but not through a failure of its own internal logic. In other words, neoliberal economics will never produce a debt crisis so severe that more debt cannot be produced to rescue “market” value. These “crises” are a feature, not a bug.

    Happy New Year!

  30. panamabob says:

    Happy New and Improved Year to all.
    I hope!

  31. GotCollateral says:

    Japanese banks are great capital allocators in Asia, esp with navigating the maze of local politics, bureaucracy and inefficiencies.

    Perhaps even more so than US banks…

  32. Malibu says:

    I have no idea where TSLA will stop. I do know that the TSLA bashing has vanished here. When will the cheer leading start? As for 2021 predictions- mine are that he who lives by the crystal ball will be forced to eat broken glass.

    • rip says:

      The valuation is absurdly preposterous. There are really no words to describe it. It was like the world’s biggest short squeeze that never stopped, and the stock rose through the clouds to the heavens above and just stayed there. The Federal Reserve should be ashamed. No, they should be abolished.

      • Yort says:

        TSLA short interest, as a percentage of float, went from 18% range in Jan 2020 to 6% range in Nov 2020. I think the average short interest for SP500 stocks is in the 2% range, so still twice as high as “normal”. What is not normal is a 700% gain in one year, that is good yet NIO is up $1,210 in 2020 so TSLA is a dog it would seem…HA

        Yet I am guessing a few lucky call buyers made close to 100x their money in one year with a dose of luck. That said, without much short interest, I’m betting TSLA drops fast and furious “someday”…AND it will be due to something that occurs that is as illogical and unpredictable as the 700% gains in 2020…

        • Lisa_Hooker says:

          When the lottery payouts becomes larger more folks buy tickets. The odds remain the same. Hope is not a strategy.

      • RightNYer says:

        If you think about it, TSLA is emblematic of the entire S&P 500, for which the valuation is also preposterous

    • Old School says:

      Add Tesla speculation to bit coin speculation and you are well over a 1000 billion dollars. That’s a trillion dollars in assets backed by no income. At some point real income producing assets in a down market will matter.

      • historicus says:

        The Fed’s zero interest rates skews (makes impossible) accurate asset evaluations. Just one more danger the Fed creates with their nonsense.

    • historicus says:

      TSLA is a ramification of zero interest rates…
      asset evaluations become difficult and in some cases impossible.

    • SocalJim says:

      I am not sure if TSLA is any more prepostorous than what I just saw happen across the street from me. An 1950s 3BD home that was remodeled about 10+ years ago. Put on the market for 3M ish. I laughed at the price. I told my wife the owner is in crack. One day later, it sells full price. The backstory is he should of held out for more. This is scaring me. House prices do not rise this fast unless something is really really wrong.

      • Lisa_Hooker says:

        There’s simply more money sloshing around than is needed for the economy. Quick, buy a house before you’re left behind.

    • Happy1 says:

      Only thing I’m 99% on is that a ten year investment in Telsa will probably do much worse than a similar broad index. Bank on it.

  33. BuySome says:

    In the long history of sports, never was there a year so easy for the cheerleading squad to memorize their lines…”GSR!” “GSR!!” “GSR!!!” “Gooooooo Team Silver!” [Past performance is not an indicator of future earnings….the devil (lawyers) made me say that.]

  34. Sam says:

    Malibu,
    Nope! They’ll order up at their favorite at CMG. Where the only thing Mexican (there) is the staff.
    CMG’s stock [TSLA trajectory mode] squeeze is the envy of entertainment sector.
    “No bad days ever.”

  35. Island Teal says:

    Happy New Years to Wolf and to all those who comment here. 🥳🥳😊😊

  36. YuShan says:

    On the surface, Japan always looks like a basket case because of the high government debt. However, Japan is the biggest international net creditor in the world. This might play a role in the stability of the Yen.

    The US on the other hand is by far the biggest international net debtor.

    I always see the MMT crowd referring to Japan as an example why you can just monetise government debt without consequences, but the comparison with Japan is very dangerous. I feel that the US is really pushing its luck at the moment.

    I see potential for a massive black swan when the paradigm of an omnipotent Fed finally shatters.

    • RightNYer says:

      The other issue is Japan’s population itself. It is ethnically and culturally homogenous, and its people are much more law abiding and obedient. For example, if the U.S. required massive paid sick leave, many people would abuse it. The Japanese wouldn’t dream of it. Further, you saw what happened after the earthquake. People were lined up in an orderly fashion to get water and other supplies. Contrast that to what went on at the Superdome, or heck, what goes on at a Walmart on Black Friday.

      This means that there isn’t as much of a risk of the country defaulting on its obligations, most of which are to their own people anyway.

      I don’t believe that the fact that Japan can get away something is good evidence that we can as well.

      • polecat says:

        Who says that ‘we’ will remain ‘whole’ ??

      • rip says:

        The Japanese have a strong moral code. That’s why they feel a lot of personal shame if they let their family or their country down, and commit seppuku. It’s too bad this hasn’t caught on with the Davos crowd, Wall St., etc.

    • Dave says:

      A country can get away with MMT if it produces more than it consumes. Since 92%+ of Japanese debt is held domestically, this provides added stability. The downside is economic stagnation, however.

  37. Tim SE says:

    I think we need to remember the ‘petro-prop’ – the pricing of oil in dollars helps support the USD, because anyone in the world wanting to buy oil needs dollars.

    I remember Saddam planning to price Iraq’s oil in other currencies, and suggesting same to OPEC. That can’t have gone down well in DC….

  38. Norma Lacy says:

    To joe in LA – re the March plummet, that was my thought as well. At first it looked like any ole correction, but then some one/s definitely seemed to be pushing it off the cliff – followed by an amazing snap back in a very short time. Many equities down by 50% or more but just for a day or two. I bought a few things, but the pump came so quickly I couldn’t enter orders fast enough. Also, of course, I expected a bit of bottoming, but no such thing. Some body/s made a f’ing fortune on that game.
    Practically no body mentions it, but the chart is striking. Who said never let a crisis go to waste??? Cheers.

    • rip says:

      The FED talks about their future moves with Wall St. which is essentially insider trading. In fact, there was an article a few months ago which let the cat out of the bag. I’ll see if I can find it later.

      • historicus says:

        Rip…
        Imagine that.
        And Yellen, who was on the “lecture circuit” (can you imagine listening to her for an hour) raked in over $7 million according to a zerohedge article….from bankers.
        The only question is ..”was that a payment for services rendered, or for coming services?”

        • rip says:

          Even worse than that is Jerome Powell, Chair of the FED, whose wealth is estimated as high as $100 million. He owns all sorts of stocks and bonds, and there have been reports that he has over $10 million with BlackRock alone. When you look into BlackRock and their cozy relationship with the FED and .gov, it starts to leave a really nasty taste in one’s mouth.

          Like George Carlin so accurately put it decades ago – “it’s a big effin club, and you ain’t in it.” The corruption is staggering.

    • Shiloh1 says:

      I forgot who said it exactly, perhaps Chris Irons of Quoth The Raven, that The Fed panicked quickly and started buying the market before Goldman, the rest of the Wall Street crooks could front-run the bottom. Uncle Buffy slept in that week.

    • Yort says:

      Unless one had insider info on what exactly the Fed actions would do to the markets and a blueprint of their plans, I’d say 95% of everyone missed the first 600-800 points up on the SP500 from 2200/2400 to 2800/3000 range. Thus at best, 33% gain from 3000 to 4000 (If/When the Fed doubles QE in Q1 2021), so I’d guess the avg gains would be in the 25% range, yet only 16% up YOY on the SP500.

      And do note that the average Nasdaq recover is 1018 days, yet in 2020 during the “greatest recession in our lifetime”, the Nasdaq recovered in 50 days. The SP500 “crash” lasted only 23 trading days. We should have hit the 1500 to 1800 level to properly flush out the bad investments and let capitalism work, yet the Fed bailed out the top 10% at 2200/2400 range. I sold a lot of puts on the way down, and stupidly sold USO puts in which I got lucky and covered a few days before oil went negative so there was risk that even the Fed could not eliminate. I also had sold a large amount of XOM puts at 30 that filled and I can say I was not sleeping well that night, but the Fed bailed me out and I sold that XOM in the low 40s and filled back up between 31-33, and now the fed has it back at low 40s and I’ll sell again in the high 30s if the senate goes blue Jan 5th. See the point, it is just a Vegas roulette game that has nothing to do with logic and everything to do with Fed corruption, luck, and taking risks that should be punished but instead rewarded by papa Pow, and soon grandma Yellen who are holding a magnet under the table on lucky 13. To make a ton of money in these markets is mostly due to luck, turning off your brain, and pretending this time is different forever. So for now the top 1-5% with lots of spare cash can gamble recklessly and still sleep at night, yet is this productive human endeavor??? For the other 95% actually being productive for society via a wage related job…not so much. At some point the bottom 95% will revolt…but is that SP500 at 4,000 level, 4,400, 5,000???

      Only our Fed GoD knows what is best for 7 billion humans (sarcasm)…

  39. Yaun says:

    The biggest shift has happened in Russia in the last two years where a big chunk of Dollar reserves were shifted into Yuan, Euro, and Gold. Dollar reserves in 2017: 43% vs 2019: 24%. That’s how fast it can go if a country decides to get out.

    • timbers says:

      Regarding that, saw this in Bloomberg today. What’s interesting is that it suggests financial interests do appear to be what dictates Chinese policy the same way they do in the US:

      The central bank resisted the temptation to take the cheap, zero-rate shortcut to boost the economy, and is opening financial markets. No wonder yield-hungry foreigners are buying Chinese assets at a record pace

      • timbers says:

        Correction:

        financial interests do appear

        s/b

        financial interests do not appear

    • Wolf Richter says:

      Yuan,

      At Russia’s peak holdings in 2017, it held $105 billion in Treasuries. Other countries combined held $6.2 trillion (with T). Japan held $1.1 trillion; China held $1.2 trillion. Russia’s holdings at that time amounted to a minuscule 1.7% of Treasuries held by foreign holders, and to 0.5% of total Treasuries ($19.8 trillion). Russia, with its holdings of $105 billion, wasn’t even in the top 10 foreign holders. And when it dumped those Treasuries in 2018, nothing much happened.

      • timbers says:

        All true I’m sure, but from Russ point a view a lot happened: Those $105 billion USD become beyond the reach of the thieves in Washington and it’s dictate at at destroying her sovereignty. Another side to consider is Russ usd based debt. If she walked away from it – as she has ample justification for choosing to – what if any impact would it have? Gonna guess it’s it’s more than $105 billion but have no idea.

  40. 2BFrank says:

    The UK now has recorded a trade deficit (meaning the value of imports exceeded the value of exports) in its combined trade in goods and services every year since 1998.
    In 2019, the UK’s trade deficit was -£30.5 billion, equal to -1.4%of GDP.•This represents a widening of the trade deficit from 2018 when it was –£25.5 billion, equal to -1.2% of GDP.

    Yet somehow sterling strengthens?, FX trading and currency values are highly manipulated in the short term by large players like central banks, and too big fail institutions, over very long time periods 20 plus years then the truth will out.

    I wonder what the exchange rate is for south sea sea shells versus Ethiopian cattle should two parties want to get married?

  41. Martha Careful says:

    Happy New Year!

    FYI, while recently looking at M1 @ FRED and H.6 Money stock (as a percent change) it looks as if the Fed exploded money stock between Q2 and Q3, then, almost as quickly, crashed the supply below zero between Q2 and Q3.

    I’m just looking at that, confused, but the pandemic shock and the stimulus tsunami was apparently intended to shock the economy, not unlike a heart patient: “With electrical cardioversion, a high-energy shock is sent to the heart to reset a normal rhythm”

    Then, I ran across this, which makes sense and sets a tone for 2021 and a weird, slow recovery:

    “One positive supply shock that can have negative consequences for production is monetary inflation. A large increase in the supply of money creates immediate, real benefits for the individuals or institutions who receive the additional liquidity first; prices have not had time to adjust in the short run. Their benefit, however, comes at the expense of all other members of the economy, whose money loses purchasing power at the same time that fewer goods are available to them. As time moves forward, production becomes less efficient. Real wealth generators are left with fewer resources at their disposal than they otherwise would have had. Real demand drops, causing economic stagnation.”

    • Martha Careful says:

      Making the case for weird stagflation/recovery:

      As time moves forward, production becomes less efficient. Real wealth generators are left with fewer resources at their disposal than they otherwise would have had. Real demand drops, causing economic stagnation …

      Cost-Push Inflation
      Cost-push inflation occurs when overall prices rise (inflation) due to increases in production costs such as wages and raw materials

      Causes of Demand-Pull Inflation
      • Asset inflation. A sudden rise in exports forces an undervaluation of the currencies involved.
      • More money in the system. An expansion of the money supply with too few goods to buy makes prices increase.

      The FRED® Blog
      The decline in industrial production: One for the ages

      Posted on April 20, 2020 (Note the recent downtrend from October)

      The table below shows the largest percentage declines in IP and their respective sample standard deviation over two intervals: February 1919 to December 1946 and January 1947 to March 2020. The standard deviation of monthly percent changes in IP was 3.29% in the first period and 0.96% in the second period. Hence, the standard deviation in the first period was three times as large as the second period. The table’s right-most column shows the ratio of the two statistics. By this metric, the March 2020 decline in industrial production was the biggest decline on record relative to its standard deviation.
      Thus, in this sense, the March decline in IP was one for the ages.

      See @ FRED, use percent change:
      Industrial Production: Total Index (INDPRO)

    • Engin-ear says:

      – “a tone for 2021 and a weird, slow recovery”

      The full recovery would require the return of mass tourism, or its economic equivalent in the form of some pharaonic project (green or other color).

      – “fewer goods are available to them”
      Not clear what is the shortage of goods in the Age of Chronic Industrial Overcapacities.

  42. Discussion a few years back, if dollar reserve status ended, about half thought the effect on US ability to monetize was a nonstarter. I think maybe it was more of an issue then, than it is now. US can monetize debt directly, while two decades ago that was unthinkable. Investors may prefer Argentina’s 100 yr bonds written in dollars, rather than 30yr Chinese paper. Rates are shorthand for risk, or used to be. The current policy of low interest rates, largely orchestrated to pump the stock market for political gain, is over. We would have normalized a long time ago. All bets are off if minority party can shut down the government, either way the dollar will firm.

  43. Ed C says:

    So with all this dollar and euro printing does gold or shares of gold miners make sense here? Dollar down, gold up? Does dollar go down or is it the least worst currency vs euro, pound? Official inflation is tame but real inflation in the goods and services we are forced to buy is not tame. Is the game rigged?

  44. Robert says:

    If oil spikes for some reason the dollar will strengthen. The shale industry will be stimulated and the US will get more local oil, thus keeping dollars here at home. (unless the economy tanks). When dollars go abroad, this weakens the currency. Biden seems to be as pro-oil as Trump, although he’ll say he isn’t (what the democrats do on every issue).

    Don’t see anyone taking the dollar throne yet, unless our shadow oligarch government can force everyone into using bit-coin.

    • tom20 says:

      If you put the politics aside, and look at the Biden team as an investor,
      oil and other commodities should be ripe for investment??

      Going green & regulations doing a 180, will we not see an impact on fracking? Oil and natural gas become good plays?

  45. Concerned American says:

    Head to laughter at the earlier comments about the Brits not manufacturing anymore. Sounds just like us in the good old USA. We import most of our goods from China and other low cost manufacturing countries.

  46. Concerned American says:

    Had to laugh at the earlier comments about the Brits not manufacturing anymore. Sounds just like us in the good old USA. We import most of our goods from China and other low cost manufacturing countries.

  47. Paul says:

    I’m a bit baffled by the stability of currencies. Even though the dollar’s reserve status has declined slowly as a percentage the amount of all currencies in circulation has exploded. I wonder why, for example, anyone would accept a Turkish Lira.

    Maybe the Fed is better at manipulation than we think.

  48. Swamp Creature says:

    My Webber Grill that I use nearly every day has the domestic US Companies literature splattered all over the box it came in, but if you take the time to look deeper you’ll find that it is “Made in China” .

    • Sam says:

      Entry to Detroit’s Mack ave. Jeep assembly plant has a billboard proclaiming “The finest Chrysler vehicles manufactured here.
      Designed and assembled in America” in bold print.
      Much smaller print: “sourced from global components”.
      Every day, forklifts scurry in & out of endless rows of containers to supply the assembly line.
      Motorcity use to supply those components.
      Zip, zero US component footprint today.
      Happy Motoring…..

  49. Franz Beckenbauer says:

    “This shows that the economy of a major reserve currency doesn’t need to have a trade deficit”

    Yes it does.

    It’s called “Triffin’s dilemma”.

    It’s what keeps the guys and gals at the IMF up at night.

  50. Gershom says:

    Precious metals are surging this morning as the Keynesian counterfeiters and racketeers at the Fed hurtle us down the road to Weimar Republic 2.0. For a preview of coming attractions, pick up a copy of Adam Fergusson’s “When Money Dies.”

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