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Economist Steve Keen: Weak Dollar Would Help US Workers

Economist Steve Keen: Weak Dollar Would Help US Workers
(Dollar Photo Club)

By    |   Tuesday, 16 April 2019 10:03 AM

Experts have been debating just how does the average American benefit from the dollar's reserve currency status, and would the greenback's fall from grace have a negative, or positive, impact on the livelihood of the average American worker?

Economist Steve Keen recently told the MacroVoices podcast that average investors are overinflating the risks of a weaker dollar or the American greenback losing reserve-currency status.

Experts and investors also fear that a weaker dollar and/or the loss of reserve-currency statis would cause interest rates to surge. Keen explains it's not the external market that sets U.S. interest rates but the Federal Reserve.

“So I can see it as giving America quite a severe jolt. But it won’t be something which causes interest rates to go sky-high. They will still be held in a band by the Federal Reserve. You might see rises in corporate rates and so on, but not large rises in the rates on American government debt,” said Keen, a professor of economics at Kingston University, London from 2014 till 2018 before retiring from academia.

To be sure, Reuters recently reported that Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said.

They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.

The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC.

In the unlikely event Riyadh were to ditch the dollar, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states.

However, Keen does see some uncertainty regarding the dollar's reserve-currency status.

“You get American imposing its political will on the rest of the world using the fact that it’s the reserve currency. And of course that’s become intolerable under Trump. So I think the odds are, let’s say, one in three of a serious breakdown in that in the next 10 years,” he said.

And if and when most of the world would ditch the U.S. dollar as the global reserve currency, there would be some fallout for America, Keen explains.

“Obviously, it’s going to mean a reduction in demand for American dollars on foreign exchange markets, which must mean a fall in the price over time. And it will be complicated by the usual spot and hedge markets," Keen said.

"But, yes, seeing a fall in the value of the dollar, unless America’s financial sector could no longer use the fact that it was American to have the power it has over financial institutions elsewhere in the world, so that the scale of the financial sector would be pulled back, your manufacturing sector would be more competitive. But, as you know, you don’t have the industrial pattern you used to have,” Keen said.

“You’ve still got some outstanding corporations and outstanding technological capability. But you don’t have that machine tool background. The skilled workers that used to exist there aren’t there anymore. So there would be a serious shock to America with more expensive goods to be imported from overseas and a slow shift towards having a local manufacturing capability, making up for the damage of the last 25 years," Keen said.

"I can see a lot of social conflict out of that as well, but a positive for the American working class, who really have been done over in the last quarter century. And that’s partly the reason why Trump has come about. And, ironically, Trump is part of the reason why this might come to an end, given how much he’s used his bombast and the American reserve currency status as a thug’s tool in foreign relations rather than an intelligent person’s tool.”

Keen isn't the only respected economic voice to express concern recently about the dollar.

Newsmax Finance Insider Peter Reagan also urged caution about the strong dollar's future and urged investors to see safety in the traditional safe haven of gold.

"The dollar’s grasp on its status of global reserve currency continues to slip away. It could start dancing nervously if geopolitical tensions increase from the next wild presidential announcement," Reagan explained.

"The bottom line is, anything can happen as the World pushes away from the dollar and the economic outlook remains uncertain. So what can you do?" Reagan wrote.

"Corporate – inflated stocks carry downside risk. Even bonds and Treasuries aren’t a guaranteed hedge. But precious metals like gold and silver have been historically proven to do well when the dollar doesn’t."

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Economist Steve Keen recently told the MacroVoices podcast that average investors are overinflating the risks of a weaker dollar or the American greenback losing reserve-currency status.
steve keen, dollar, king, death, us, american, workers
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2019-03-16
Tuesday, 16 April 2019 10:03 AM
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