Weaponizing the Dollar

One would like to say that this is news. It should not be. We and many others have been reporting on the Biden administration’s handling of economic and fiscal matters.

Professor Steve Hanke, a Johns Hopkins professor, formerly of the Reagan administration, largely agrees with the views expressed by Lawrence Summers and certain other Democrats.

You might have noticed, but after the Federal Reserve announced the wimpiest of interest rate increases this month, Summers wrote, as we reported, that it was failing at its duty to control inflation. The result-- Fed Chairman Powell changed his tune and started talking about how he was going to be more aggressive in raising rates.

Anyway, Hanke agrees:

"They're flying blind, and are too little, too late," Steve Hanke says in disbelief, an Applied Economics professor of Johns Hopkins University. "It's utter rubbish and nonsense" that Fed Chairman Jerome Powell sees supply chain issues as a root cause for inflation, he tells me, as we decipher the Federal Reserve's latest official statements on the shape of the U.S. economy. 

"The money supply in excess causes inflation, and the Federal Reserve appears to be almost clueless," Hanke shares with me as we discuss last week's conversation between U.S. President Joe Biden and Chinese President Xi Jinping. "Obviously the Chinese know this," which is why their inflation rating is less than 1%, the former Senior Economist on President Reagan's Council of Economic Advisers articulates to me. 

So, it’s all about the money supply. Everyone but the Biden administration and the Federal Reserve knows this.

As for the sanctions that we are visiting on the Russian economy, aside from the fact that people around the world are going to starve to death, Hanke suggests that the winner in all of it will be China.

"China looks to benefit from all of the sanctions that have been thrown on Russia," he states as an opportunity for the United States adversary. "This is not a free lunch [for the U.S.]; if you impose sanctions, it is not a free lunch," he continues, which equates to severe repercussions for the current world reserve currency from his perspective. 

"The United States has weaponized the dollar-based financial system, we are in war mode," Hanke describes to me in suspicion of recent actions engaged by the U.S. government. He tells me that in the long-run, weaponizing the dollar jeopardizes and exposes vulnerabilities of its dominance, as seen with Saudi Arabia inching closer to accepting payments with the Chinese yuan.

Of course, we have reported the threats to the dollar’s supremacy. Since precious few people are taking it seriously, we emphasize it yet again.

 

As foreign policy continues to raise questions about the dollar's outlook, Hanke describes actions taken domestically to deal with the current inflation crisis the Fed is dealing with as a, "monetary bathtub overflowing," seeping out into the U.S. economy. Due to the misguided approach the Fed is taking, Hanke reiterates that the largest piece of the puzzle not being observed is the money supply – where "you control the money supply by shrinking the balance sheet." 

Well-informed is well-armed, as the saying goes.