Justin talks about a piece in the New York Times that says the U.S. needs to lose its world reserve currency status because we can no longer afford to have it. This sort of thinking is insane! Tune in and find out which government official is advocating this madness. Read more for the full transcript.
US Losing World Reserve Currency Status
This is Justin Mohr, thank you so much for joining me today. I came across a piece in the New York Times that completely blows my mind. The title of the piece is “Dethrone King Dollar”. And it’s written by a guy named Jared Bernstein. Now if you’ve seen CNBS, this guy’s always on there. He’s a supposedly an expert, he’s an economist. He’s a Keynesian economists and he’s a former economic advisers to Joe Biden. Yeah, so this guy, he must really know his economics because we all know how good Joe Biden is on economics. But anyway, he makes the case that the US dollar being the world reserve currency is now a burden. Are you kidding me? That is the only way the US consumer is staying afloat right now. He continues in his piece saying China, Singapore, and South Korea suppress the value of their currency relative to the dollar to boost exports to the US and reduce its exports to them.
So what he’s talking about right now is a trade war. And there is actually a great book on this, I strongly recommend you read. It’s by James Rickards and it’s called “Currency Wars”. He makes the case that throughout the history of the United States, there’s been a few currency wars. A currency war happens when foreign countries fight back and forth devaluing their currencies so they can encourage exports. And if you look at it in terms of a country, when you increase your exports, it’s like you’re selling more goods and services to other people, to other consumers around the world. So as a country, if you can have more exports than imports, then you have an income. So they see it as a massive benefit when you cheapen your currency because that makes your products cheaper, so people from other countries are more willing to buy your products now because they are seen as cheaper compared to products in their home country. So that’s kind of the argument there. He brings up the fact that in 2013, America’s trade deficit was 475 billion dollars and with China alone, the trade deficit was 318 billion dollars. He continues here with just an example of what I’m talking about here. He says, suppose South Korea runs a surplus with Brazil. Brazil, by storing its surplus export revenue in treasury bonds, South Korean nudges up the relative value of the dollar against our competitors’ currencies and our trade deficit. So again, like what I’m saying, foreign countries want to increase their exports. So by weakening their currency, they can make that possible.
I specifically remember in one of President Obama’s inauguration addresses to the nation, he said that he wants to double exports around the world. And I remember saying at the time, “That is so easy to do. Like why is that a goal?” All you have to do is weaken your currency and you can export more from your country but when you weaken your currency, it also hurts the consumers in your country, because now it’s more expensive to buy goods overseas. And how many goods do US consumers buy overseas? Just go through you house and look at how many of your goods are made in China, Taiwan, Hong Kong, Japan. The vast majority of the products that you buy are made overseas. Or even products that are made in the United States, like there are the auto workers that will finish assembling products like Ford in the United States so the average person is like “Oh I want to buy a Ford pickup because it’s made right here in the United States, I’m supporting them.” But there’s a good part of the assembly of the parts that happen in Mexico or in other countries. So it’s not just made in the United States, there’s, there’s a whole network of all these foreign country that come together and they make specific parts for these vehicles. If it costs more now to buy foreign goods because you have devalued your home country’s currency then it still hurts the consumer even for quote unquote ‘products produced in the United States’ because a lot of the products and a lot of the parts are still made in other countries so that’s gonna cost more so it’s going to increase the cost of the total products, the end good. Then he goes on towards the end of his piece saying that, “Dethroning king dollar would be easier than people think.” This is absolutely insane. Because it’s people that think like me, when we look at the economy, that actually fear the United States losing its world reserve currency status because that could actually possibly lead to a complete destruction of the dollar. And this guy’s arguing that, “Well actually we need to have the United States lose its world reserve currency status so that we can get our economy going again.”
It’s absolutely amazing that this guy is saying this. And the reason why I say that it could complete destroy our dollar, or at least lead to basically the death spiral, is that the world reserve currency means that other countries, say if China is trading with Australia, as the medium of exchange they use the US dollar just like when we buy a product at the grocery store, we’re using US dollars to buy what we want. Well for other countries to get the products that they want the US dollar is used as money; it’s the medium of exchange between both of them. They both have to trade and use dollars. And actually right now China and Australia have worked out a deal so they no longer use the US dollar. And there are other countries that are working out deals with China and Russia so it’s becoming a lot more of a trend that we’re losing the world reserve currency status but still, for the vast majority of transactions that occur, the US dollar is still used. And so if you think about it in terms of supply and demand, that means the dollar has an artificially higher demand for its currency than it would if they didn’t have word reserve currency status.
So now imagine since 2008, we’ve printed four trillion new dollars in the economy and couple that with the United States losing its word reserve currency status. We have a lower demand for our currency and we have a higher surplus, a higher supply of US dollars in the economy. What is that going to do to the dollar? Well that could possibly lead to a complete destruction of the US dollar, it could happen. At the very least it’s going to lead to massive inflation, and it’s very scary times that we’re living.
And I’m just going to finish up Jared Bernstein’s piece. He ends with a quote and he says this, “The privilege of having the world’s reserve currency is one America can no longer afford.” That really does baffle me that someone, especially someone of a stature like Jared Bernstein, he has some sort of credibility because you know he’s on CNBC. He was Joe Biden’s former economic adviser, the vice president of United States. So this isn’t just some whack job out there writing a piece in the New York Times. The New York Times is, you know, a pretty prestigious newspaper even though its readership is going down.
Let’s continue on with this world reserve currency talk. Right now, the US consumer is being subsidized by other countries because they are buying our debt. US consumers are going out, they’re spending money. I mean the interest rates are so low, money is almost free right now. It’s like why would you save money? You can earn what, a 1/2% in the bank? It’s not worth it so a lot of people go and they spend money they don’t have, they put money on credit cards, they’re buying houses, they’re buying vehicles that they shouldn’t buy. And actually I would argue that what happen in the housing crisis in 2008, where the politicians said that basically everyone should have a right to own a home is the same sort of thing that’s happening right now in the auto industry. If you take a look at some of the 7 year and 5 year loans that people are getting on their vehicles, it’s close to 0% interest rates they are being charged. More and more people are buying brand new vehicles that probably shouldn’t be buying new vehicles in the first place. Once they start defaulting on payments, and actually there’s evidence of that it’s starting to happen right now.
So the US consumer is having a good deal right now. The US dollar has been artificially propped up, we have an artificially strong currency so that means buying products overseas is cheaper and as we stated earlier it’s cheaper for us to buy those goods that are made over China or other countries. When you go to Wal-Mart or a lot of these other stores, most of the products that you do buy are made in foreign countries. So what Jared Bernstein is saying is that, “I want you to pay more for your goods and services.” But let me be fair to Jared Bernstein here. Let me point out what his point of view is on this, and his fellow Keynesian economists. What they believe is that if we can increase our exports to other countries then that means we import less so that means you get our manufacturing base going again, and if you look at this in a political sort of view, the labor unions across the country which are basically Democrat party members. Let’s just be honest about it. The unions are very closely aligned to the Democrat party and so if you look at in terms of the political view as a cynic that is a big part of it.
But they really do believe that this will bring the manufacturing base back so if you get your country producing more goods than you can get all your other industries going and then that creates jobs. You hear these politicians like Obama, and even George Bush, both parties do it. They say that, “Oh we got to bring jobs back.” That is not solving the problem. That’s looking a symptom of the problem. Why do we have a high unemployment rate? Why do we have jobs going overseas in the first place? Well let’s just look at it. Look at the cost of government, the increases in regulations. We’re mandating a higher minimum wage. We have Obama now talking about a campaign on the minimum wage. He wants it to be $10.10 an hour. $10.10. What will that do to the cost jobs in the economy? It’s gonna cost more to hire people. The same is true with Obamacare. The cost of health care for these employees cost more now. It’s costing employers more money.
All of these different policies put forth by the government are making it more expensive for businesses to operate in the United States. A lot of these big companies and corporations, they’re going overseas. And just recently, Burger King is now talking about moving to Canada, having their headquarters there because they can avoid the corporate income tax that we face in the United States. Oh, and by the way, the corporate income tax in the United States is the highest in the world. We’re not even competitive with other countries. We’re doing exactly all of the wrong things if we want to have our economy recover and so it can start booming again. We can start growing. We can get more jobs. We shouldn’t be trying to focus on getting jobs back in the economy. We should focus on growing businesses by allowing a climate that makes it profitable to run a business in the United States. Businesses will hire and create more jobs because of that which really solves the problem.
And actually this sort of protectionism that’s going on now draws some parallels to the 1930s. Herbert Hoover signs the Smoot-Hawley Tariff which was signed in 1930s and he was trying to protect United States American jobs. That lead to other countries increasing tariffs on their products and that created a trade war. And so it made it expensive to buy products overseas and Jared Bernstein in this piece in the New York Times is saying that this is exactly what we need to do. And then Herbert Hoover, he really passed this tariff because he wanted to support farmer’s incomes. It was kind of the belief back in the day that if the farmers were doing well, then everybody else was doing well. But that is also misdiagnosing the problem because ok, if farmers do well, that means prices for commodities are higher. Well then that means that the prices for any goods that you buy that involves some sort of corn products which a lot of the goods that you do buy like your cereals or many other products. Even soft drinks have corn starch. All those products have to go up in cost as well because of the higher prices of corn or ethanol or price of beef prices in the economy, all of this is affected. In end all of us are consumers, even the farmers. So everybody is hurt in the end. We can’t be focusing on any sort of government policy that makes it better for one group over another because you’re putting us in competition with one another when the government is favoring one industry over another and that’s not what they should be doing.
And I just want to say one more thing. There was also a piece in the Washington Examiner, and they said that the 40 hour workweek is now growing to an average of 47 hours a week. So what that is really saying is that the US consumer is getting poorer. We have to work more hours a week so we can just keep our same standard of living. I mean just nowadays we have both adults of each household; the man and the wife are both working. And then their kids go off to daycare. Back in the day in the fifties and sixties, typically the mom was a stay at home mom. She didn’t go to work. Now it seems more and more people, more and more couples, both of them are working. They’re both having jobs. We are getting poorer. That’s what I really want to get across in this piece and that Jared Bernstein is arguing that the US consumer is, he’s really pushing for us to be poorer. Even though that’s not what he’s intending in the first place. But of course with anything the government does, there are unintended consequences. Everything on the surface sounds good and sounds like the right thing but it’s the exactly the wrong thing. And so this is a really scary time that we are facing and the differences between people like Jared Bernstein and people that view the economy like myself, the Australian School of economics, one winner will prevail. There’ll be one side that will dominate and so when we view things through economics we can understand what’s happening in our economy. We can understand what the other side is thinking.
And I hope you keep it right here with the Justin Mohr Show. I will keep informing you on what’s happening in the economy and how you can go about preparing yourself for the possible collapse of the US dollar. Not saying that it has to completely collapse where the dollar is utterly worthless like the famous pictures in the Weimar Republic in Germany where a guy was literally taking a broom and sweeping bills into the gutter. I mean, especially now we have digital currency and it’s not physically printed like it used to be back in the 1920s and Germany. Still, the effect is the same. We could possibly have a complete destruction of our currency so anyone holding the vast majority of their wealth in US dollars is at risk so that mostly would be people who are savers, who have saved their money, that have it in the bank. They could lose it all.
Let’s give just a quick example this. Let’s say you have $100,000 in bank and the dollar loses half of its value in the next 5 years which I believe will happen. That is a prediction I’m gonna make right here right now. The US dollar will lose 50% of its purchasing power in the next five years. So that’s by mid 2019. So you have $100,000 that buys you two pickups in today’s dollars. Now in 5 years from now say that $100,000 now only buys you one pickup. The value of a pickup now cost $100,000 so now you can only buy one pickup with your savings. You’ve lost half of your savings because the key with money is not how much you have, but what you can buy with it, what is the purchasing power of your money. And see that’s why politicians love inflation because it’s a hidden tax on your savings, it’s a hidden wealth tax. Money that you’ve already paid taxes is really being taxed again by inflation and it’s a really sick game that we’re playing and it’s going to destroy the savers in this country. And on top of that, it’ll hurt people who are on fixed incomes. That would include people on pensions, and people who are retired. And people like that, they’ve worked all their life, they have a pension that they’re relying on but if your pension can now only buy half of what it’s buying today you’re really gonna struggle.
And it could get even worse than that. I mean what are those people gonna do? It’s not like they are a younger person like me where if I were to lose everything I have, I can work the rest of my life and I can make it back. But for someone who is retired, they can’t do that. It’s so sad what’s going on now and again it’s a game that’s being played and it’s the politicians kicking the proverbial can down the road. Nothing can happen here, we’re the world reserve currency of the world even though now we have Jared Bernstein arguing that we actually need to lose that status. It’s really sad where we’re headed and it’s scary. And it’s important that we protect ourselves and I’ll get into on later podcasts how we can go about protecting ourselves and our wealth and some strategies that we can go about profiting from what’s to come. Or at least preserving your purchasing power which is gonna be a very important goal to have in the near future. So I would like to thank you for listening to the Justin Mohr Show and this is Justin Mohr, signing off.