President Trump: The NEW one and only politics thread

Christine Lagarde, literally like 6 days ago. ... "It's not our job to close spreads." ... after Italian bond yields started to spike.

Christine Lagarde last night? A massive 750 billion euro qe program, because spreads on European sovereign debt have blown out and she is staring in a panic at a worsening credit crisis.

Because the 4.5 trillion of bond buying they have already done, including 2 to 3 trillion over just the last 6 years alone that CAUSED that debt crisis worked so swimmingly well.

What you all are watching is historical. The all-powerful central banks rendered themselves powerless.

Unfortunately, they are going to blow everything up before they stop already. To put it in simple terms, they are telling countries that have run up massive amounts of debt -- anywhere from 100 percent to 200 percent of their GDP before this all happened (because GDP is going to plummet, so that percentage of debt to gdp is just going up) -- to go crazy spending billions / trillions more because of the crisis, and they will create trillions of dollars of currency out of thin air to pay for it all. This is a formula that has ended disastrously -- on much smaller scales -- for thousands of years of human history. It's the formula that CREATED the mess we are now in. Every day that didn't end with the inevitable currency and credit crisis over the last decade just emboldened them.

From the U.S.'s perspective. ... think about this. Since the Breton Woods agreement after WWII, the US has had reserve currency status that gave it an immense amount of value. But in 1971, when we went off the gold standard, that status no longer had no rational basis, other than our size relative to the rest of the world. With no semi-hard currency and just fiat currencies being created willy nilly, none of it has made any sense OTHER than the world being sheep-like and continuing to follow something out tradition and fear of the displacements a change in the global monetary regime might cause.

This has given the U.S. wide lattitude to act stupidly. At least 60 percent of foreign bank reserves are denominated in U.S. dollars or dollar-denominated U.S. bonds and another 40 percentof the world's debt is denominated in dollars. That has created a ton of what I have called phony demand for dollars. ... which we have used to make our country fat and lazy. We stopped producing things and became a nation of consumers. And we traded what should have been worthless dollars (but had mystical value) to others who wanted them for consumer electronics and big cars and other stuff. On top of it, because the dollar controlled the world, our government has been able to unilaterally impose sanctions on other countries it didn't like, an we have created all kinds of resentment that is ready to stick it to us.

You are watching that come to an end. All of this central bank intervention combined with "fiscal stimulus" = massive debt with those banks blowing up their currencies to try to inflate away that debt. What is happening right now is a panicked last gasp. They are starting from a place where they had already done so much damage that everything is imploding.

There is going to be a monetary reset. We can't have any idea yet what scheme they will come up with. It probably won't be something that tries to force discipline on everyone like a gold or commodity standard of some sort. It will likely be some special drawing rights system where the U.S. no longer has that reserve status and a basket of currencies where the Chinese yuan in particular plays a much larger role, dominates world reserves. They will think that by spreading it across a bunch of fiat currencies they will impose discipline. But what will be underlying it is still FIAT currency, and it will be doomed to fail also, if that is where we end up. The problem for me isn't just that failure. It's the damage they do to all of us in the process.

 

WH Economic Adviser Kudlow: We will likely have v-shaped recovery in summer and fall.
09:40 Mar 19