Monthly Archives: March 2020

Currency Swaps and the Federal Reserve’s Role

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The currency swaps, the foreign exchange swaps, discussed here are a lifeline our Federal Reserve Bank system extended to other nations during the Panic of 2008.  The arrangements let foreign central banks exchange their domestic currencies for US dollars in order to increase their domestic liquidity in addition to merely printing more domestic currency units.

The Wall Street Journal thinks the Fed should extend such swaps to more national entities than the few with which we still have such arrangements, under the guise of “that’s what the Fed’s role is.”

I have a couple thoughts on this.

…some folks to forget that financial panics happen, and that’s one reason the Federal Reserve exists.

No, it isn’t. The Fed exists to maintain price stability and full employment. Full stop.

Pricing instabilities might lead into financial panics, and vice versa, but if the Fed sticks to its role—working to maintain/restore price stability rather than reacting to panic itself—the panic will subside in result.

It [the Fed] could extend these swap lines to other countries with markets in tumult like Australia, South Korea, China, Taiwan, and Hong Kong.

It might—even likely would—be beneficial to extend swap lines to the Republic of China, along with most of the others named. It will do us little good at all to help out an enemy, the People’s Republic of China, for all that we’re presently (too much) entangled with the PRC’s economy. On the contrary, the drag the PRC’s economy represents on our own and those of other nations around the world illustrates clearly the utility of reducing that entanglement and increasing the flexibility of business’ supply chains.

What a Surprise

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Russian sort-of outgoing President Vladimir Putin is maneuvering to stay in office just a tad longer.

As Russia prepares for a sweeping constitutional reform, President Vladimir Putin hinted at running for president once again while addressing lawmakers on Tuesday.
Commenting on the proposal to “remove limits for any person, any citizen, including the current president, and allow for taking part in the election in future” the 67-year-old strongman said such a move would be “possible in principle.”

The Putin proposal has, in fact, passed through his legislature; it now will go to a people’s referendum in April.

For some dictators, staying in office is their only protection. For others, it’s just about the personal power.

A Thought on Joe Biden

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Check out these two videos of a recent interaction between Progressive-Democratic Party Presidential candidate Joe Biden and a constituent in Michigan a couple days ago.

The behaviors in those examples and longer, more contextual versions of it, sadly, aren’t entirely Biden’s fault.

For one thing, much is being made (not necessarily in those two threads) of Biden sticking his finger in the questioner’s face. I disagree: he was pointing, as many of us do, for emphasis and pointing in the direction of the man’s chest without pointing anywhere, or at anything, in particular. It wasn’t until the end that, in his zeal, Biden’s finger came up toward the man’s face.

More importantly, though, as is also being pointed out, that behavior and others like it in the last few weeks, strike me as consistent with, although not by themselves diagnostic of, early stage dementia.

This may be why Biden is being limited (I don’t see him limiting himself) to seven minute speeches (we’ve already seen him tire and visibly fade during 90+ minute debates), few interviews, few interactions of this type, few public appearances at all.

The foolishness and humiliation, though, are the fault of his handlers for continually exposing him and on the part of the Progressive-Democratic Party for letting this charade go on; although at this stage, Party really is limited on what they can do about it.

The best thing that could happen to him now—and best for Party—would be to encourage Sanders to destroy him at the next debate.  Party can’t stop the fight on a TKO, but Sanders can go ahead and knock him out. Of course, a lot of that will be up to the debate moderators and how much they try to protect him.  Biden is wholly incapable of defending himself at this point.

On the other hand, I’m not sure Sanders has it in him to deliver a coup de grâce.

A Speculation on Oil

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I have one of my own, against the backdrop of the oil production and price war just begun between Saudi Arabia and Russia.

The Saudis, dismayed over Russia’s refusal to go along with a proposal to further reduce oil production in the face of declining economic demand that’s potentiated by the coronavirus affair, have announced an increase in oil production.  Russia has responded with a “we can do that, too” threat.

The increase by the one (to begin 1 April) and the threat to match by the other have sent oil prices into the low $30s per barrel with projections into the mid-$20s.  Both nations claim they can afford these prices for the next few years before they exhaust their financial reserves.

Those reserves would be tapped heavily because the Saudis need $80 per barrel to balance its budget, although its debt-to-GDP ratio is in the neighborhood of 25%, so they can borrow for some time on reasonable terms.  Russia needs $50 per barrel to balance its budget, and its debt-to-GDP ratio is in the neighborhood of 15%.

On the other hand, Russia’s currency has fallen about 10% since the oil crisis began, while the Saudi riyal is pegged to the dollar.  Those combine to reduce the strain on Saudi Arabia’s overall economic moves relative to Russia’s.  Russia also faces reduced economic flexibility relative to the Saudis due to the broad reach of sanctions applied to it over its military and cyber adventurism.

The snapshot and short-term future would seem to favor Russia in this pricing and production contest, but the longer term not so much as currency fluctuations and sanctions will continue to accumulate in their relative effects.

If this contest gets to the longer-term, one other factor could come into play that would support Russia against Saudi Arabia: the People’s Republic of China greatly increasing its purchases of Russian oil.  This would favor the PRC, too, as it would give it a nearby source of cheap oil along with a distribution network that would be less vulnerable to international disruption.

It would also deepen Russia’s dependence on the PRC—possibly good for the PRC, but definitely dangerous for Russia.

Note, though, that I’m ignoring the impact of this contest on our own oil (and gas) industry; the contest will not do us any good at all.

The Threat to our Court System

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…was made plain last week with Senate Minority Leader Chuck Schumer’s (D, NY) naked threat against two of our Supreme Court Justices if they don’t start ruling the way Progressive-Democrats dictate.

Schumer’s threat follows threats by Senator Sheldon Whitehouse (D, RI) and his cronies in the Senate to stack the Supreme Court if that body didn’t start ruling the way Progressive-Democrats dictate.

These follow long-standing “liberal” judges’ and Justices’ utter disregard for our Constitution. Such disregard includes district judges presuming to issue nation-wide injunctions—arrogantly reaching into the jurisdictions of other judges’ districts, other appellate court districts.

It includes Justices like Thurgood Marshall whose mantra was an even more arrogant attitude of ruling wholly independently of the law and then demanding the law catch up

It includes the attitude of current liberal Justices like Ruth Bader Ginsburg, who considers our Constitution to be a document that lives through and is alterable by rulings from her judicial bench. She contemptuously ignores the fact that our Constitution actually lives through its Article V and is alterable solely by our Constitution’s owners, We the People.

Keep the power balance of the Senate—which must confirm or reject all judges and Justices—and the party residing in the White House—which originates all judicial nominations—in mind this fall.