THE WAR FOR THE DOLLAR.
As the DOJ goes to war with Jerome Powell, the "smart money" is ditching the Dollar for Gold.
For over a century, the United States has wielded a silent weapon that sustained its military, economic, and social hegemony for more than a century: an independent Federal Reserve. Designed to be the “referee” of the global economy, the Fed ensured a neutral body where economic decisions were based on numbers, not political preferences. Yesterday, that referee was tackled when the Department of Justice served the Fed chair, Jerome Powell, with grand jury subpoenas.
While the DOJ officially claimed the subpoenas were about the alleged cost of overruns and “misleading” statements about the Fed’s 2.5 billion dollar building renovations, Powell called the charges a “pretext” for dictating interest rate policies. Not mincing words, Powell said the intent behind the subpoena is to pressure the Federal Reserve into lowering the interest rates, not because it’s a sound economic policy, but rather, it aligns with the President’s political aims. For the first time in modern history, for Powell, the person in charge of American money is being treated like a criminal by his own government.
At a glance, it appears that the markets shrugged off the news, as the S&P 500 futures closed at a record high. However, on a closer look, it became clear that the market remained fearful as they fled to “safe havens” like gold.
As one analyst put it: “If the U.S. government were at war with its own bank, they would rather hold gold bars than U.S. dollars.”
To understand how volatile the system can become, one can simply look at Iran, where the government’s strategy of forcing the central bank to print money in order to solve political problems led to the evaporation of trust. The local “Bazaar”, merchant powerhouses, stopped using the Rial and began pricing everything in gold. Thereby, creating further economic and social chaos.
Granted, the US economy is far more stable and trusted than Iran’s; nonetheless, history shows that when central banks lose their independence, public trust in the currency erodes very quickly, regardless of the country’s economic power. Furthermore, because of the US’s role in global trade, even a small decline in the Dollar’s value can lead to Americans paying higher prices for everything from groceries and gas to electronics and cars.
For the global economic world, recent developments in the United States have created profound uncertainties about the strength of American economic leadership.
For the global markets, the charges taken against the Federal Reserve’s chair, coupled with concerns over the debt, have triggered what many see as a “black swan” moment. For investors and everyone else alike, every long-held belief about the stability and predictability of the US financial system has been thrown into question.
The central issue for the United States moving forward, however, is the extent to which international investors and institutions begin to doubt the reliability of the U.S. economy. Because the consequences will have a far-reaching impact on both America and the broader global financial system.
“Is this move a necessary check on power, or the beginning of the end for the Dollar’s stability?”