Rebirth: My 80s

Chapter 317 Absurd Reality

Li Jiankun felt that the big guys’ eyes were strange, and he didn’t want to give them a chance to ask questions, so he took a closer step and added:

"What I just mentioned is just a business case in the dollar tide. I would like to use the word 'fairly euphemistic' to describe the harm it poses. There are also more direct and naked ones."

The old men's attention returned to the topic itself, and they listened with resentment.

"I'll tell you two that are more representative."

Li Jiankun said slowly: "First, during the Fed's interest rate hike cycle, the world's dollars return to the United States. At this time, some economies are in a downturn, that is, countries whose economic cycles are different from those of the United States, will become very short of money. In order to To cope with the risks, these countries should have cut interest rates and printed money, but once they cut interest rates, it would lead to an interest difference between their currencies and the US dollar."

He paused and looked at the old men, "You can definitely foresee what will happen in this way."

Mr. Sun Zhifang said angrily: "Everyone should convert their money into US dollars and earn interest!"

Li Jiankun nodded and continued:
"Second, with the return of U.S. dollars, many countries with small foreign exchange reserves will really be unable to repay U.S. debts or even pay for imported goods due to a lack of U.S. dollars. At this time, there will always be institutions coming to your door and saying: You don’t want the national credit to go bankrupt. In this way, I can lend you a sum of US dollars, but you must agree to some conditions, such as liberalizing the right to acquire foreign capital in certain fields and enterprises..."

Snapped!
Mr. Sun Zhifang took action again, "This is an open robbery!"

Li Jiankun shrugged, who could say otherwise.

The old men all frowned and looked down upon such behavior.

"I never imagined that the harm of this dollar tide could be so bad."

"Getting something for nothing, robbing and plundering, extremely shameless!"

"Well, in the final analysis, it is because the United States has military power, otherwise it would not be able to pull off this conspiracy."

Chen Daisun pondered: "I'm wondering whether the U.S. dollar itself has become a kind of power."

"Thank you, teacher."

Li Jiankun continued: "But it's not just power, it's hegemony! Since you old men have read my paper, you should know the title of my paper."

Only then did everyone remember that the title of the paper did contain the words "dollar hegemony".

"Jiankun, actually I had some doubts about this earlier. Is the U.S. dollar really strong to this extent?"

"Yes!" Li Jiankun said this word firmly.

The other old men, like Chen Daisun, all looked attentive.

“The United States’ layout for dollar hegemony began at the end of World War II, and the Bretton Woods system was the prelude.”

The old men present are no strangers to old events in economic history, but due to limited information, they may not understand new events in a timely and thorough manner.

Everyone knows the ins and outs of the Bretton Woods system.

Before World War I, the currencies of the world's major countries were almost all on the gold standard. However, after World War I, everyone ran out of gold, and all countries had difficulty converting their currencies into gold, except the United States.

As a result, the gold standard system is obviously unsustainable. If the currencies of various countries are unreliable, I don't recognize your money, you don't recognize mine, and neither of us has enough gold. How can international trade be carried out? ?

So in July 1944, representatives of 7 countries held a meeting in Bretton Woods Park in the United States and determined the international financial order after World War II, known in history as the Bretton Woods system.

This system determined a new currency system called the gold exchange standard, in which the currencies of all countries are roughly pegged to the U.S. dollar and a relatively stable exchange rate is set.The US dollar is pegged to gold, with an ounce of gold fixed at US$35.

You know, at that time, 75% of the world's gold reserves were in the United States. The United States endorsed everyone with gold. Everyone used US dollars to conduct international trade. If they wanted gold, they would exchange it with the United States.

It seems to be ok.

However, the Bretton Woods system had a major drawback - the growth of gold was limited, while the demand for economic growth by countries was unlimited.

If countries want to develop, they need to print more currency. Before printing more local currency, they must first print more dollars.The U.S. dollar is pegged to gold again, but gold production simply cannot keep up.

So under the Bretton Woods system, the stability of the U.S. dollar and the economic growth of various countries can only be chosen one or the other.

This is the famous "Triffin's Dilemma" in the field of international finance.

Mr. Sun Zhifang asked: "But the Bretton Woods system has collapsed, and the dollar hegemony you mentioned has lost its foundation."

Chen Daisun echoed, "One of the two pillars of the Bretton Woods system is the U.S. dollar pegged to gold. In 71, the United States announced the decoupling of the U.S. dollar from gold, which was equivalent to the collapse of the first pillar; in 73, other countries followed the example of the Eagle countries and gave up the fixed exchange rate with the U.S. dollar. , which is equivalent to the collapse of the second pillar. The system has indeed collapsed."

"There was actually no collapse."

These six words Li Jiankun made the big guys present blow their beards and stare, like the more angry old man Sun Zhifang, who lacked a ruler in his hand, otherwise they would all want to slap him.

There is a consensus in the world economics field that the Bretton Woods system has collapsed.As an economics student or graduate student, you should have a clear understanding of such major international economic events.

Everything has been concluded. Why, do you still want to overturn it?

Chen Daisun said: "Jiankun, don't talk nonsense."

"Teacher, just listen to me."

Li Jiankun said without surprising: "The collapse of the Bretton Woods system recognized by the economics field actually fulfilled the long-cherished wish of the U.S. dollar. The teacher just mentioned that the two pillars of the system collapsed, but in fact only 1.5 pillars collapsed, and the U.S. dollar still remains It is the currency with the highest penetration rate in the world. This is the remaining 0.5 pillars.

"The collapse of 1.5 pillars actually removes the constraints on the US dollar. At this time, the US dollar only needs an intermediary to truly seize monetary hegemony without any constraints."

The big guys present all had their eyes widened.

This is definitely a novel concept that has never been done before!

It is not recorded in any economics book!

At this time, Chen Daisun's eyes burst out with extremely bright light, and he exclaimed: "Oil! This intermediary is oil!"

My teacher is my teacher after all... Li Jiankun thought to himself.

Starting in 73, two oil crises broke out around the world. In 1980, this crisis was still going on. All countries were facing energy shortages and their wallets were dry. This allowed the world to see the attributes of oil as a super commodity.

There are some PY deals between the United States and OPEC, which I won’t discuss here.

Anyway, the result is that the US dollar is successfully linked to oil and becomes the main currency for oil settlement.

The US dollar hegemony has succeeded.

Li Jiankun watched the instructor communicate fiercely with the old men and gave them enough time to think about it.Rather than the foregone conclusion of how dollar hegemony was established, what he really wants to talk about, or what he wants to warn about, is the privileges dollar hegemony has brought to the United States.

The privilege of the United States is harmful to the whole world.

After a long while, seeing the exchange between the bosses gradually weakening, he coughed to attract everyone's attention.

Li Jiankun spoke at the right time, "The dollar tide mentioned before is at best a tool for dollar hegemony. After understanding its underlying logic, no one can tolerate this thing unless it is an American."

"The underlying logic of U.S. dollar hegemony? Have you figured this out?"

All the big guys were stunned.

Chen Daisun took a deep breath, pretended to be a peer and raised his hand to signal, "Jiankun, tell me."

"Let me tell you gentlemen about the privileges it can bring. You will understand once you hear it."

Li Jiankun clapped his fingers and said:
"The first privilege is called seigniorage. It is said that I know that the cost of printing a $100 bill is 14 cents. You must know that the U.S. dollar is no longer linked to gold. In essence, it is a blank piece of paper, and the rest 9986 cents, all net proceeds, although the U.S. government cannot own the money."

He paused and sighed quietly, "No industry in the world can match this kind of huge profits, whether it's legal or illegal, all of them are included!"

Absurd?
There is nothing more absurd than this.

In the future Internet era, all the Fed needs to do to issue currency is to go to each bank's central bank account and press the numbers. 100 billion, I can do it in three seconds.

The cost is almost 0.

Mr. Sun Zhifang raised his eyebrows and said angrily: "They don't dare to print randomly, otherwise they will suffer from inflation!"

Li Jiankun said with a slight regret: "The second privilege I want to talk about is the collection of inflation tax."

Sun Zhifang: "..."

"Theoretically, printing money indiscriminately will definitely lead to inflation. But the reality is very absurd. For example, if economic development requires the issuance of 10 billion U.S. dollars, and the Federal Reserve issues 20 billion U.S. dollars, what will happen? The answer is... no What will happen? The excessive issuance of banknotes will cause the dollar to depreciate, but for the 20 billion that was sent out, I have already exchanged 20 billion for goods. When other countries got it, they discovered... that the dollar had depreciated."

Several big guys looked a little dull.

Li Jiankun continued: "The third privilege is to levy a financial management tax. After other countries get the US dollars and want to preserve their value, they usually buy US government bonds. The US then uses the money absorbed at low costs to invest in more profitable projects. At this level, the United States has become a commercial bank, absorbing deposits, lending money, and earning the interest difference.

“If the money sucked back flows to the private sector, it can provide abundant financing for U.S. companies through conversion in the financial market, which gives U.S. companies the ability to control high-quality assets around the world.

"If the same money sucked back flows to the U.S. government, the military expenditures of the US military will be strongly guaranteed. The powerful army built with hundreds of millions of military expenditures will in turn defend the US dollar's hegemonic system, directly forming a closed loop to achieve mutual success. "

All the bigwigs: "..."

(End of this chapter)