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A strong dollar is a threat to America’s enemies

Bidenomics working a treat. Credit: Getty

May 1, 2024 - 2:30pm

Something very odd is going on in the economic sphere. The Japanese yen is in precipitous decline versus the US dollar, while the latter was this week reported to be gaining in strength compared to almost all other major currencies.

One economic explanation behind this is the surprising resilience of the US economy. While a lot of the positive data emerging is driven by government interventionism rather than the structural health of the country’s economy, there are certain factors which provide a strategic advantage.

Foremost among these is the booming US energy sector, with the shale revolution continuing to reap dividends. The United States is now the world’s largest producer of crude oil and a major player in natural gas, providing affordable energy to a resurgent manufacturing sector. When one also considers Government support such as the Inflation Reduction Act and investment opportunities in AI and related areas, it is no surprise that a growing number of companies, especially in Europe, are considering relocating production to the US. That’s before one gets to the high interest rates which promise better returns on American assets than alternatives abroad, causing increased monetary flows into the States.

Behind all of this, however, there are also much wider considerations. A strong dollar is a powerful tool in dealing with Washington’s enemies, and can wreak havoc on national economies without the need to fire a single shot. While the headlines in the financial press are focused on Japan, the real target of these policies is China. As Albert Marko and Tony Nash of the geopolitical blog “Cloak & Dagger” have pointed out, the fluctuations of the yen “have profound implications, especially for China [
] These tensions could disrupt President Xi’s economic recovery plans, exacerbated by factors such as soaring gold prices and an elevated dollar, which could drain liquidity from the Chinese banking system.”

A similar point was made by the economist Brad Setser: “A weaker yuan is not a sign of strength. It will lead to questions about whether China’s economy is as strong as people thought.” There are already signs that this is indeed the case, with Chinese manufacturing and services sectors growing at a slower pace.

Xi Jinping needs his country’s economy to appear resilient, and instil confidence in the people that the “great bargain” the Chinese Communist Party struck with them is still valid: one-party rule with limited political rights, in exchange for economic growth and prosperity. With the dollar crushing the yen, Tokyo’s economy suffers, but this also creates opportunities for its export industries, potentially incentivising the relocation of manufacturing capacities from China to Japan.

For the last few years we have been hearing about the end of the US dollar as the world’s dominant currency, and there can be no doubt that there are some who would wish for this very scenario. But, as recent weeks have shown, for the time being the USD has no equal — and Washington is willing to use this leverage whenever it can.

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Alex Lekas
Alex Lekas
17 days ago

The United States is now the world’s largest producer of crude oil and a major player in natural gas, while at the same time, Team Biden is working overtime to demonize both to its audience of climate fanatics. Gas prices are ticking upward, there is talk of the administration declaring a ‘climate emergency’ to enact sweeping new powers that would have no chance at the ballot box, and the push for EVs continues even though the likes of Ford report huge losses with each sale and Tesla is laying people off.
Is the dollar really stronger or does it just look that way in the face of other currencies? A recent IMF report the Russian economy will outpace the usual European suspects this year, a sign that the sanctions imposed after the start of the war are not working as we were told they would.
There was a report some time back that a US goal was to weaken the German economy and, by extension, affecting the whole of the EU. That report was dismissed as crackpottery but in the wake of what’s happened in Germany and America’s role in raising energy prices, it sounds less crazy.

Michael Cazaly
Michael Cazaly
17 days ago
Reply to  Alex Lekas

It wasn’t dismissed as crackpottery by rather a lot of people who actually analysed the situation.
Destroy Nordstream, then sell higher priced LPG to replace it.
Follow the money is usually good advice and often provides the right answer.

Steve Jolly
Steve Jolly
15 days ago
Reply to  Michael Cazaly

Well said. If the US truly did instigate Maidan in 2014 as the Russians allege, and further pushed this issue towards open warfare by pushing Ukraine into the EU’s orbit, it is perhaps the most clever use of subtle geopolitical manipulations to achieve strategic ends since the Roosevelt administration leveled an oil embargo on Japan in 1940 to force the Japanese to strike first and provide a justification for war to a still mostly isolationist American public. Given other recent events, I have to be at least somewhat skeptical there’s anyone in Washington competent enough to pull this off, but one can’t deny the overwhelming strategic and economic benefits that the conflict has provided the US, regardless of how the conflict ultimately ends.
Besides the obvious economic boon from cutting Russia off from Europe and making the EU energy dependent on the US, the conflict reaffirmed the EU’s military dependence on the US and put the fear of conflict and highlighted the woeful, atrophied state of European militaries. Now the EU is well reminded of their military dependency as well. Overall, thanks to the conflict, the EU will likely remain firmly in the US sphere of influence in the emerging multipolar world. There’s little doubt on either side at this point where the EU will fall in the emerging US/China cold war. American turf successfully fenced.
Putin will probably still be blamed for it, as well he should. History will ultimately come to some conclusion on how and what the US did in terms of influencing and subtle manipulation in Ukraine. We don’t know yet and probably won’t for decades at least. Depending on how involved the US was, Putin either gifted the US a geopolitical strategic advantage it could never have achieved on its own, or took the bait and stepped into the trap prepared for him. Either way, he made the critical move to invade Ukraine, and history will assign him the lion’s share of the blame, regardless of the context, as indeed the Japanese are still mostly blamed for a preemptive surprise attack and for starting a war in 1941 that, in hindsight, they never had much chance at winning. At this point, the deed is done and the ramifications are locked in for the foreseeable future.

Sayantani G
Sayantani G
14 days ago
Reply to  Steve Jolly

I won’t repeat again on this site knowing how most readers here perceive the war in Ukraine – but the fact that the US MIC gains most from a forever war situation was quite clear from the 2019 Rand Corporation Report.
You could also see what Stephen Cohen etc said about the US provocations. Not to mention the OSCE Report of February 22.
The fact is that most of the rest of the world perceives the conflicts in Ukraine very different to the standard Western view.
https://scheerpost.com/2022/04/09/former-nato-military-analyst-blows-the-whistle-on-wests-ukraine-invasion-narrative/
There is a lot more out there if you choose to look.
I am sure UH will shadow curb my remarks as it usually does, so won’t bother posting any more links etc

Steve Jolly
Steve Jolly
12 days ago
Reply to  Sayantani G

Oh you’re quite right. There’s every reason to suggest the US has been involved in the situation in Ukraine just as much and as long as the Russians have. This is how the USA fought the Cold War. When direct conflict was impossible due to nuclear annihilation, the two sides found other ways to fight each other. They fought wars of intelligence and influence all over the world, wars of arms production, wars of economic output, and basically competed in every conceivable way short of shooting at one another, because that was not in anybody’s best interest. By the point the Cold War ended, the military, the intelligence services, the espionage, the bureaucracy, had all been funded for half a century and built out to a titanic scale to defeat the enemy. It didn’t all go ‘poof’ in 1991 because the Soviets were defeated. It just went right on into extending American influence and taking over the sphere of their defeated foe.
The US is not innocent in terms of the Ukraine conflict. As a global hegemon, the American government has a hand in most any country with any strategic economic or military value. Then again, so does everyone else. I’m no flag-waving fool who thinks of my country as ‘the good guys’, but neither will I excessively moralize about the USA doing the same sorts of things every hegemon in history has done and what any future hegemon probably will do also. I’m not trying to moralize about Putin, either. He’ll get blamed, fairly or unfairly, because he made the critical call to launch the invasion whether he was provoked or not and how, just as Bush gets blamed for the Iraq war fiasco regardless of whatever the CIA did or didn’t tell him about Saddam’s WMDs. Being a leader means taking the blame when your side loses whatever the excuses might be. Further, the war is far from over. It certainly seems that the US has basically won, if conditionally, but that could still change if Putin manages to renew his offensive and make further territorial gains, and the conflict may ultimately be viewed as part of the broader US/China conflict that will probably dominate this century’s geopolitics and whose outcome is far from certain.

Pedro the Exile
Pedro the Exile
16 days ago
Reply to  Alex Lekas

Is the dollar really stronger or does it just look that way in the face of other currencies?
Currency strength can only be measured comparatively so the question doesn’t make sense.You could argue that as a proxy for underlying economic strength its inflated but ultimately the market will price it accordingly.Every year there’s an article on the demise of the greenback and every year it proves them wrong.The sheer size, flexibility and creativity of the US economy will maintain $ hegemony for decades yet.Now-what about that alternative currency arrangement being promoted by China/Russia etc last year-all gone quiet.

Stewart Cazier
Stewart Cazier
17 days ago

What drivel.

John Riordan
John Riordan
16 days ago

What this emphasises is that energy independence can save even a badly-run economy from ruin, and the lack of it can still damage even an economy run expertly in every other sense.

The UK’s failure to exploit frackable gas reserves has been a strategic, economic and political disaster. And this failure was the cherry-on-the-incompetence-cake the rest of which comprises the idiotic renewables agenda, the failure to invest in nuclear power, and the wholly-cretinous windfall taxes on the likes of BP and Shell, who of course rowed back on investment in North Sea oilfields as a result.

We are led by donkeys.

Pedro the Exile
Pedro the Exile
16 days ago
Reply to  John Riordan

The UK’s failure to exploit frackable gas reserves has been a strategic, economic and political disaster.
Totally-and the results will be felt in continued decline over the next few decades-probably the last chance available to turn the UK around and we not only spurned it but then lumbered the economy with the costs of nut zero whilst simultaneously trashing the existing oil & .gas industry.
Now that the financial sector is spluttering under the weight of regulation I’m struggling to identify our saving grace.