26 March 2017 – 26 June 2017
Let the directors of the [Second Bank of the United States] pursue their business on principles of Christian benevolence, and all will be well. Let them wind up the business of the Bank, without attempting to break down the government, … and it will die with the blessings of thousands; otherwise, it will have the curses of millions. I have read the Scriptures, gentlemen, and I find that when Moses ascended the mountain, the children of Israel rebelled, and made a golden calf and worshipped it, and it brought a curse upon them. This Bank will be a greater curse. I have no hostility to the Bank; I am willing it should expire in peace; but if it does persist in its war with the government, I have a measure in contemplation which will destroy it at once, and which I am resolved to apply, be the consequences to individuals what they may. The Bank has in circulation ten millions of cheques, which I have no doubt are illegal, and which I will direct the state banks to refuse in payment of the public revenue. These cheques must then be returned upon the bank … This measure I will apply, unless the Bank desists from its course.
U.S. President Andrew Jackson
11 February 1833
The financial and economic crisis [of 2008-2009] has increased further the dependency of the world’s financial system on the U.S. dollar. As early as December 2008, the Fed provided so called “liquidity swap agreements.” Under the latter the Fed is prepared to lend newly-created U.S. dollars to other central banks around the globe. … Meanwhile, all major central banks around the world … have joined the liquidity swap agreement club. They also have agreed to provide their own currencies to all other central banks — in actually unlimited amounts if needed.
… Mr. Trump doesn’t seem to be an “internationalist,” seeking to build a new world order by political and military means. If that is so, he will sooner or later have to come to grips with the Fed’s policies — most notably with its liquidity swap agreements. … The Fed’s policy has made the world’s financial system addicted to ever greater amounts of U.S. dollars … From this the U.S. banks benefit greatly, while average Americans bear the brunt: they pay the price in terms of, for instance, boom and bust and an erosion of the purchasing power of the U.S. dollar.
Economic Policy Uncertainty and Financial Market
Volatility: Yet Another Example of Complacency
in the Face of Risk?
In Leithner Letter 200-204 (26 July – 26 October 2016) I reasoned to the conclusion that stock markets in the U.S. – and, by implication, Australia – have become greatly and perhaps dangerously overvalued. Here I analyse two additional developments: first, around the world economic policy has become highly unsettled; second, and in sharp contrast, volatility in financial markets, and the fear that underpins it, seems implausibly low. Hence a key question – indeed, perhaps the key question for investors worthy of the name: can this combination of uncertainty, complacency and overvaluation persist indefinitely?
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