Here, I explore some of the implications of the dollar reserve standard. What do I really mean by ‘dollar reserve standard’? I mean that a significant proportion of minor central banks own dollars and dollar-denominated assets. In short, the renminbi, the taiwan dollar, the korean won, etc. are all ‘good for’ dollars. Meaning; these currencies are liabilities of their respective central banks, that – in turn – own dollars (and dollar-denominated assets).

 

I seek to briefly answer the questions: what does this mean for the world? What does this mean for prices? How can a contrarian investor wield this understanding to his/her advantage?

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An update of the daily treasury statement charts:

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Here is the update of the Fed’s Balance Sheet (proportions) chart.

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I have decided to post the daily treasury statement charts on a daily basis. For some opinions on them, see here and here. The releases by the US Treasury are at 4:00 PM ET daily. I’ll always try to get the charts up soon after.

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The inflation in the Weimar Republic is widely understood to be one of the worst periods of monetary debauchery in the history of the world. Of course, I agree with this notion. However, in the spirit of a true contrarian, I’m interested in one of the great trades that you didn’t hear about: betting on deflation in 1923/4.

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Here are the updated charts from the daily treasury statement: the total operating balance chart and the deposit insurance fund chart. In addition, I’ll write about the mysterious lagged correlations between stock prices and the total operating balance line.

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The other day, I alluded to the analogy that central bankers are like naughty children; – they move the goal-posts after a shot at goal has already been taken. Here, I’ll explore the implications of this, and ask: could a period of ‘scarcity of money’ occur before debauched monetary policies have the platform to take hold?

 

When the Fed engages in monetary policy, it changes the stock of assets that back the volume of Federal Reserve notes in existence. I explain why this happens here. Every time they buy or sell something, the dollar in your pocket changes. It’s still called a dollar, but it’s no longer ‘good for’ what it used to be ‘good for’.

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