The Latest Bad Premise Could Be a Disaster for the US Dollar [Podcast]

On October 20, 2022, Liz Truss resigned as UK prime minister after just 44 days in office—the shortest tenure in British history. She was brought down not by a no-confidence vote or a party coup, but by a full-scale bond market rebellion. Her government’s proposed mini-budget, featuring sweeping tax cuts, triggered a historic sell-off in UK government bonds (gilts), sending yields soaring and the pound crashing. As panic spread, the Bank of England was forced to intervene to prevent a financial meltdown, and with markets, party members, and the public losing faith, Truss’s premiership collapsed. Such is the fate of governments when they don’t control the global reserve currency. The US government should heed this warning. But it seems more likely to barrel ahead with the false premise: America will always remain THE dominant global superpower that can do whatever it wants. That’s the subject of today’s podcast. We discuss these types of false premises— Iraq has weapons of mass destruction, it will take just two weeks to stop the spread of COVID— mistakes that over and over cost the US trillions of dollars. And nowhere is this more egregious today than in the idea that the US dollar will remain the reserve currency, whatever the US does to push other countries away. We talk about how a series of laws has escalated the weaponization of the US dollar, starting with the PATRIOT Act in 2001, then FATCA in 2010, and the freezing of Russia’s US assets in 2022. Now, the Mar-A-Lago Accord is being floated, which includes an idea to strong-arm US allies into swapping their US Treasuries for 100-year, non-tradeable, zero-coupon bonds. After all, the argument goes, the US provides defense for much of the world, it is only right that other nations should pay for it in some way. But we discuss why this is such a bad idea, and how it will only push countries into finding alternatives for the US dollar, robbing the US of its power to influence global affairs with the currency, and stripping the US dollar of much of its demand, and therefore value. You can listen to the full podcast here. https://youtu.be/s9hQU9w5QWw