This would be an excellent article to use as a basis for discussion regarding the central bank policy rate, the exchange rate, and capital accounts. Maybe a good meta economics thread @Undisciplined ? @kr might be interested too. I don't want to go crazy name dropping, but @TomK and @elvismercury would also be interested. Rickards is a bright guy, though he's a notorious gold bug.
817 sats \ 4 replies \ @TomK 16 Nov 2023
Thanks for this interesting piece. The theory or better: this model is correct ceteris paribus. But one thing to his thesis on the USD strength: IMO this is the result of the once established and widely adopted system of the Petrodollar that amplified and stretched the Eurodollar market where the Fed materially has no policy impact. The increasing credit supply, based in offshore and often grey market activities, helped dollarizing a growing global economy that developed a rising hunger for USD. This is crucial to put into this model.
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391 sats \ 3 replies \ @siggy47 OP 16 Nov 2023
I always have trouble wrapping my head around the "eurodollar" concept, since it is a foreign banking system creature completely outside U.S. control, right? Of course the U.S. is happy to allow dollar demand without having to do any heavy lifting.
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680 sats \ 2 replies \ @TomK 16 Nov 2023
Exactly. It all began with Bretton Woods and the Marshall Plan to rebuild the german industry. That was done with USD and the growing european economies (Germany) had a trade surplus while exchange rates where fix. So the flow of USD accelerated and the commercial banks leveraged them. That was the beginning. But now Powell's Fed really is attacking this by installing SOFR for example.
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0 sats \ 1 reply \ @siggy47 OP 16 Nov 2023
Why would the U.S. want to change now(SOFR)? The price it pays for the exorbitant privilege of having the global reserve currency is that their export industries suffer, but that is more than made up for with the ability to export inflation and gain geopolitical control through the IMF and World Bank, no?
I guess none of this matters if the whole fiat debt house of cards is about to collapse?
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306 sats \ 0 replies \ @TomK 16 Nov 2023
What they are doing now is rebuilding a domestic, soon regionally decentralized, capital market. Under the LIBOR regime European banks decided on a fixed interest rate that structurally was lower than the US yield would have been. So in every crisis they had in Europe the US banks were subsidising the Eurozone and in the meantime the yield manipulation held capital back from free floating to the states. I think this is the main focus - liberalizing from the City of London and the Eurozone
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306 sats \ 2 replies \ @Bitman 16 Nov 2023
Sorry, couldn't resist
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21 sats \ 1 reply \ @siggy47 OP 16 Nov 2023
I was walking around singing Hail Hail Fredonia all afternoon
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229 sats \ 0 replies \ @Bitman 16 Nov 2023
Rufus T. Firefly for Pres.
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84 sats \ 1 reply \ @Sasquatch 17 Nov 2023
Interesting. I know that when I to a certain African country that the exchange rate is incredible high for the dollar, and the street value is 2x the bank rate. They want dollars hard! It is illegal to conduct trade in crypto there, and the bank has such power like you haven't seen. I have considered how I could get around the sanction of Bitcoin by making the exchange in the local currency, followed by a second trade of BTC, essentially buying back my currency with BTC in order to please the govt. Thougths?
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0 sats \ 0 replies \ @siggy47 OP 17 Nov 2023
I don't know specifically what country you are referring to, but I can guess that the currency is probably pegged either to the U.S. dollar or is The CFA. They are exercising a fixed exchange rate, and probably have a centralized, controlled monetary system. Therefore they struggle with capital controls. That's why the black market is flourishing, if you accept the trilemma theory. Practically speaking, you have a great plan. I have no idea how to implement it, though!
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229 sats \ 0 replies \ @kr 17 Nov 2023
interesting article
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229 sats \ 1 reply \ @Undisciplined 16 Nov 2023
I doubt I would do a better job promoting this than you just did, so I say this is already a meta economics thread and it's up to us to make it a good one.
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0 sats \ 0 replies \ @siggy47 OP 16 Nov 2023
Okay. Time to do some studying!
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417 sats \ 1 reply \ @siggy47 OP 16 Nov 2023
In trying to grasp the three concepts, I keep thinking about China to understand the trilemma. China does not have an independent monetary policy (putting aside whether the fed is really independent in the U.S. either), and it constantly tries to "fix" its exchange rate. Therefore, it is always wrestling with capital flight.
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561 sats \ 0 replies \ @TomK 16 Nov 2023
Right. And they are losing foreign capital now.
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