Driving Pox Americana Off the Cliff

America is the abusive psychopathic ex-boyfriend that never stops stalking you after the relationship ends. Every day, another round of sanctions and tariffs makes the case against continuing to do business with the U.S. stronger. A central theme of The New Nationalist (TNN) is that the lowest common denominator kakistocracy that runs America into the ground has been put in place by design.

Last week, Merkel’s German Foreign Minister Heiko Maas dropped a big bombshell involving the need for a new financial payment system that bypasses the U.S.-dominated SWIFT system. Maas openly accused the U.S. of weaponizing the dollar.

Merkel herself said, “We can no longer rely on the superpower of the U.S.”

France, Germany and the United Kingdom plan to protect the interests of companies doing business with Iran, a significant European market of around 80 million people.

With the U.S. unveiling a new set of sanctions against Russia on Friday, Moscow said it is accelerating efforts to abandon the American currency in trade transactions, Russian Deputy Foreign Minister Sergei Ryabkov said.

“The time has come when we need to go from words to actions and get rid of the dollar as a means of mutual settlements and look for other alternatives,” he said in an interview with International Affairs magazine, quoted by RT. “Thank God, this is happening, and we will speed up this work,” Ryabkov said

The Russian Federation has reduced its public debt in relation to GDP from 92% at the beginning of 2000 to 13% today. They have only 13 billion in dollar-denominated debt and have jettisoned most of their U.S. Treasury reserves in favor of gold.

The U.S. has a debt-to-GDP level of 107% and faces fiscal deficits of well over a trillion dollars in the year ahead. [See “Trumpenstein Has More Largesse for the Kleptocrats, and is There a Fat-Finger ‘Sell’ Button?“] Relying totally on its previously annotated reserve-currency status, the United States had foreign currency reserves of only $42.8 billion as of March 2018. In comparison, the euro area has combined foreign currency reserves of $272.7 billion as of March  2018.

In contrast, Turkey — with almost 100 billion dollars in foreign debt — suffers from the excessive dollarization of its economy. Countries in this position are vulnerable to a U.S.-dollar attack by wild man Trump. The smart ones know it, and they’re doing something about it.

So far, the total value of goods covered as a result of President Donald Trump’s trade war with China is $100 billion. But with trade talks breaking off, the Red Queen administration is now set to enact a far larger tranche of tariffs covering some 6,000 products from China with an annual import value of $200 billion. The U.S. could impose the duties after a comment period ends Sept. 6. China is expected to retaliate soon, and my bet is a more serious devaluation. The last two times, China tried to devalue its currency, in August 2015 and December 2015, and the U.S. stock markets cracked by over 11% in a matter of a few weeks.

China and Iran have already agreed to stop using the dollar in global trade as China ramped up purchases of Iranian oil in defiance of U.S. sanctions. China, Russia and India have cut deals to accept each others’ currencies for bi-lateral trade.

Even Switzerland’s solidly conservative state pension fund has joined in the de-dollarization trend this year and has strongly increased its investments in bullion, switching away from paper-backed securities in U.S. dollars.

After a decade of experimental monetary policies in the U.S., Europe, Japan and elsewhere, the emerging market economies have become addicted to debt borrowed in so-called hard currency U.S. dollars that they cannot inflate away.

US Inflation Would Go Ballistic

The primary causa proxima for runaway inflation in America would be the return to the domestic economy of U.S. dollars from abroad as foreigners switch to alternatives. In particular, this would involve the discontinuance of petrodollars as a reserve currency. This would also involve direct goods trade as well. Russia, China and other dollar-bond holders in truth financed the U.S. wars that were aimed at them by buying U.S. debt. When the foreign reserve status of the U.S. dollar erodes, those dollars flow back into the domestic United States and incinerate price stability, causing substantial bursts of inflation.

This may already be underway. The Fed heads are still all over the map about inflation, which is creeping higher. Clearly, there is no discussion about excess dollar repatriation at all. If this came on their radar screen soon enough, they would have to act decisively to drain dollars from the U.S. domestic economy.

What appears to be unfolding is an attempt to sound credible and tough without doing much. To that end, hawk Dudley stated, “Inflation’s coming soon.”

Janet “Cry Wolf” Yellen on her watch openly admitted that the Fed does not “fully understand” inflation. She admitted that the Fed was “wrong” about employment and inflation, stating, “The FOMC’s understanding of the forces driving inflation is imperfect.” Trying to sound credible, she then suggested “The Fed “should also be wary of moving too gradually (on monetary policy).

The Producer Price Index (PPI), for example, which generally leads the Consumer Price Index (CPI) by a few months, rose at a 3.4% year over year (YoY) rate in June, up from a 3.1% rate in May. Of interest, the transportation sub-index, a key component of costs, rose a whopping 1.3 percentage points in May (a 15.6% annualized rate) and 7.7% YoY.

Procter & Gamble Co., Nestle SA, Coca-Cola Co. and others announced price increases this summer on a wide swath of consumer staples.

The Employment Cost Index, for years the darling of the Fed when it came to justifying loose monetary policy, now stands at a cycle high. Yet it, too, is being largely ignored by Powell and company.

The secondary cause of resurgent inflation will be tariffs on Chinese imports. This removes a deflationary effect on U.S. prices and functions as a tax mostly on lower- and middle-class people on the plantation. Import prices were starting to run hot even before the tariffs fully kick in.