John Kerry Warns "Dollar Will Cease To Be Reserve Currency Of The World" If Iran Deal Rejected

Tyler Durden's picture

Scaremongery... or maybe the whole point, as Obama's former chief economist noted, is to lose reserve status. Take That China!!

 

 

As Jared Bernstein previously explained...

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.

*  *  *

In the global race to debase, Reserve currency status is a curse!

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Looney's picture

The Iranian Deal’s Cast


The Good (our Ayatollah-in-chief)

The Bad (their Ayatollah), and

The Ugly (John Kerry)

Looney  ;-)

FL_Conservative's picture

There you have it.  Straight from the horse's mouth.

stocktivity's picture

John...relax and take a seat.

Pinto Currency's picture

 

 

US started discussions with Iran when it was realized that Iran was trading oil for gold with India.

A little quid pro quo'ing, I'd bet.

Jacksons Ghost's picture

Ya, The Quid Pro Quo was....You stop selling Oil for Gold or you will go the way of Iraq and Libya.

Iran has been absorbed into the American fold and now we deny the BRICS another key cog they needed to overthrow the Dollar Hegemony. Deal was always about economics.

Allah help the Iranians, as I think they may end up on the wrong side of history on this.

BaBaBouy's picture

All Bullshit...
Who Wouldn't Want A Strong Reserve Fiats Paper Money??????????? ... All The Money You Can Print, All The Wars You Want To Fight, All The GOLD You Want To Accumulate, All The Shills And Politicos You Want To Buy Off, All The International Assets You Want To Own...

Gee, This RESERVE CURRENCY Sounds Like Such A BURDEN...

Billy the Poet's picture

While I eschew the statist paradigm, Kerry is absolutely correct in this case.

Latina Lover's picture

Obama must be desperate to trot out Lurch Kerry to sell the Iran deal. 

froze25's picture

When all countries settled their debts in gold we had a global reserve currency, it was gold.  I guess that didn't work since gold can not be printed.

MANvsMACHINE's picture

The question on everyone's minds is whether he will be running in the Breeders CupTM.

ATM's picture

The question on everyone's mind is if Kerry can win from the four slot in the 5th race at Aquaduct.

Squid-puppets a-go-go's picture

If the ayatollah gets the old 'horses head in the bed' warning, will it be kerry's?

Four chan's picture

the reckless way the fed is printing, they don't care about having the reserve currency status and since it seems 98% of americans have no idea what we are even talking about id say 1 its inevitable and 2 its going to throw america into a depression like has never been seen in human history.  meanwhile the jews have their gold safely stashed away and their debt slaves perpetually ignorant.

Spigot's picture

Sooooo....a supposed "diplomat" is telling the whole world that if this administration doesn't get its own way on this "deal" then the U$A will go tits up? Who does this fucking retard think he is??? Must be an absolute nightmare to be Zero's personal fuck toy, no??

remain calm's picture

What a dickwad is John.

Keyser's picture

The entire affair is much like a bad off-broadway play... Poor script, poor actors, poor direction and a 3rd act that will just kill you... 

847328_3527's picture

He cant win with that busted leg of his he got at the Hippodrome. That mustof hurt.

Theosebes Goodfellow's picture

~"John Kerry Warns "Dollar Will Cease To Be Reserve Currency Of The World""~

Wait, wasn't that Obama's plan all along, to knock down that pesky "American Exceptionalism"? Why is that little biatch Kerry fussing about that now? Tell me one mothertruckin' thing Obama has done to NOT have that come about! Go on, name it! Just one!!!

Butt-nugget.

Winston Churchill's picture

He can't get a clean Coggins test.

knukles's picture

What just hit me was that if Jerry Kohn is gnawing upon the smelly bone of the US loosing reserve currency status, then it is sure a Definite Concern within the halls of power.
For all but Barry, for his Cloward Piven strategy is wrecking well.

Down to Earth Thinking's picture

interstingly per the comments here , few actually realize the USD is on its way out ? It is already in motion and BHO and crew have no idea what they are about to put into motion. They think they can use this as a control mechanism, but it will backfire on them for sure ! They are completely consumed in their arrogance and ignorance. But that is what control freaks, sociopaths and psychopaths do !

We all live in massive illusions and all are simply control mechanisms ! Obama care would be a prime example. Or "hands up don't shoot" ?

847328_3527's picture

The more I look at his photo, I 'm sorry to agree that he does sort of look like a horseface:

 

https://pbs.twimg.com/profile_images/2180276167/horse_face_dave.jpg

nosam's picture
nosam (not verified) New_Meat Aug 12, 2015 12:02 AM

Too much inbreeding

rbg81's picture

This guy has no credibility.  How can anyone believe anything he......hey, nice haircut!!

sonoftx's picture

My watching his voice and body language I believe this mf'er has some fear. One domino.

The9thDoctor's picture

We'll all die in an all-out nuclear war if the US Dollar loses its world reserve status.

Nixon abandoned the gold standard and replaced it with the nuclear standard. The Minuteman III ICBMs went online the same time he gave his infamous 1971 speech. The dollar is no longer backed by gold, but by nuclear weapons. The rest of the world must put up with virtually unlimited 1s and 0s or face nuclear annihilation.

If some world power were to challenge the dollar like China for example, the Bonesmen who run America would rather us all die in a radioactive wasteland than to give up the godlike powers of unlimited money printing.

The Bonesmen who run America have underground bunkers with decades of storable food, seed vaults, reservoirs of water and entire underground cities to await the deliberately scripted doomsday. Meanwhile us surface dwellers get wiped out, and the collateral of the United States' real estae will be worth zero as it is uninhabitable.

Russia has spent trillions of rubles updating their nuclear arsenal to improve their first strike capabilities. This will allow them to establish BRICS and challenge the dollar's hegemony backed by force.

The days of huge bombers dropping megaton devices are awfully outdated. The new paradigm are MIRVs with hundreds of warheads in the tons range. This will make nuclear war "winnable" and make mutually assured destruction totally obsolete.

toady's picture

We must close the mineshaft gap!

Four chan's picture

re bunker seed banks, as if those do nothings could farm LOL

Phuk u's picture

Dont expect too many up votes GMS, your post is lost on the shermans

GMadScientist's picture

Damn. My biz plan specifically calls out monetizing those.

847328_3527's picture

I hope those undergroudn bunkers ain't near those Colorado mines:

 

EPA's McCarthy: Contaminated water from Colorado mine will spread

 

http://www.foxnews.com/politics/2015/08/11/epa-mccarthy-contamination-fr...

cro_maat's picture

9th Doctor - Here is Gordon Duff's take at Veterans Today: http://www.veteranstoday.com/2015/08/10/disclosure-why-sabotaging-the-iran-agreement-takes-down-america/ 

Not sure that I buy the whole enchilada on this but there is evidence that the "Die Gloken" bell project was transferred to Argentina after WWII (Joseph Farrell has researched this exensively). And I notice that there seems to be an increase of "leaks" regarding free energy, anti-gravity,etc. these days.  A lot of these reports and research are very intrigueing but I sometimes get the sense that the whole lot of them are running one giant psyop and that something different will come out of left field that we don't expect.

Of course when your Secretary of State (CFR member and Horse's Ass) scaremongers about Currency Reserce Status and links it to a trade deal with Enemy #1 then you know they are desparate.

Perseus son of Zeus's picture

Let's try to stay on the reservation pal, mmmk?

cro_maat's picture

The "Reservation" was taken away when the found gold in the Black Hills (ask the Lakota Sioux). All treaties are meant to be broken (USSA founding diplomacy principle).

I am merely pointing out that a lot of interesting "information" propaganda and sometimes actual dirt is being released right now. My take is that WWIII is here and the weapons of choice are: Trade wars (TPP / TPIP), currencies, cyber warfare, propaganda, proxy wars, color revolutions and control of illegal drugs and illegal arms.

That being said, anyone who thinks that nuclear warheads are the top of the military stockpile has not been paying attention.

 

jaketfs's picture

VT one giant MIC psy-op. j

cheech_wizard's picture

Just one flaw in your thinking.

Only the Russians were smart enough to keep their MIRV's. The US, not so much.

http://allthingsnuclear.org/the-end-of-mirvs-for-u-s-icbms/

 

NidStyles's picture

You don't need MIRV's when you have carrier groups and submarines all over the planet with nuclear cruise missile capability. The US could nuke half the planet before anyone was even aware the birds were in the air. Tomahawks can fly under radar making them undetectable and the perfect first strike weapon. They are also significantly cheaper than minuteman missiles. So don't think of this as a backing down, rather a change of strategy.

 

The idea of the US as nuclear power has been changing, but so has the technology, and the US has not sacrificed any military power to comply with these new demands by the international agreements. While I agree that a nuclear free world would be preferable, it's not going to happen as the cat is already out of the bag. 

AntiSanta's picture

Um, as a former farmer, I have to wonder exactly WHO you think these bluebloods are going to have raising their crops for them when they finally emerge from their bunkers once the radiation level is low enough to grow crops again.

Apparently in your mind, it isn't going to be them! (Happy starving, farming is HARD work and they've never done any!)

NidStyles's picture

Dirt farming is old fashioned. The only reason people still do it is because of it's simplicity and easy ability to control those farms without being near them.

TheObsoleteMan's picture

Sorry, but your script won't play out that way. And BTW, Nixon dumped gold convertibility in exchange for "the petrol dollar". That arraignment works as long as the US controls the powers that be in Saudi. The reserve status of the US$ ends when they decide. They want a global digital "currency", and they shall have it soon. No need for nukes when you have that kind of power, it is absolute in every sense. BEHOLD A PALE HORSE.

r3phl0x's picture

In practice the dollar is backed by the conventional US military & intelligence services, not by the nukes. It's widely known that there are virtually no situations in which the US will initiate an ICBM first strike, but we are sure as fuck gonna use coups, black ops, drones, heli commandos, etc, as needed to make the entire planet safe for our freedoms.

Mr.BlingBling's picture

He's correct that the US dollar's RC status will soon end, but it sure as shit won't be because of the treaty, er, non-treaty 'deal' with Iran.

EDITED TO ADD:

I find it interesting that when one enters "US and Iran news" into Google, all of the results use the noun 'deal' in describing this pending proposal / agreement / treaty /non-treaty.  ALL of the results, for at least three pages.

ATM's picture

Control languagae and you control the debate....the masses....the mind......

Billy the Poet's picture

Allenby: Are you sure you haven't heard of the Sykes-Picot Treaty?

Lawrence: No. I can guess.

Allenby: Don't guess. Tell him.

Dryden: Well, now, Mr. Sykes is as English civil servant. Monsieur Picot is a French civil servant.Mr. Sykes and Monsieur Picot met, and they agreed that after the war France and England should share the Turkish Empire. Including Arabia.They signed an agreement, not a treaty, sir. An agreement to that effect.