American Consequences - October 2017


Financial follies and disaster in the making

crisis. More concerning, if the central-bank “unwind” fails... what ammunition is left? Read more about one extreme possibility – a “Debt Jubilee” – in this issue . And stay tuned for our November issue, where we’ll explore this idea in more detail. The world will never trade oil in only U.S. dollars again... At least, that’s the goal of the Chinese government. They want to trade oil in their own currency, the yuan. And these yuan- priced futures contracts would be convertible into gold. If it works, this will be the start of a huge shift of economic power... Today, commodities trade in U.S. dollars all over the world. And that gives the U.S. enormous power. U.S. sanctions can make it nearly impossible for countries like Russia, Iran, or North Korea to trade freely. China’s yuan-priced oil futures would allow these countries to freely trade in oil without the worry of U.S. oversight. That’s a huge incentive and it creates a built-in customer base for China.

The ‘great unwind’ is here...

After months of speculation, the Federal Reserve formally made the announcement late last month... It will begin to “taper” its $4.5 trillion balance sheet in October. The central bank also said it expects to raise rates at least one more time this year. And Fed chair Janet Yellen used the occasion to confirm that the era of “easy money” is ending. We aren’t convinced... The Fed and other central banks have thrown the monetary “kitchen sink” at the global economy... yet growth remains tepid at best. The inflation they’ve been desperate to create has yet to show up. And even the Fed doesn’t know what will happen as it begins to remove this unprecedented stimulus. Maybe they’re right... Maybe the economy will continue to grind higher even without support. Or perhaps their confidence is misplaced... Strategists at Deutsche Bank believe Fed tightening – the beginning of what they’ve called “the great central bank unwind” – could ultimately trigger the next financial

18 | October 2017

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