{"id":27303,"date":"2021-08-11T03:58:17","date_gmt":"2021-08-11T03:58:17","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=27303"},"modified":"2021-08-11T06:31:59","modified_gmt":"2021-08-11T06:31:59","slug":"the-error-of-a-dollar-reserve-currency-and-fed-dominance","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2021\/08\/11\/the-error-of-a-dollar-reserve-currency-and-fed-dominance\/","title":{"rendered":"The error of a Dollar reserve currency"},"content":{"rendered":"

The era1<\/sup> of US Dollar reserve currency status started in 1971, when Richard Nixon ended convertibility to gold. The present issues have taken a long time to evolve but are a consequence of that decision.<\/p>\n

Yesterday<\/a> we showed how GDP had declined against the M2 money supply2<\/sup> since the global financial crisis in 2008-09. Liquidity soared but GDP growth failed to respond to quantitative easing and ultra-low interest rates.<\/p>\n

\"GDP\/M2\"<\/p>\n

Even when we adjust M2 money supply for recent actions that remove liquidity — commercial bank investment in Treasury & Agency securities and overnight reverse repo from the Fed — there is a sharp fall in money velocity.<\/p>\n

\"GDP\/M2<\/p>\n

With the 2020 pandemic, the Fed doubled down, boosting liquidity and cutting interest rates even further. Bank credit has slowly started to recover.<\/p>\n

\"Commercial<\/p>\n

But results are miniscule compared to the Fed’s $3.9 trillion liquidity injection.<\/p>\n

\"M2<\/p>\n

Declining bank credit relative to M2 over the past two decades tells a similar story.<\/p>\n

\"Commercial<\/p>\n

With GDP also declining relative to bank credit.<\/p>\n

\"GDP\/Commercial<\/p>\n

And unlikely to recover in the foreseeable future.<\/p>\n

Conclusion<\/h2>\n

Fed monetary policy — with quantitative easing and record low interest rates — has not achieved a recovery in GDP growth over the past two decades. It was never designed to do that. Its primary purpose is to fund the federal deficit.<\/p>\n

\"Federal<\/p>\n

The only way to achieve a true economic recovery, with robust GDP growth, is to end the Dollar’s reserve status. The US has been forced to run massive current account deficits to support the Dollar’s reserve status, eroding the competitiveness of domestic industry in export markets and against imports in domestic markets.<\/p>\n

\"Current<\/p>\n

Eliminate the current account deficits and you will eliminate the primary need to run federal deficits — and for the Fed to expand its balance sheet to support them. You will also enhance the competitiveness of US industry.<\/p>\n

The longer the Dollar continues as global reserve currency, the higher federal debt will rise, while GDP growth falls.<\/p>\n

Notes<\/h4>\n
    \n
  1. Intentional (era >> error).<\/li>\n
  2. In economics jargon the ratio GDP\/M2 is referred to as the velocity of money.<\/em><\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    The era1 of US Dollar reserve currency status started in 1971, when Richard Nixon ended convertibility to gold. The present issues have taken a long time to evolve but are a consequence of that decision. Yesterday we showed how GDP had declined against the M2 money supply2 since the global financial crisis in 2008-09. Liquidity … <\/p>\n

    Continue reading “The error of a Dollar reserve currency”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,3761,13,34],"tags":[3795,5051,928,1352,1357,1524,5049,4820,5050,4887],"class_list":["post-27303","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-gdp-and-activity","category-inflation-economy","category-us-canada-countries-regions","tag-bank-credit","tag-commercial-bank-treasury-agency-investments","tag-current-account-deficit","tag-fed","tag-federal-deficit","tag-gdp","tag-loans-leases","tag-m2-money-stock","tag-reverse-repo-facilities","tag-rrp"],"yoast_head":"\nThe error of a Dollar reserve currency - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The error of a Dollar reserve currency - the patient investor\" \/>\n<meta property=\"og:description\" content=\"The era1 of US Dollar reserve currency status started in 1971, when Richard Nixon ended convertibility to gold. 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GDP Real GDP has\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Real GDP & Hours Worked","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-29-realgdp-hours-qtr.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-29-realgdp-hours-qtr.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-07-29-realgdp-hours-qtr.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":29912,"url":"https:\/\/thepatientinvestor.com\/index.php\/2021\/12\/14\/m2-and-the-pig-in-the-python\/","url_meta":{"origin":27303,"position":2},"title":"The pig in the python","author":"Colin Twiggs","date":"December 14, 2021","format":false,"excerpt":"10-Year Treasury yields broke previous support at 1.43%, warning of a decline to test the July\/August lows at 1.20%. Follow-through below the recent low at 1.34% would strengthen the signal. The Fed is likely to accelerate the taper of its Treasury purchases at the FOMC meeting later this week --\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"10-Year Treasury Yield","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-14-10yy.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-14-10yy.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-14-10yy.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2021\/2021-12-14-10yy.png?resize=700%2C400&ssl=1 2x"},"classes":[]},{"id":45437,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/11\/17\/feds-stealth-liquidity-is-fueling-a-stock-market-rally-michael-howell\/","url_meta":{"origin":27303,"position":3},"title":"Fed’s Stealth Liquidity Is Fueling A Stock Market Rally – Michael Howell","author":"Colin Twiggs","date":"November 17, 2023","format":false,"excerpt":"Stocks are rallying despite slowing bank credit growth. Loans and leases by commercial banks (gray) may still be growing but are declining relative to GDP (blue below). Michael Howell from Cross Border Capital -- one of the few experts to correctly forecast a stock market rally in 2023 -- explains\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Commercial Bank Loans & Leases","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-17-bank-loansleases.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-17-bank-loansleases.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-11-17-bank-loansleases.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":34540,"url":"https:\/\/thepatientinvestor.com\/index.php\/2022\/06\/20\/pe-ratios-and-timing-the-fed\/","url_meta":{"origin":27303,"position":4},"title":"PE Ratios and timing the Fed","author":"Colin Twiggs","date":"June 20, 2022","format":false,"excerpt":"Some interesting points raised by Neil in response to our recent graph on trailing PE for the S&P 500: Looking at S&P500 Trailing PE, it seems that the Fed flinches every time the 16 mark is reached. So, although I agree that there will be a period of lower PE's,\u2026","rel":"","context":"In "US & Canada"","block_context":{"text":"US & Canada","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/countries-regions\/us-canada-countries-regions\/"},"img":{"alt_text":"Reversion to the Mean","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-06-17-r2m-filled.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-06-17-r2m-filled.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2022\/2022-06-17-r2m-filled.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":43217,"url":"https:\/\/thepatientinvestor.com\/index.php\/2023\/07\/30\/soft-landing-or-no-landing\/","url_meta":{"origin":27303,"position":5},"title":"Soft landing or no landing?","author":"Colin Twiggs","date":"July 30, 2023","format":false,"excerpt":"The S&P 500 advance continues and a test of the January high at 4800 is now likely. Conflicting signals from our two most reliable indicators -- positive annual rate of change (below) and a negative 10-Year\/3-Month Treasury yield spread -- warn that these are exceptional times. The Russell 2000 Small\u2026","rel":"","context":"In "Deficit Spending & Employment"","block_context":{"text":"Deficit Spending & Employment","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/deficit-spending-employment\/"},"img":{"alt_text":"S&P 500","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-28-spx.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-28-spx.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2023\/2023-07-28-spx.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/27303","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=27303"}],"version-history":[{"count":13,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/27303\/revisions"}],"predecessor-version":[{"id":27319,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/27303\/revisions\/27319"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=27303"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=27303"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=27303"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}