First in a series
New York—It is time to reprise the winning strategy America once used to ignite robust growth worldwide — let’s again make the U.S. dollar the strongest global currency, one everyone believes will reliably hold its value against competing alternatives.
To win for decades into the future, America’s central bank must soon raise dollar interest rates above accurate estimates for consumer price inflation on our own initiative and not because rising powers force our hand.
Doing so, may forestall efforts already underway by China, India, Brazil, Russia and energy-rich states to dethrone use of the U.S. dollar as the predominant reserve currency for the world.
On the other hand, if we continue for much longer with reckless policies that punish investors in U.S. dollar-denominated investments, we risk ushering in a disastrous scenario, where America loses control of its financial destiny, falling prey to rivals and enemies who certainly wish us harm.
Stop inciting an investor riot against the U.S. dollar
Because there are no other practical options at present, we trade pieces of paper for goods and services we need to exist and improve our daily lives. When we have sums left over, we trade the surplus for other pieces of paper, things like bank deposits, bonds, stocks and real estate.
We have come to accept a world where our money has only notional value.
If you listen to “experts,” you will hear from many that erosion in the value of our nation’s currency caused by inflation is a good thing — what any thinking person should expect happens in well-managed, advanced economies.
Global investors who have been punished for too long certainly see things differently.
During 2012, the average rate of interest that investors earned on U.S. government debt obligations with a 10-year maturity was 1.97 percent per year, well below the rate of consumer price inflation in that year (2.93 percent) and also below the average rate of consumer price inflation for the 14-year period from 2000 through 2013 (2.45 percent).
In 2013, interest rates on 10-year U.S. Treasury Notes dropped slightly to 1.91 percent, above the rate of consumer price inflation (1.59 percent) estimated in 2013, but well below the 14-year average.
Investors only trap themselves in instruments that provide such unacceptably low annual returns when they cannot find practical alternatives. Meanwhile, they work hard to change the status quo, thereby creating better ones.
The low interest rate, fiat currency world will not hold together
Currencies that are not backed by anything tangible (such as gold or precious metals) never last for long, as history in many nations over centuries illustrates.