Today I elaborate on the prospects for the future of the World Reserve Currencies [sic].
Since World War II the United States of America has been the engine of growth for world trade and economic development. What evidence is there for this ? The US decadal trade deficit proves that conclusion. The people of the US have been willing, and the government has permitted them to, buy everything they wished to buy from the other nations of the world. Those nations received dollars that they used to buy the goods of other nations or to invest in US government debt to provide a base of value for their own local currencies. Or they could buy US real estate, stocks, or even whole companies. The high relative freedom in, to and from America gave confidence to all those dollars were worth something. The stable US republic and its military might gave confidence to all that the US was going to be there - period, full stop.
Now due to demographics and barring a new boom in immigration, the US population will level off and slowly age in future decades. From Marketing 101, the prime spending years of households is in the 25 to 49 age bracket. Some might say 54 is the upper limit to relatively high spending. In either case, growth in numbers in that age cohort will stop. The US over time will certainly stop importing more goods and services from other nations. The recent US trade deficit numbers show this fact and the trend rather clearly to anyone who wishes to look with an open mind.
That means fewer dollars flowing overseas to other nations' central banks. That means lower growth in their monetary bases. That means overall, lower growth in the world's money supply. And from simple monetary economics, that means lower world economic growth. Money supply growth is a necessary condition to economic growth - read Milton Friedman's work. Yes, lower ... unless other nations step up and start buying with their currencies.
What will that do ? That will provide a start to multiple world reserve currencies. This is a good thing, but will take decades to occur as the confidence in those currencies like the Euro or yen will take a long time to build. [Forget about the Chinese yuan until China becomes a stable democracy - maybe in 100 years. Ditto the Russia and the ruble.]
What about the IMF's "special drawing rights? Laughable. Does anyone have "confidence" in the UN ? Hahahahahaha.
For all the talk about other world reserve currencies, the simple truth is that the ball is in the court of other nations. If a nation (or nations) wants its (their) currency to be a reserve currency, prove it. Hello Europe, China ? Make yourself into a stable republic. Build up your own military ... for defensive purposes. Encourage your citizens to expand there horizons and BUY ! That goes to Japan, too. Prove you have staying power and are trustworthy. And economically expansive and free. Stop bloviating. You can do it in ... in 50 years, perhaps.
Why does receipt of a Nobel Prize for some sophisticated work in economics make these guys experts on banking ? I guess that alternate name for that prize might be the "Great Badge of Ego".
Word of the Day
"Tenebrous" - adjective [$10] literary; many adjective, verb and noun $1000 variations with the root, tenebr- exist, such as "tenebrity".
Tenebrous means dark, gloomy.
Sentence: Bunkerman is sick and tired of hearing endless tenebrous bloviations about the world economy, that all just seem to say, it's bad out there so it will stay bad. If that was true, the world would still be in the Great Depression of 1893 [sic !!!].
Le Mot Du Jour
"Homard" - noun, masculine.
Homard means lobster.
La Phrase: Selon l'homme du bunker, le homard est simplement un véhicle pour mettre de buerre dans la bouche.
Sentence: According to Bunkerman, lobster is simply a vehicle for putting butter into the mouth.