Understanding the Carrier, Ford and Apple Decisions on Manufacturing in America
By JC Collins
The cornerstone of the POM thesis has always been that the USD would not collapse, or suffer a horrible death, as some pundits and fear mongers have promoted over the years. It has always been my position that the dollar would see some modest depreciation in the range of 20% to 30% which would facilitate an increase in exports and lower the debt-to-GDP ratio. I even published a small e-book titled Re-Engineering the Dollar which attempted to explain some the fundamental aspects of this transformation.
The President Trump script is aligning with the larger mandates of the multilateral monetary transition from the unipolar USD structured system to a multi-currency system. Re-designing the dollar and transforming the Federal Reserve are all aspects of fitting America into the new and emerging international monetary framework.
Since the creation of the Fed in 1913 the US dollar has been pushed into the role of central reserve asset in service to the international monetary system. This role was further enhanced and broadened after the Bretton Woods conference in 1944. The macro function and micro adjustments of the international system have been structured around the role of the USD.
With the transformation of the international monetary system taking place the role of the USD needs to change. The Federal Reserve and its function have been to provide support to the international role of the dollar. Both now will need to be re-defined and re-engineered in order to adjust their own domestic relationship as well as their external relationship with the rest of the banking and monetary worlds.
The dollar has never been allowed to depreciate substantially and had to always maintain a higher value than most of the national currencies which were pegged to it. The forthcoming transition will allow the dollar to finally depreciate which in turn will make American exports cheaper again.
The Trump script has known this fundamental change was coming and it was why I stated he would win the moment he announced his candidacy. The Make America Great Again slogan was purposefully designed to capture the fundamental change which in now beginning to take place. The transition itself will happen in phases with one minor change followed by a major change, and so forth.
One of the first major changes which we can expect to take place will be the ending of the USD exchange rate pegs. China will lead the path forward on this with the rest of the ASEAN nations following.
It should be understood that this is a positive thing for American interests. The loss of manufacturing and jobs over the decades has been a direct effect of the international pressure placed on the reserve role of the dollar. It has been widely recognized for decades that the international responsibilities of the dollar are not aligned with the domestic needs which a currency is meant to serve.
The transformation of the Federal Reserve and the subsequent and on-going re-engineering of the dollar could take various forms and paths towards domestic growth. The Fed has acted as the de facto international central bank and can now re-align itself to meet domestic needs like most central banks. Watch for policy changes and new mandates to come forth which will force and encourage the Fed to begin meeting these domestic requirements.
Equally so, the dollar itself will transform through valuation adjustments and exchange rate re-arrangements. The large amount of USD which has accumulated in the foreign exchange reserve accounts around the world will begin to be reduced through substitutions and exchanges.
American companies that have off-shored manufacturing will now be encouraged through practical business strategies to move their operations back. The process itself will take years and will in essence be a reversal of the off-shoring which took place. This will bring back jobs.
More manufacturing and jobs means more GDP and taxes. Managing the debt is the name of the game and increasing GDP will lower the debt-to-GDP ratio. Re-negotiating American debt, as Trump has suggested, will also constitute an aspect of re-engineering the dollar. The substitution of USD for SDR and other currency will also play an important role in this re-engineering.
With so many moving pieces it has been challenging to keep the focus and path forward clear in the writing and research presented here on POM. It is heart-warming and encouraging that the mass of our thesis has been unfolding as expected.
The path behind us is littered with accurate predictions and expectations, which makes the path before us all the more clear and understood. – JC