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What Will Benefit From Global Recession? The US Dollar
A very interesting article by Charles Hugh Smith of the Of Two Minds blog, and in line with the view that, even as all of the ships sink, the last one to go down will look very good for a while. For this reason the US dollar will be the beneficiary of the Euro’s distress, but only for a time. How long, and to what extent, who knows? But of two men having fallen off of a cliff, where one man might take comfort in climbing on top of the other as they plummet, has he solved his problem?
Smith also believes that it is not in the interest of the “Status Quo” (aka the “Powers that Be,” the “Elite,” etc.) to have a weaker dollar-
“Put another way, the global trading community and the domestic economy’s interests align in a strengthening dollar. While many observers believe the Status Quo seeks a weaker dollar to boost exports, this overlooks the premium gained by the ‘exorbitant privileges’ of the global reserve currency and petro-dollars. This premium is worth far more than marginal increases in exports.” (emphasis in original)
But this assumes a monolithic state with its “own” preferences. “Who” gains the premium? There is no “Uncle Sam,” there are only politicians, bureaucrats, labor union leaders, weapons manufacturers, etc. The state is filled with, and surrounded by, individual actors using the institution of the state to their individual advantage. Politically a weak dollar is very attractive because the rhetoric of “Jobs!” is powerful, those “jobs” are immediately felt by those whose jobs were saved (but not felt by those whose jobs were destroyed or never created, a la Bastiat), and because grateful workers are quick to organize and vote. In other words, while a strong currency is obviously better for the state as a whole, it may not be politically useful for the individuals who comprise it.
Will the dollar survive, and benefit from, a Euro crash? It’s very possible. Does that elevate what you’re watching the Fed do to good, sustainable, economic policy? Does it legitimize and make moral the printing of money to be used to redistribute wealth? Does it, by keeping interest rates at near zero for years, eliminate the economic calculation problem?
The rest of the article is here…
2012-10-09 20:43:40
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