Given the Fed’s latest rate decision (a pause with threat of soon resuming rate hikes?), check out my June 16, 2023 Alternative Visions radio show discussion & my thesis that US monetary policy faces deepening contradictions & is increasingly inefficient & ineffective:
TO LISTEN GO TO:
SHOW ANNOUNCEMENT
What’s behind the Fed’s decision to temporarily halt rate hikes this past week? Then raise rates later again this year? Dr. Rasmus explains the Fed is more concerned in the short run with exacerbating the continuing regional banking crisis than intensifying efforts to slow inflation by raising rates. Fed policy faces a contradiction: raise rates and worsen banking system instability (which the Fed has been offsetting with weekly injections of $95B to stabilize since March), or, not raise interest rates for a while and live with inflation. Rasmus dissects the latest CPI report that shows continuing services sector inflation of 6.3%-6.6%, even as goods inflation has moderated and energy inflation fallen significantly from last year’s highs. Rasmus explains how and why monetary policy faces growing contradictions and is becoming increasingly ‘inefficient’ (i.e. high rates don’t reduce inflation as effectively as in times past, while lowering rates to zero have less effect on stimulating the economy as well. The causes are late neoliberal capitalism’s globalization and financialization. How and why fiscal policy is also facing growing contradictions and why US global economic hegemony is weakening as de-dollarization trends also appear to be gaining momentum.
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 
In regard to the decline of dollar hegemony, I note a tweet that indicates that the dollar has fallen to less than 50% of the world’s trading reserves. How does the US double deficit play into this? Isn’t there risk of capital flight from US treasuries?
David, in response to your question about the possible consequences for the decline of US dollar hegemony given the growing contradictions of Fed (neoliberal) monetary policy—and what happens to the ‘twin deficits’ solution central to neoliberal ‘external’ policy (i.e. trade, capital flows, deficits/debt management)—here’s some thoughts on the possible relationship of forces and variables:
A good deal of global trade involves commodities (oil, gas, metals, grains, etc.) so if countries start purchasing in bilateral currencies that will mean fewer dollars. That means fewer to recycle back to the US to finance the budget deficit, all things equal. That in turn means the Fed must raise the rates it will pay for Treasurys if it wants to keep the volume of $ recycling up to finance the budget deficit. That deficit continues to grow as well, further exacerbating the need for $ recycling. China’s policy of cutting back on its purchases of US Treasuries (now down to $.8T from a former $1.1T peak) due to US geopolitical policies makes the situation still worse. In short, as the global economy long term de-dollarizes for various economic and political reasons, the ‘twin deficits’ solution that is central to US neoliberal ‘external’ policy (trade balance, currency flows, deficit & debt management) comes under increasing stress. Long term the dollar should continue to depreciate in value, as it loses its role as global trading currency; and that in turn, more slowly, will reduce its role as a global reserve currency (i.e. no need to hold dollars to prop up one’s currency if one is trading more in non-dollar currencies). That’s the general ‘logic’ of a likely development. Of course, economics is not always logical. Political forces may feedback on the ‘logic’ and distort it. And unknown ‘black swan’ events can upend the linear relationships of the variables as well.
Yours, Jack
There is a compelling letter to the Editor of the TLS about Keynes and interest rates which should not be abbreviated if interested e mail me and I will send a pdf in response of the letter in full.