“. . . geopolitics begins with monetary policy”

Well, this explains, in large part, why the U.S. took out Saddam Hussein in Iraq and Muammar Gadhafi in Libya.  They were both selling oil in currencies outside the U.S. petro dollar as a way to earn more on behalf of their respective nations.

China thinks the U.S. will default via inflation.        –Pippa Malmgren

Yuan And Dollar Banknotes Ahead Of Tenth Anniversary Of China's Yuan Reform

from Business Insider

Geopolitical expert Pippa Malmgren says the Fed’s 2% inflation target is effectively a promise to default. The rest of the world sees it coming and wants to get out of the way.

Speaking at the Mauldin Economics Strategic Investment Conference in Dallas, Malmgren said geopolitics begins with monetary policy. Central-bank actions drive all kinds of decisions. That’s especially true when talking about the world’s largest and most important central bank, the Federal Reserve.

Inflation is a kind of default

The US government is so deep in debt that even if it taxed 100% of the population 100% of its income for years, it wouldn’t be enough. We need a different plan, and Malmgren thinks a stealth default via inflation is the way we will do it.

To those outside the US who own Treasury debt, the Fed’s 2% inflation target is effectively the promise of a 2% haircut. Worse, they don’t think the US will stop at 2%. Inflation has been below target for so long, they assume we will overshoot the target for years.

Bottom line: Emerging-market nations and especially China are exiting the US Treasury market. They believe they can better use their capital in other ways.

China changes plans

Faced with skyrocketing food prices, China is working hard to open trade routes to Europe and the Middle East with its “One Belt, One Road” project. Beijing is directing its export revenue into railroad, ports, pipelines, and infrastructure that will let it bypass the US Navy.

So who will buy our government debt? For now, US banks will pick up the slack. Regulators want them to avoid risk. Holding your reserves in Treasury bonds is as conservative as it gets.

The other side of that, of course, is that banks aren’t loaning money to small businesses and consumers who can stimulate growth. So the US economy stays stagnant even as rent, food, healthcare, and other staples get more expensive. Not a pretty picture.

Live from the 2016 Strategic Investment Conference

Get the latest updates live from the sold-out 2016 Strategic Investment Conference with John Mauldin, Richard W. Fisher, David Rosenberg, James Grant, Niall Ferguson, George Friedman, Pippa Malmgren, Charles Gave, Neil Howe, and many more. Click here to visit the conference’s live blog.

Read the original article on Mauldin Economics. Copyright 2016.


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