June 15, 2020
The Miles Franklin Newsletter
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From The Desk Of David Schectman
Gold’s third wave could unleash an assault where “the sky is the limit.” We beg you to buy gold and complete your buying programs while prices remain reasonable, especially on dips. TDL’s observation is that the risk of the current inflation morphing into a dreaded hyperinflation is not mentioned by any other prominent forecaster in the world, perhaps the next change for the fleet of foot to be wary.  – Jim Dines
David's Commentary In Blue):

I want to comment on the Coronavirus – not from a medical perspective, but from an economic perspective. First of all, any conversation is purely supposition. We just don’t know enough about it to make definitive statements. So, here is my take – ever since the stay at home edicts were relaxed, the evidence is piling up that the virus is entering into Stage Two and it is starting to spread, rapidly, again,. That makes common sense. Not only are more people out and about, a large number of them feel safe and are not wearing masks or following the social distancing protocol. Of course, the cases will increase. So, let’s suppose that the authorities do not lock everything down , again, because If they do, the economy may never recover. So, then what happens if the schools do stay open, restaurants, health clubs, beauty shops and retailers, etc - even on a limited basis. If more and more people are getting sick and more and more people are dying from the virus, even if it is a small percentage of the population, it seems very likely to me that a lot of people, me and my family included, will voluntarily self-quarantine. People will be afraid to go out and shop or eat at a restaurant or visit the gym. At least enough of them that the economy will not recover. 
‘Virus is not going to rest’ Osterholm says
The coronavirus won’t be loosening its grip on the United States anytime soon, infectious disease experts said Sunday. They are also uncertain how the viral spread will be affected by the patchwork of states reopening businesses and by large events like protests and President Donald Trump’s upcoming campaign rallies. “This virus is not going to rest” until it infects about 60 to 70% of the population, Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, said on Fox. 

Joseph Fair, a virologist and epidemiologist who recently recovered for a serious bout of COVID-19, echoed that view on NBC. “Once it gets so ingrained in the population, there’s not a point where we can come back from that other than having a vaccine in place,” said Fair, who is a medical contributor to NBC News.
So much damage has already been done that this may not even matter. But if we are facing another shut down, or if people are afraid to go back to their previous spending habits, then it is a done deal. The economy is Kaput. 
The bigger issue, at least to me, is what will the Fed and the Treasury do to keep the economy from entering into The Greatest Depression. That is looking more and more likely now. What the Fed and the Treasury will do is create as many more trillions as they feel it will take to keep kicking the can down the road. The national debt has increased over two trillion dollars in just a few weeks, and there is no end in sight. That can only end up, in my humble opinion, in hyperinflation and the demise of the US dollar. This new “normal” starts off gradually and then rises rapidly. We are in the “starting off gradually” stage now. Considering what I have just written, the “rise rapidly” stage will not be far off.
Please, don’t kill the messenger here. I am trying to open as many eyes and minds as possible. This is not to be taken lightly. You will not get this “take” from the White House or from Wall Street and especially not from the MSM. You cannot afford to get this wrong. If the economy is on the way DOWN, and the money supply is on the way UP then the results of these events are clear to see. 
To this mess, we have added the greatest social unrest – riots, lootings, marches, and anger, not seen since at least the Viet Nam riots in the late 1960s. My wife took part in the “burn your bra” marches. We still laugh about it today - over 50 years later. It is disconcerting and outright dangerous to see our police departments being humiliated and reduced. Sure, there are some bad eggs in the police force, but we need the “thin blue line” for our safety. Black lives matter. All lives matter. If you think gold and silver will save you in the hard times that are coming, well without law and order and a strong police force, there is nothing between the haves and the have nots. 
This is the double-whammy.
Shortages lead to rising prices; Add to that, the Fed’s massive, unlimited and never seen before increases in the money supply and you get too much money chasing fewer goods. This is the formula for hyperinflation.    
The virus has   spread beyond meatpacking   plants... 
Five years ago, you could have bought gold at the bottom, at $1050, and it’s now selling for around $1750, Not bad for a worthless relic, as it’s up 67% since 2015. And now the serious move is about to begin. It is close to a certainty as I have ever seen. 
The Federal Reserve with their massive money creation and the US Treasury with its massive deficit spending all but guaranty there will be a price to pay. The price will be felt in the loss of purchasing power in the dollar. They refuse to allow the stock market to crash, fearful of what that would do to the pension plans. But it is important to remember, the stock market is NOT the economy. In essence, we, the taxpayers, are backstopping the pension plans. And so are our children and grandchildren. There is no stopping a run-away inflation train now. It is gaining speed and the brakes are out. I stand in good company in warning you about this. The same warnings are coming from John Williams, Bill Holter, Jim Sinclair, Eric Sprott, Peter Shiff, Mike Maloney, Egon von Greyerz, Jeremiah Babb, Chris Martenson, Gary Christenson and many others. We have all come to the same conclusions independently. It’s time to take the warnings seriously. We are one step away from everything unraveling, and that step may well be act two, the second wave of deaths from the Coronavirus. 
In the last 12 weeks twice as many Americans have filed for unemployment than jobs gained in the last decade during the end of the Great Recession. 22.13 million jobs were gained in the decade. 44.21 million were lost in 12 weeks. It’s obvious, it’s apparent that there’s no “V” shaped recovery on the horizon. 
The economy has already collapsed. Tens of millions are living off of the government right now. What happens when the stimulus checks run out and the virus returns in the fall and the economy takes another giant hit?
Mnuchin plans to pump another trillion into the economy (to keep the stock market from collapsing) The Federal Reserve must keep juicing these markets or the markets will collapse. 
More than 100,000 businesses have already closed. Think of the jobs lost that are not coming back. If a second round of the virus returns the global economy will plunge and a Majority of Americans will be jobless. 11% of households skipped a mortgage payment last month. 8% of Americans are in forbearance. 17% of renters skipped their payments this month. 31% of households surveyed said they are worried about paying next months rent. The government is going to have to extend unemployment or people will become homeless. People were unprepared for a downturn. Everyone was living on credit. It was not about how much something cost, it was about can I afford the monthly payment. They based everything on paying the monthly interest. When the jobs stopped, people are not prepared for a rainy day. 
We are entering The Greatest Depression because  there is no exit...
John Williams told Greg Williams unemployment isn’t 16%, it’s around 40%. 8% of Americans got permission not to payback their mortgage. That’s $800 billion dollars in unpaid principal. What happens several months down the road when they have to repay the loans? This is just putting off the inevitable. 15 million Americans didn’t make their last credit card payment. If the government stops giving these people their $600/month bonus payment and if the unemployment payments run out, this country will collapse. The Fed is just delaying things to keep the country going. And the stock market soars. This isn’t reality, it’s the Fed and the Treasury supporting everything. We are on borrowed time. This can’t go on forever. At some point reality returns. 
" The era of   the US dollar’s ‘exorbitant privilege’   as the world’s primary reserve currency is   coming to an end.”
Here are my comments to three emails I received last week. This is always a good format for me to tell it like it is.
I sent the following article to a good friend of mine. He is very wealthy and a poster child for the mainstream Wall Street mentality. Check out our dialogue on this article.
The Fed Just Pulled Off Another Backdoor Bailout of Wall Street
June 10, 2020

The Federal Reserve has authorized 11 financial bailout programs thus far. Despite Fed Chairman Jerome Powell’s reassurances at his press conferences that these programs are to help American families, a full 10 of these programs are actually bailouts of Wall Street banks or their trading units.

The latest Wall Street bank bailout to come out of hiding is the Fed’s Secondary Market Corporate Credit Facility (SMCCF). This program was supposed to buy up corporate bonds in the secondary market in order to help corporate bond markets regain liquidity.

Thus far, the only thing the SMCCF has bought up are Exchange Traded Funds (ETFs) holding investment grade and junk-rated bonds.

The SMCCF program began operations on May 12. By May 18 the Fed had spent $1.58 billion buying up ETFs. The ultimate goal of the facility, at this point, is to spend $250 billion on ETFs and secondary market corporate bonds. The U.S. Treasury Department was supposed to hand over $25 billion of taxpayer money to eat losses on the SMCCF program. Instead, without explanation, the latest data from the Fed shows that the Treasury deposited $37.5 billion into the SMCCF, suggesting the program is expecting losses of greater than $25 billion.
He replied:
Based on this article Gold should be on its way to 50K an ounce. 
This guy wants congress to have a hearing. That's all congress does is have hearing after hearing after hearing. They are political shit-shows nothing more. 
Does this guy really want all the banks in the world to be allowed to fail? That will really help out the citizens of the world.
Hey, I'm just stupid Lou what could I possibly know
I replied:
Isn’t that what capitalism and free enterprise is all about? When a business fails a new one replaces it. Those who deserve to fail should fail. Too much wealth goes to too few people, like Blackrock, who will make $75 billion in commission plus be able to buy THEIR OWN bond funds with government money (taxpayer liability) and there are three former members of the Federal Reserve on their board. They pass the wealth around between buddies.
I see your point, but it is WRONG. Not your view, but the rigged game they play in Washington DC.
The money sent to the banks and funds that would go under (deservedly) could have been used to re-establish new, better run institutions. There is no shortage of banks in the US. Let those who know how to run a profitable business take over the ones that do not.
But what do I know?
If the Fed keeps on creating trillions and trillions out of thin air like they have recently (they added around $3 trillion in a few weeks) then yes, gold will sell for much more. The dollar will be trashed, just like what is happening today in Venezuela. I promise you, we are headed there. Neel Kashkari, the head of the Federal Reserve Bank of Minneapolis, promised that the Fed will create as much money as necessary. The economy is a disaster and will get much worse and the list of who will get bailed out keeps growing - add most pension funds, insurance companies, cities, municipalities, states, etc. - the future of the dollar is grim. It is a dead man walking. Rising gold indicates a falling dollar. That is why gold is insurance against the falling dollar. 
He replied:
Dave you know plenty and much more than I do. This system, like it or not, is the system. I would actually say it’s the game we all are playing. The citizens of the world are just going along for the ride. My eggs are in securities and real estate. Your eggs are gold and silver. 
Thanks for sending me this stuff. I read most everything.
The real 800-pound gorilla is this. Will we the people have all our rights taken away as we sleep walk through life. Will we wake up one day and realize too late that we are no longer free. My guess is yes this will happen.
I replied:
The only reason gold is not at least two or three times the price it is today is because the central banks do not want the price to rise because that indicates that they are debasing their currencies, which they all are. At the same time, they allow naked shorting and massive rehypothecation of gold (same ounce sold many times over, up to maybe 100 times the amount of physicals backing the sale, which is why you should never buy paper gold). They will fight any rise in the price of gold tooth and nail. And, at the same time they are buying it up as fast as they can get it, and at prices that are way, way too low. Russia, Turkey and China (India and others) are massive buyers, and the bankers in the West keep selling what little they have left. 
They say, don’t fight the Fed (and the central banks). I say, buy what they are buying. They have been buyers for the last 10 years. The logical thing to do is to short paper, and buy physicals. That’s what JPM has been doing and they have the largest stash of gold and silver in the world in their vaults.
I understand the game they are playing. And so do you, having listened to my missives for the last half a year.
You are correct, the people need to wake up before it’s too late. I call them sheeple, not people. You can see how easily they are led now. Wear a mask. Stay indoors. Stay 6’ away from others. Defund the police. The shadow government now knows that most people will do whatever they tell us to do.
I am not finding fault with the way you choose to invest YOUR money. I have made an effort to widen your horizons and shine a light of what is coming. My position is: If the Fed crashes the dollar then anything denominated in dollars (cash, bonds, stocks, etc.) will also be crashed. That is exactly what is starting to happen now. Look at the massive increase in the money supply and the debt. The only thing that is holding crushing inflation from happening is the VELOCITY of this newly created mountain of money is falling. People are afraid and they are holding onto their money and paying off debt, not spending it. Still, prices are rising, especially in food and commodities. Soon, after people see the price of groceries continuing to rise every week, they will start to spend their money. When that happens, and I expect it will be soon, you will see the inflation really take off. Inflation is not rising prices; it is too much money chasing goods and services, which leads to rising prices. Rising prices are an effect, not a cause and people will spend their money faster and faster. That is the beginning of hyperinflation. That is, as far as I can determine, exactly where we are headed. Until the Fed lets deflation (depression) and bankruptcies take over, which they won’t, it’s game over. Wealth will not be determined by how many dollars you have. Wealth will be measured in how many ounces of gold and silver you have.
I am not being a pessimist; I am being a stark realist. I have nearly 40 years to think about this, understand this and now watch it unfold. I was writing that this would happen in the early 90s. It took much longer than I thought, but the end game is still the same; only my timing was wrong. It should have happened in 2008. But the central banks flooded the world with trillions to keep the game going, and the result is: The biggest bubbles in the bond market, the stock market and the real estate markets in history. Then the mother of all “pins” appeared, Covid-19 and you could hear the Pop, Pop, Pop of the bubbles. All of the debt that nearly took the world under 12 years ago is BIGGER now, much bigger than it was then. Then, it was just the housing bubble and a few Wall Street banks and brokerages. This time it is everything and it is global, not just Bear Stearns and Lehman Bros. 
This is not the end of the world; life will continue, but most people will come out of this in much worse shape than they ever thought possible. This will not be another Great Depression. It will be THE GREATEST DEPRESSION; but couple that with the destruction of the dollar, then none of us knows what the outcome will be, but it will be worse than we can imagine.
Me thinks I know too much.
I will gladly listen to anything you have to say that will counter what I am telling you – except the following: “Things always work out, they always do.” “Americans are at their best when things are at their worst.” These phrases, which you have used in the past, no longer apply. IT IS DIFFERENT THIS TIME. I can back this positon with graphs, charts, numbers, and history. We are at that point in history that can best be described with the following analogy: We are lounging on our sun deck, enjoying a beautiful warm sunny day, but just out of sight, a massive tornado is lurking and, no one is paying attention to the alarm. 
I am doing all I can do to prepare, and it may not be enough, but at least I am doing the best I can. What else can one do?
Here is another email we received from one of our readers.
A couple of questions for David in one of his upcoming missives:
1. Dollar Slide: Will a slide in the US$ lift the price of gold?
2. Silver Industrial Demand: Because of the CoVID-19, if silver industrial demand falls how will that affect the price?
Hope you are staying safe and doing well in the crazy Minneapolis.
I replied:
Yes indeed. The dollar will slide. Gold is denominated in dollars, so as the dollar falls, gold automatically rises. Gold is the reciprocal of the dollar. A lower dollar means it takes more of them to buy the same ounce of gold.
Also, as the dollar falls, and the dollar is the “store of value” of all paper investments , such as cash, stocks, bonds, etc., that means those investments will also fall and people will gravitate toward the age-old solution - gold and silver to retain value.
You are correct. Silver is an industrial metal, but silver is also a monetary metal. Demand for silver will increase due to the increased demand as a financial asset, while falling along with less demand as an industrial commodity. The investment pressure will win out.
Look what happened after the collapse of 08-09: Industrial demand was falling yet Silver still was able to hit $50 and gold rose to $1,900. 
The silver to gold ratio at the time was 38 to 1 (38 ounces of silver bought 1 ounce of gold). Today the ratio is 99 to 1. What do you think will happen when gold really starts to take off? My prediction is for silver to hit an absolute minimum of $50/oz and likely a multiple of that.
Hope that answers your questions,
Best of everything,
David Schectman
And here is email number three: It’s an email from a friend who lives and dies by daily moves in the market based solely on technical analysis.
Immediate number for gold futures to close over $1750 today. I believe gold now in stealth bull market, and silver will likely follow. 
I replied:
“Gold is finally entering into a bull market?” Oh, you just figured it out? Gold has been in a bull market for the last 18 months. But you are trapped in your day-to-day TA tunnel-vision of the world and never see or understand the big picture and primary trend. 
Every time there is a downward “wiggle” on the chart, you panic. You amuse me. You miss the obvious and focus on the “noise." The only way to play the gold market is to understand the big picture and the end game. If you try and trade it, short-term, you are missing the point. Gold is not an investment; it is an insurance policy against troubled times and a collapse of the dollar. Yes, it may enrich you, but more importantly, it is the financial insurance you will need to support your multi-million-dollar real estate portfolio.
Earlier, I mentioned that before frightening inflation could take place money “velocity” had to speed up.
Actually, there are two things that are necessary: Increase in velocity and increase in the money supply, M2 in particular.
Note, in the following article, the correlation between gold and the M2 money supply. Can there be any doubt where gold is now headed? By the way, John Williams, who tracks these things, says M1, M2 and M3 are all rising rapidly at the same time.  
Mike Shedlock
How Are Gold And Money Supply Related?
M2 Money Supply is surging. Will gold follow?
Let's investigate an alleged relationship between gold and M2, a measure of money supply in the US.
"There’s a clear correlation between the annual growth rate in M2 money supply and the price of the yellow metal.

Clear Correlation?

The Tweet claims something different than my lead chart depicts. So, let's investigate the above idea in other time frames.

Gold vs Rate of Change in M2 Money Supply
If we look at longer time frames, the rate of increase in M2 theory falls flat on its face.
One can force a correlation starting in 2010 but that is purposeful cherry-picking a timeframe. and even then, the time period in the box is counter-trend.

Cherry-Picking Timeframes

If you have to cherry-pick timeframes, especially when there are totally random results outside that timeframe, the relationship is imaginary.

Similarly, one can find times when gold is correlated to the dollar, the Yen, and most likely the popularity of peanuts at Cub games in some time frame. 

Gold vs Faith in Central Banks 
The best correlation I can find to the price of gold is faith in central banks. Gold collapsed from $850 to $250 under Greenspan's "Great Moderation". Greenspan was viewed as the "Maestro" until the dot-com bubble collapsed.

Gold went on a tear during the housing bubble, but put in a top when ECB president Mario Draghi gave his famous speech: "We will do whatever it takes to save the Euro, and believe me it will be enough."
Draghi Q&A
·        Q: What did Draghi do? 
·        A: Absolutely nothing!
Draghi did nothing. His speech was enough. Bond yields on Greek, Portuguese, and Italian bonds started collapsing right after that speech. It was not until years later the ECB resorted to negative interest rates and QE.
Gold started rising again when the ECB went nuts with QE and the Fed started talking about "normalization” that anyone in their right mind knew was not coming.

Massive QE and Inflation

Yes, the Fed has turned on QE to an extent few thought possible. 

But that did not ignite inflation in any meaningful way, at least as measured by the CPI. 

The Core CPI Declines 3 Months for the First Time Ever

My headline will have the inflationistas howling from the rooftops because they will not even bother reading what I said inside. 

Poor Measure of Inflation

These indexes supposedly measure inflation.

They do nothing of the kind. The indexes do not include home prices, only rent.

The purported medical inflation is a joke. Anyone who buys their own medical insurance will tell you their costs are up more than the reported 5.9%.

Anyone in college has not been pleased with the rising cost of tuition and rent in college towns.

And anyone with an ounce of common sense knows the current stock market bubble is a measure of inflation.

Lie of the Day, Month, and Year

The Fed and economists pretend that "inflation" is only up 0.1% year-over-year.

The Fed and economists in general do not know how to measure "inflation".

And the Fed's efforts to produce it has created destructive bubbles sure to pop causing the deflation they hope to prevent.

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

"Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
For a discussion of the BIS study, please see  Historical Perspective on CPI Deflations
Asset Bubble Deflation
It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive buildup of unproductive debt and asset bubbles that eventually collapse .
The Problem is Not Deflation, It's Attempts to Prevent It
For discussion of asset bubbles and inflation, please see  The Problem is Not Deflation, It's Attempts to Prevent It .
Struggle to Maintain Control

The Fed is struggling to keep things under control. It is afraid of another credit bust like we had in 2008-2009, and rightfully so. 

Are things under control? Clearly not.

Is money supply an indicator?

Perhaps, so, but the important point is not the QE, but rather that people know the Fed has again lost control. 

Speculators Dump Gold But Price Goes Up Anyway

Misconceptions about gold are rampant.

Here's another example: Contrary to popular belief, jewelry purchases are meaningless to the price of gold.

It's monetary demand that sets the price.
Here are two articles that discuss the fate of the US dollar. What they have to say is not pretty.
Phoenix Capital Research

Warning: The US Dollar is Breaking Down in a Big Way

The $USD is breaking down in a big way.

The market has begun to realize just how much money the elites will need to print in the coming months. Between the stimulus program and the Fed’s various credit facilities, the US has already printed over $4.8 trillion in the last 12 weeks.

The economic deterioration due to civil unrest/ riots/ political upheaval is only going to accelerate this situation. The $USD has broken below support. And the decline is now accelerating.
In the long-term, the $USD remains in an uptrend… just barely. If we break the below trendline, things could start to get interesting= the $USD bull market is over.
There are many implications for a declining $USD. One of the biggest ones is that it signals higher inflation is coming. I noted yesterday that the bond market is saying the same thing.

Indeed, the 5-year, 30-year yield curve has steepened to levels not seen since 2017. This is telling us bonds are anticipating greater inflation is coming.
Gold is saying the same thing. The precious metal is going vertical against every major currency: dollars, euros, yen and francs.
Best Regards    
Graham Summers    
Chief Market Strategist    
Phoenix Capital Research 
Stephen Roach

A Crash in the Dollar Is Coming

The world is having serious doubts about the once widely accepted presumption of American exceptionalism.
The era of the U.S. dollar’s “exorbitant privilege” as the world’s primary reserve currency is coming to an end. Then French Finance Minister Valery Giscard d’Estaing coined that phrase in the 1960s largely out of frustration, bemoaning a U.S. that drew freely on the rest of the world to support its over-extended standard of living. For almost 60 years, the world complained but did nothing about it. Those days are over.

Already stressed by the impact of the Covid-19 pandemic, U.S. living standards are about to be squeezed as never before. At the same time, the world is having serious doubts about the once widely accepted presumption of American exceptionalism.

Currencies set the equilibrium between these two forces — domestic economic fundamentals and foreign perceptions of a nation’s strength or weakness. The balance is shifting, and a crash in the dollar could well be in the offing.

The seeds of this problem were sown by a profound shortfall in domestic U.S. savings that was glaringly apparent before the pandemic. In the first quarter of 2020,  net national saving , which includes depreciation-adjusted saving of households, businesses and the government sector, fell to 1.4% of national income. This was the lowest reading since late 2011 and one-fifth the average of 7% from 1960 to 2005.

Lacking in domestic saving, and wanting to invest and grow, the U.S. has taken great advantage of the dollar’s role as the world’s primary reserve currency and drawn heavily on surplus savings from abroad to square the circle. But not without a price. In order to attract foreign capital, the U.S. has run a deficit in its current account — which is the broadest measure of trade because it includes investment — every year since 1982.

Covid-19, and the economic crisis it has triggered, is stretching this tension between saving and the current-account to the breaking point. The culprit: exploding government budget deficits. According to the bi-partisan  Congressional Budget Office , the federal budget deficit is likely to soar to a peacetime record of 17.9% of gross domestic product in 2020 before hopefully receding to 9.8% in 2021.
A significant portion of the fiscal support has initially been saved by fear-driven, unemployed U.S. workers. That tends to ameliorate some of the immediate pressures on overall national saving. However,  monthly Treasury Department data  show that the crisis-related expansion of the federal deficit has far outstripped the fear-driven surge in personal saving, with the April deficit 5.7 times the shortfall in the first quarter, or fully 50% larger than the April increment of personal saving.  

In other words, intense downward pressure is now building on already sharply depressed domestic saving. Compared with the situation during the global financial crisis, when domestic saving was a net negative for the first time on record, averaging -1.8% of national income from the third quarter of 2008 to the second quarter of 2010, a much sharper drop into negative territory is now likely, possibly plunging into the unheard of -5% to -10% zone.  
And that is where the dollar will come into play. For the moment, the greenback is strong, benefiting from typical safe-haven demand long evident during periods of crisis. Against a broad cross-section of U.S. trading partners,  the dollar was up almost 7%  over the January to April period in inflation-adjusted, trade-weighted terms to a level that stands fully 33% above its July 2011 low, Bank for International Settlements data show.

(Preliminary data hint at a fractional slippage in early June.)

But the coming collapse in saving points to a sharp widening of the current-account deficit, likely taking it well beyond the prior record of -6.3% of GDP that it reached in late 2005.

Reserve currency or not, the dollar will not be spared under these circumstances. The key question is what will spark the decline?

Look no further than the Trump administration. Protectionist trade policies, withdrawal from the architectural pillars of globalization such as the Paris Agreement on Climate, Trans-Pacific Partnership, World Health Organization and traditional Atlantic alliances, gross mismanagement of Covid-19 response, together with wrenching social turmoil not seen since the late 1960s, are all painfully visible manifestations of America’s sharply diminished global leadership. 

As the economic crisis starts to stabilize, hopefully later this year or in early 2021, that realization should hit home just as domestic saving plunges. The dollar could easily test its July 2011 lows, weakening by as much as 35% in broad trade-weighted, inflation-adjusted terms.

The coming collapse in the dollar will have three key implications: It will be inflationary — a welcome short-term buffer against deflation but, in conjunction with what is likely to be a weak post-Covid economic recovery, yet another reason to worry about an  onset of stagflation  — the tough combination of weak economic growth and rising inflation that wreaks havoc on financial markets.
Moreover, to the extent a weaker dollar is symptomatic of an exploding current-account deficit, look for a sharp widening of America’s trade deficit. Protectionist pressures on the largest piece of the country’s multilateral  shortfall with 102 nations  – namely the Chinese bilateral imbalance — will backfire and divert trade to other, higher-cost, producers, effectively taxing beleaguered U.S. consumers.
Finally, in the face of Washington’s poorly timed wish for financial decoupling from China, who will fund the saving deficit of a nation that has finally lost its exorbitant privilege? And what terms — namely interest rates — will that funding now require?

Like Covid-19 and racial turmoil, the fall of the almighty dollar will cast global economic leadership of a saving-short U.S. economy in a very harsh light. Exorbitant privilege needs to be earned, not taken for granted.
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