Obama's Former Chief Economist Calls For An End To US Dollar Reserve Status

Tyler Durden's picture




 

Authored by Jared Bernstein, originally posted Op-Ed at The NY Times,

There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?

But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

The reasons are best articulated by Kenneth Austin, a Treasury Department economist, in the latest issue of The Journal of Post Keynesian Economics (needless to say, it’s his opinion, not necessarily the department’s). On the assumption that you don’t have the journal on your coffee table, allow me to summarize.

It is widely recognized that various countries, including China, Singapore and South Korea, suppress the value of their currency relative to the dollar to boost their exports to the United States and reduce its exports to them. They buy lots of dollars, which increases the dollar’s value relative to their own currencies, thus making their exports to us cheaper and our exports to them more expensive.

In 2013, America’s trade deficit was about $475 billion. Its deficit with China alone was $318 billion.

Though Mr. Austin doesn’t say it explicitly, his work shows that, far from being a victim of managed trade, the United States is a willing participant through its efforts to keep the dollar as the world’s most prominent reserve currency.

When a country wants to boost its exports by making them cheaper using the aforementioned process, its central bank accumulates currency from countries that issue reserves. To support this process, these countries suppress their consumption and boost their national savings. Since global accounts must balance, when “currency accumulators” save more and consume less than they produce, other countries — “currency issuers,” like the United States — must save less and consume more than they produce (i.e., run trade deficits).

This means that Americans alone do not determine their rates of savings and consumption. Think of an open, global economy as having one huge, aggregated amount of income that must all be consumed, saved or invested. That means individual countries must adjust to one another. If trade-surplus countries suppress their own consumption and use their excess savings to accumulate dollars, trade-deficit countries must absorb those excess savings to finance their excess consumption or investment.

Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States.

This isn’t just a matter of one academic writing one article. Mr. Austin’s analysis builds off work by the economist Michael Pettis and, notably, by the former Federal Reserve chairman Ben S. Bernanke.

A result of this dance, as seen throughout the tepid recovery from the Great Recession, is insufficient domestic demand in America’s own labor market. Mr. Austin argues convincingly that the correct metric for estimating the cost in jobs is the dollar value of reserve sales to foreign buyers. By his estimation, that amounted to six million jobs in 2008, and these would tend to be the sort of high-wage manufacturing jobs that are most vulnerable to changes in exports.

Dethroning “king dollar” would be easier than people think. America could, for example, enforce rules to prevent other countries from accumulating too much of our currency. In fact, others do just that precisely to avoid exporting jobs. The most recent example is Japan’s intervention to hold down the value of the yen when central banks in Asia and Latin America started buying Japanese debt.

Of course, if fewer people demanded dollars, interest rates - i.e., what America would pay people to hold its debt - might rise, especially if stronger domestic manufacturers demanded more investment. But there’s no clear empirical, negative relationship between interest rates and trade deficits, and in the long run, as Mr. Pettis observes, “Countries with balanced trade or trade surpluses tend to enjoy lower interest rates on average than countries with large current account deficits, which are handicapped by slower growth and higher debt.”

Others worry that higher import prices would increase inflation. But consider the results when we “pay” to keep price growth so low through artificially cheap exports and large trade deficits: weakened manufacturing, wage stagnation (even with low inflation) and deficits and bubbles to offset the imbalanced trade.

But while more balanced trade might raise prices, there’s no reason it should persistently increase the inflation rate. We might settle into a norm of 2 to 3 percent inflation, versus the current 1 to 2 percent. But that’s a price worth paying for more and higher-quality jobs, more stable recoveries and a revitalized manufacturing sector. The privilege of having the world’s reserve currency is one America can no longer afford.

*  *  *

Strawman? De-Dollarization goes Domestic...

*  *  *

Jared Bernstein joined the Center on Budget and Policy Priorities in May 2011 as a Senior Fellow.  From 2009 to 2011, Bernstein was the Chief Economist and Economic Adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class, and a member of President Obama’s economic team.

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Mon, 09/08/2014 - 16:52 | 5195111 Magnix
Magnix's picture

I knew that was coming!

Mon, 09/08/2014 - 16:55 | 5195115 Deathrips
Deathrips's picture

Gold Silver Standard!!!!

 

Long Physical!!!

 

and lead too, progressive zio socialists are sore loosers.

 

RIPS

Mon, 09/08/2014 - 16:57 | 5195134 pods
pods's picture

Maybe for next week's installment Mr. Bernstein can talk about how easy it would be to normalize rates?

hahahahhahahhaaha.

This is fodder to make people think they are still in charge.

pods

Mon, 09/08/2014 - 17:02 | 5195154 Winston Churchill
Winston Churchill's picture

Avoid bathtubs,shitgums, and nailguns before next weeks instalment.

The MIC will not be happy, nor the bankers.

Mon, 09/08/2014 - 17:06 | 5195170 knukles
knukles's picture

Another triumph of federalized common core education: "shitgums"
But I spellcketed it!

Mon, 09/08/2014 - 17:19 | 5195215 Pinto Currency
Pinto Currency's picture

 

 

After systematically destroying the USD over several decades, these clowns now call for the destruction of the USD.

Maybe you could have told everyone beforehand.

Mon, 09/08/2014 - 17:21 | 5195224 bwh1214
bwh1214's picture

Oh yeah this article is perfect, just like convincing us higher inflation is a good thing, they are now trying to convince us having the reserve currency should be thrown away as a matter of policy. 

 

I’ve come to the conclusion that there is no way we can stop the insanity of the liberals and Keynesians from its self destruction.  Fighting them will only delay the destruction of the current system.  We need the system to break so we can rebuild.  I am willing to allow them to attempt every social project, high inflation, money printing, dollar dethroning idea.  Hey maybe I’ll be wrong and we will enter a utopian society, year right. 

 

So only after it fails will we have the opportunity to rebuild a free market, private property, individual liberty maintaining society that we know it the most prosperous.  The only issue is that break will leave us vulnerable to a charismatic nut job like Hitler.  So I say we save our strength, stop fighting and allow them to destroy themselves.  Give them enough rope and room to hang themselves, if not they may tangle us up in the rope as they fall.

Mon, 09/08/2014 - 17:23 | 5195240 surfsup
surfsup's picture

Yeah just as USD is cranking...   

     Good luck with that call amigo --->

Mon, 09/08/2014 - 17:32 | 5195277 bwh1214
bwh1214's picture

Yeah its only cranking because the ECB is taking the Euro to the woodshed.

Mon, 09/08/2014 - 17:48 | 5195339 Citxmech
Citxmech's picture

Man - the amount of desperate bullshit pouring out of the cracks is becoming epic lately.  It's really starting to gain momentum, isn't it?

Mon, 09/08/2014 - 17:54 | 5195368 SoberOne
SoberOne's picture

Translated,  the children have gasoline and matches. Maybe they shouldn't be in charge.

Mon, 09/08/2014 - 18:01 | 5195396 Raymond K Hessel
Raymond K Hessel's picture

This is about the IMF and replacing the USD with SDRs (special drawing rights) that are essentially a basket of currencies that will be controlled by other countries.

Nothing changes except the US gets knocked off its superpower status by the man raised by his mother to hate America.

Still talking fiat money.

Mon, 09/08/2014 - 18:18 | 5195436 Tall Tom
Tall Tom's picture

WITH THIS STATEMENT AS EVIDENCE...

 

If anybody has any doubt of Obama's intention to destroy the sovereign United States, at this point, is so far in denial that they are hopelessly deluded and need Mental Health care immediately.

 

Obama and his administration need to be removed from office, charged with treason, and subsequently be convicted.

Mon, 09/08/2014 - 18:22 | 5195477 macholatte
macholatte's picture

 

Unless BO is impeached and thrown out fast, the next 2 years are going to be a nightmare.

 

 

America, how can I destroy thee? Let me count the ways.

-- Barry S

 

Mon, 09/08/2014 - 18:37 | 5195532 Squid-puppets a...
Squid-puppets a-go-go's picture

"new research reveals"

der, most ZHers had this filed under "No shit sherlock" about 2 decades ago

Mon, 09/08/2014 - 18:55 | 5195583 Bad Attitude
Bad Attitude's picture

The difference between two decades ago and now is that we now have an openly Manchurian-Candidate president.

Forward (over the cliff)!

Mon, 09/08/2014 - 19:00 | 5195600 CheapBastard
CheapBastard's picture

Reminds me when gas was 18 cents a gallon. Filled up my whole tank for less then $4.60. Now, gas is almost $4.60 per gallon!

Mon, 09/08/2014 - 20:00 | 5195776 Four chan
Four chan's picture

trial balloon is floated.

Mon, 09/08/2014 - 20:23 | 5195857 remain calm
remain calm's picture

Don't be fooled. This is just the government conditioning the sheeple for the eventuality that is going to be coming our way. Pretty soon LiesMan on CNBC will be touting the benefits to the mental midgets that listen to his propaganda. This is an orchestrated release that gets the ball rolling that makes it appear to be a "not a bad thing"  It's not a trial ballon it will be reality and they need an explanation that stupid people will buy.

Mon, 09/08/2014 - 20:56 | 5195977 Save_America1st
Save_America1st's picture

So this artice immediately reminded me of this Kyle Bass clip about some "senior obama administration official" telling him they were going to kill the dollar.  I don't take Bass for a liar about this...

We Are Going To Kill The Dollar_ Investor Kyle Bass Discloses Discussion With Senior Obama Admin
Mon, 09/08/2014 - 21:26 | 5196059 PT
PT's picture

Well he could have at least killed the dollar before all the manufacturers closed down their factories and left town, and before people forgot how to build stuff ...

Mon, 09/08/2014 - 23:47 | 5196391 Elvis the Pelvis
Elvis the Pelvis's picture

The Yankee dollar isn't going anywhere.  When this bubble collapses, the dollar will gain a shitload of strength.  Anyone who isn't long on the dollar has their head up their ass.

Tue, 09/09/2014 - 04:20 | 5196686 Richard Chesler
Richard Chesler's picture

It is no coincidence that most banana republics start with a monkey president.

More Martha's vineyard vacation for the corrupt puppet please!

 

Mon, 09/08/2014 - 21:27 | 5196066 palmereldritch
palmereldritch's picture

 "...maybe the smartest thing to do is pull it. And they made that decision to pull and then we watched the dollar collapse."

Mon, 09/08/2014 - 23:23 | 5196331 Calling Elvis
Calling Elvis's picture

"...maybe the smartest thing to do is pull it. And they made that decision to pull and then we watched the dollar collapse."

?? are u making reference to 9/11 ???

Tue, 09/09/2014 - 08:24 | 5196943 Bindar Dundat
Bindar Dundat's picture

Stop measuring financial success in the U.S. dollar!  Measure  the S&P 500 in gold for the last 50 years and you will see what I mean.

Mon, 09/08/2014 - 21:36 | 5196079 Bananamerican
Bananamerican's picture

"reminded me of this Kyle Bass clip about some "senior obama administration official" telling him they were going to kill the dollar"

An even better clip of the Obama official himself...

http://youtu.be/vJXU7EVXs2A

Mon, 09/08/2014 - 20:33 | 5195875 RaceToTheBottom
RaceToTheBottom's picture

I did not hear the term Debt Jubilee.  That will be necessary before any wholesale interest rate increases or even changes can be done.

SDR here we come.....

Mon, 09/08/2014 - 22:57 | 5196271 disabledvet
disabledvet's picture

And this is the most important point. The comment by the Administration official only shows the absurdity of the policies that have been pursued will nigh 6-8 years now.

The ASSUMPTION was that this would destroy the dollar...nay, veerily. Instead you now have a SUPER DOLLAR....which if you look at the numbers ("trillions!") seems a semantic impossibility ("no one can pay back a trillion!") yet indeed...that is precisely what is happening, with lower interest rates and a "full time part time labor force."

There have of course been a few "bumps in the road" in this Road to Perdition. What is surprising is what bumps there hasn't been however.

I mean a fourth equity bubble in thirty years? Seriously???

Tue, 09/09/2014 - 01:45 | 5196572 MontgomeryScott
MontgomeryScott's picture

I've been here before; on several threads on ZH. In fact, I have been here for several years. HUNDREDS of posts...

You can look up my history.

I must have sounded like I was on a 'lunatic fringe' or something, trying to show the posting 'people' the irrevocable and now provable conclusion to the madness and destruction that seems to be making the 'conspiracy theory' now appear to be the 'new normal'. I would link Youtube songs and graphic charts and other things... I have seen the comings and goings of Catholic-apparatchicks and Bit-coin apparatchicks. I have argued the fundamentals of the Austrian School and railed against the 'get-rich-quick' schemers of the Kenseyans. My 'battles' are but of little consequence now; and my percieved injuries (several of which are real) in wars past will not be either stated or used for self-aggrandizement.

A 'bump in the road' is taken up by 'SHOCK ABSORBERS'.

TEN THOUSAND YEARS, AND NOTHING IS LEARNED.

https://www.youtube.com/watch?v=jseTa7HUIDU

Exactly WHAT part of 'former Obama Economist calls for an end to U.S. Dollar reserve status' SURPRISES you?

The end IS NOW (not 'nigh').

Dude can't even SPELL the word...

 

 

Mon, 09/08/2014 - 20:31 | 5195881 RaceToTheBottom
RaceToTheBottom's picture

Digital Dupe

Mon, 09/08/2014 - 23:04 | 5196289 luckystars
luckystars's picture

They don't need our acceptance or approval anymore.

its a done deal.

At the crash of 08 Greenspan was on TV appearing a big screen TV saying "We need a whole new global financial system and a global central bank."

Mon, 09/08/2014 - 20:12 | 5195810 nmewn
nmewn's picture

Jared Bernstein, Jared Bernstein...of Romer-Bernstein "allow us to throw a trillion dollars into the furnace and we promise you five percent unemployment" infamy?

http://www.aei-ideas.org/2012/10/a-big-version-of-the-infamous-romer-berinstein-jobs-chart-updated-for-september-2012/romerbernsteinseptember2012-3/

That fucking Jared Bernstein!?!?

Mon, 09/08/2014 - 20:27 | 5195874 El Vaquero
El Vaquero's picture

I like how he plays it as though we can just give up the dollars status as the world reserve currency and the worst we'll see is a few percent inflation. 

 

Yeah, right!

 

Remind me what happens when all of those foriegn held dollars that are now useless to others come flooding back home?

 

LOL

Mon, 09/08/2014 - 20:58 | 5195981 Miffed Microbio...
Miffed Microbiologist's picture

Can you imagine the shell shocked faces when those driving Escalades go to fill up? That would have to get some of the soundly sleepings' attention. Gas and food will be in the stratosphere. I wonder how the no inflation claim would be spun then.

Miffed;-)

Mon, 09/08/2014 - 21:06 | 5196006 American Dreams
American Dreams's picture

The Fed buys them with unlimited printing and since we are no longer the reserve currency it wont matter to interest rates because the fed will buy those too.  We would effectively be Japan and last I checked they have fairly low interest rates.  This about being able to bring the wages in the USA down to the rest of the world and make the country subservient to a global no sovereign central banking authority.  See...  www.wocu.com This is the realization of the CFR right in your face, global banking authority, global self appointed government rule.  It has been in the works for a mighty long time, the men pushing it from the top are all old and they are damn sure they want to see their dream fulfilled. 

Know your enemy

AD

Mon, 09/08/2014 - 21:22 | 5196050 El Vaquero
El Vaquero's picture

I was talking about FRNs coming back, not USTs.  The Fed isn't going to print a bunch of FRNs to purchase FRNs flooding back home.

Mon, 09/08/2014 - 21:11 | 5196018 nmewn
nmewn's picture

Its what happens when someone parlays a Masters Degree in Social Work from Hunter College School of Social Work and a Masters Degree in Philosophy with a Ph.D. in Social Welfare into sitting behind a fucking desk at a "progressive" think tank as an "official" into being called...an economist.

Without actually, you know, having any idea what the fuck he's doing.

He was Bidens economic advisor, which should tell everyone everything they need to know, they're both crazier than a sprayed roach.

Tue, 09/09/2014 - 13:30 | 5196743 matrix2012
matrix2012's picture

Just give him a Nobel Prize in Economics, solve the issue if any.

Mon, 09/08/2014 - 21:34 | 5196080 PT
PT's picture

Countries have been moving away from the USD all year and now he says, "Oh, yeah.  We meant to do that."

Sounds like an otherwise charismatic criminal coming quietly after the police catch him, while telling his followers, "Yes.  I was trying to get caught."  At least he chose to come quietly and didn't bother trying to shoot his way out.  But then again, he knew he was going to lose.

Actually, I'm pretty ignorant of this stuff so you guys feel free to tell me if I'm on the wrong path.

Mon, 09/08/2014 - 21:16 | 5196031 MonkeyKnutz
MonkeyKnutz's picture

Posted here by another ZHer, I thought it is worth repeating...
Gas is still $0.25/Gallon..

 

Values Entered:

Quantity: 1 Coin Type: 1932-1964 Washington Quarter Silver Price:   $19.01 / troy ounce

Answer:

Total silver value is $3.44.

 

http://www.coinflation.com/coins/silver_calc.php

Mon, 09/08/2014 - 21:51 | 5196110 TheAnswerIs42
TheAnswerIs42's picture

Yuppers, just changed a quart of oil on the lawn mower, Penzoil 30 SAE, $5.49.

Remember it being $0.55.

Oh wait.

 

Mon, 09/08/2014 - 22:08 | 5196161 nmewn
nmewn's picture

 Yep, if you convert from fiat to real money you never lose the value of your labor.

Like him or loathe him, the truest parsed statement evah: "Inflation is always and everywhere a monetary phenomenon..."...it simply is, whether by shaving a coin or diluting its value with another metal or printing gazzilions in paper (devaluation of currency) is inflation ;-)

Mon, 09/08/2014 - 19:30 | 5195655 WhackoWarner
WhackoWarner's picture

Obama is a sold-out puppet. Always was. No power there.

I think you missed the actual guilty parties.  Treason belongs with the actual puppet masters.  And actually at this point it is crimes against humanity that should be applied liberally in just about every Western country.

Mon, 09/08/2014 - 19:55 | 5195691 Tall Tom
Tall Tom's picture

The whole damned bunch of them are sold out to the puppet masters.

 

This is a sell out to the Globalists and they are having the US surrender its currency, its sovereignity, and adopt the SDR as the World Currency. But damn it. It is STILL TREASONOUS.

 

I realize this, man. To a point you are right. So let me extend your point...

 

THAT DOES NOT MITIGATE OBAMA'S ACTIVE COMPLICITY.

 

In fact I would consider that an AGGRAVATING CIRCUMSTANCE as he was given a stewardship to protect the vital interests of the United States.

 

 

Mon, 09/08/2014 - 20:03 | 5195789 Harbanger
Harbanger's picture

The ultimate puppet masters are the banksters who are buying the world with their fiat.  Those in control are few but the corruption runs deep in our institutions and is multigenerational.  Victims of victims of victims.  Even those who may have benefited in the past and are afraid of reform will be better off when the healing begins.

Mon, 09/08/2014 - 20:17 | 5195838 Tall Tom
Tall Tom's picture

I agree.  Corrupt Banksters.

 

Hope for the best but prepare for the worst.

 

These wounds run deep and the infliction thereof may end up being fatal.

 

There may not be a healing possible.

Mon, 09/08/2014 - 20:19 | 5195844 Herd Redirectio...
Herd Redirection Committee's picture

Masters of leverage.   First borrow mad cash (from your crony pals, using fake collateral, of course).  Then buy a controlling interest in a company.  Leverage said company, and buy  a controlling interest in another company.  Leverage it to the hilt.  Repeat ad nauseam.  Upgrade to include entire governments and nation states, with due time.

Mon, 09/08/2014 - 20:43 | 5195927 RaceToTheBottom
RaceToTheBottom's picture

Interesting strategy, but your point is valid. TPTB will always weigh companies higher than individual Joes.....  As was always done

Mon, 09/08/2014 - 20:00 | 5195773 TheReplacement
TheReplacement's picture

If you ponder the long history of the Fed then maybe Obama is actually doing us a favor.  The needs to go.  For that to happen the dollar has to die as either a cause or consequence. 

Voting for people like Paul didn't get it done.  Maybe Obama can.  We just have to manage the fallout and degrade the statists capabilites.  Send me money and I'll figure a strategy.

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