More momentem pushing to remove the dollar as the world’s reserve currency.
As a result of the Fed’s relentless tightening blitz, which on November 2 will have hiked rates by 75bps on four occasions injust 96 trading days, the fastest tightening campaign since Volcker, both US capital markets (the S&P 500 is down -24%, for the 4th worst year on record, only 1931, 1974, and 2002 were worse; and 10Y TSYs are down -17% for the worst year on record… 1987 second worse, and bonds were down -10%) and the US economy have been left reeling.
However, the damage in the US – whose economy is relatively isolated from the knock-on (or is that out) effects of the soaring global reserve currency – are nothing compared to the devastation unleashed by the Fed in the form of the soaring dollar and exploding interest rates. And yet the outcry against either the
SorosBiden administration, or chair Powell has been relatively muted (excluding the occasional scathing oped in China’s Global Times and fake populist rage-tweet by everyone’s favorite ” native American “, Liz Warren). To be sure, this was to be expected: after all, the last thing central banks need, when they are seeking to effect an extremely unpopular global economic recession that will leave millions without a job (think inflation is bad? just wait until you have no job and inflation is still bad) is growing discord among the ranks of the technocrats who have a simple script: no matter how unpopular or stupid a given policy is, you never, never, disagree in public, as this risks sparking popular outrage and toppling the entire house of cards at the hands of a suddenly very angry public.At least that was the case until now: because today, in a startling outcry breaching the unspoken protocol of “no dissent, never dissent”, Josep Borrell, the high representative of the 27-member EU bloc, lashed out all too publicly at the Fed when he said that central banks (across Europe where the recession will be far, far worse than in the US) are being forced to follow the Fed’s multiple rate rises to prevent their currencies from slumping against the dollar, and compared the US central bank’s influence to Germany’s dominance of European monetary policy before the creation of the euro.
Of course, back then the solution to the super deutsche mark was simple: pool all nations under a common currency umbrella, even if it means misery for the less productive, and less mercantilist countries (hence the neverending European sovereign debt crisis which remains in hibernation only thanks to the ECB’s bond buying). This time however, there is no simple solution taking advantage of gullible states, instead now that they’ve broken the seal of silence, the “leaders” of Europe admit to just how powerless they truly are when the custodian of the world’s reserve currency has to do what’s best only for itself, allies and friends be damned:
“Everybody has to follow, because otherwise their currency will be [devalued],” Borrell said to an audience of EU ambassadors, the FT reported . “Everybody is running to increase interest rates, this will bring us to a world recession.”