Government strategy: Strong dollar versus weak dollar policy …

Earlier today, Christine Lagarde, president of the European Central Bank, gave a shout out to Janet Yellen, the U.S. Treasury-elect. President Lagarde wished Ms Yellen well on her confirmation which is expected to go favorably sometime this week. Both women have commented on the state of the foreign exchange markets this week with Dr Yellen expressing her preference for market determined foreign exchange rates and President Lagarde telling reporters during today’s European Central Bank policy rate announcement that the ECB would be monitoring foreign exchange rates “very closely.”

In its early days, the Trump administration expressed a preference for a “strong” dollar. A strong dollar scenario is one where the U.S. dollar has risen to a historically high exchange rate relative to another currency. Strength could be attributable to another nation devaluing its currency relative to the dollar in an effort to make the foreign country’s exports more competitive.

Deleveraging is another method of dollar strengthening where debts are paid off which reduces the amount of dollars in the system thus increasing the value of the dollar.

Although a strong dollar protects foreign investor holdings of U.S. assets , the higher prices for imports faced by Americans could create a political scene where consumers start asking their government to reverse the course. The prior administration’s use of tariffs in its trade spat with China raised such concerns.

While Ms Yellen has again expressed her preference for market-determined rates, her future Treasury Department could buy and sell foreign currency for the purpose of narrowing exchange rate movements should a market-determination scheme not meet the Biden administration’s policy objectives. If the dollar is viewed as depreciating too quickly, Treasury could boost demand and value by using foreign currency to buy the greenback. If the dollar is viewed as appreciating too quickly, the Treasury could resort to using the dollar to buy foreign currency. If Dr. Yellen stays the course on a market policy, then the tactic will be to allow the foreign exchange rate to move to equilibrium.

Across the Atlantic, President Lagarde will likely not just look at exchange rates but try to determine the impact rates is having on yields. The European Union has been signaling its desire to boost the status of its currency, hoping to attract more investment to the Eurozone. President Lagarde would likely want to see appreciation in the euro and an accompanying increase in yields.

Traders and brokers should pay close attention to policy moves designed to make the euro and the dollar more attractive to investors and also how the European Union positions itself between the United States and China. Depending on how competitive the United States and the European Union become, shout outs between Dr yellen and President Lagarde will become more interesting.

Government strategy: Strong dollar versus weak dollar policy …

Earlier today, Christine Lagarde, president of the European Central Bank, gave a shout out to Janet Yellen, the U.S. Treasury-elect. President Lagarde wished Ms Yellen well on her confirmation which is expected to go favorably sometime this week. Both women have commented on the state of the foreign exchange markets this week with Dr Yellen expressing her preference for market determined foreign exchange rates and President Lagarde telling reporters during today’s European Central Bank policy rate announcement that the ECB would be monitoring foreign exchange rates “very closely.”

In its early days, the Trump administration expressed a preference for a “strong” dollar. A strong dollar scenario is one where the U.S. dollar has risen to a historically high exchange rate relative to another currency. Strength could be attributable to another nation devaluing its currency relative to the dollar in an effort to make the foreign country’s exports more competitive.

Deleveraging is another method of dollar strengthening where debts are paid off which reduces the amount of dollars in the system thus increasing the value of the dollar.

Although a strong dollar protects foreign investor holdings of U.S. assets , the higher prices for imports faced by Americans could create a political scene where consumers start asking their government to reverse the course. The prior administration’s use of tariffs in its trade spat with China raised such concerns.

While Ms Yellen has again expressed her preference for market-determined rates, her future Treasury Department could buy and sell foreign currency for the purpose of narrowing exchange rate movements should a market-determination scheme not meet the Biden administration’s policy objectives. If the dollar is viewed as depreciating too quickly, Treasury could boost demand and value by using foreign currency to buy the greenback. If the dollar is viewed as appreciating too quickly, the Treasury could resort to using the dollar to buy foreign currency. If Dr. Yellen stays the course on a market policy, then the tactic will be to allow the foreign exchange rate to move to equilibrium.

Across the Atlantic, President Lagarde will likely not just look at exchange rates but try to determine the impact rates is having on yields. The European Union has been signaling its desire to boost the status of its currency, hoping to attract more investment to the Eurozone. President Lagarde would likely want to see appreciation in the euro and an accompanying increase in yields.

Traders and brokers should pay close attention to policy moves designed to make the euro and the dollar more attractive to investors and also how the European Union positions itself between the United States and China. Depending on how competitive the United States and the European Union become, shout outs between Dr yellen and President Lagarde will become more interesting.

As of 11:43 am AST, foreign exchange rates between U.S., the Eurozone, certain African, Caribbean, Asian nations …

CAD/USD=0.7852USD/CAD=1.27263
MXN/USD=0.0505USD/MXN=19.7830
JMD/USD=0.00689USD/JMD=142.187
GYD/USD=0.0047USD/GYD=204.984
BBD/USD=0.5000USD/BBD=2.0000
TTD/USD=0.1448USD/TTD=6.6571
XCD/USD=0.37037USD/XCD=2.70
GBP/USD=1.3581USD/GBP=0.73549
EUR/USD=1.2075USD/EUR=0.8275
NGN/USD=0.0026USD/NGN=380.7000
GHS/USD=0.1701USD/GHS=5.8468
ZAR/USD=0.0656USD/ZAR=15.2200
KES/USD=0.0090USD/KES=109.135
BTC/USD=36,208.0000USD/BTC=0.0000
ETH/USD=955.0000USD/ETH=0.0009
JPY/USD=0.0100USD/JPY=103.8600
CNH/USD=0.1541USD/CNH=6.4831
AUD/USD=0.7701USD/AUD=1.2980
Source: OANDA

Joe Biden could take his “Stay in the Bunker” campaign style to the White House with a little help from Democratic senate candidates.

Joe Biden may not have to worry about “working across the aisle” with Republicans in order to push through his “Build Back Better” plan for the American economy. PredictIt is pricing the probability of the Democratic Party winning both the U.S. Senate and the U.S. House at $.62. A Biden win is being priced at $.65.

Mr Biden has been chided by President Trump for his “stay in the bunker” approach to campaigning. Since winning the Democratic Party nomination, Mr Biden has been opting for relatively fewer public campaign appearances when compared to those of Mr Trump. With three weeks left until the election, Mr Biden’s public campaign focus has been on larger battleground states such as Pennsylvania and Ohio. His public appearances are known for social distancing and answering few questions.

A sweep of the Oval Office and the Congress would be necessary just to push trillions of dollars in economic recovery including his $150 billion opportunity package for minority-owned small businesses. But first he will need help from Democrats challenging incumbent Republican senators for their seats.

By my estimation, six Republican senators are in danger of losing their seats with another four threading water. Based on polling data from FiveThirtyEight, the six senators likely to lose their seats are:

Susan Collins (Maine);

Joni Ernst (Iowa);

Cory Gardner (Colorado);

David Purdue (Georgia);

Kelly Loefler (Georgia); and

Thom Tillis (North Carolina).

With Mr Trump either tied in Iowa or trailing in Colorado and North Carolina, neither Ms Ernst, Mr Gardner, or Mr Tillis have much of a Trump coattail to hang on to. Ms Collins’ tendency to appear ready to buck the President may cost her the ability to ride the President’s coattails as woven by his eight point lead over Joe Biden in Maine.

Lindsey Graham (South Carolina); Martha McSally (Arizona); Steve Daines (Montana); and James Risch (Idaho), due to Trump leads in their states, may have a chance to pull a rabbit out of their respective hats, but time is ticking.

What should not be overlooked is the level of support Mr Biden should expect from the six Democratic candidates in a position to unseat the above Republican candidates. Even if the Democrats sweep the Oval Office and the Congress, the White House will have to persuade key senators to get on board with trillions in spending and new bond issuances likely at higher rates of interest.

I expect, at least in the early part of her Senate tenure, that Sara Gideon, the Democratic senate challenger in Maine, will be an ally to Mr Biden. Ms Gideon endorsed Mr Biden during the primaries. In return, Mr Biden extended his support to Ms Gideon in the form of an endorsement, while Dr Jill Biden, wife of the nominee, and Senator Elizabeth Warren, Democrat of Massachusetts, expressed their support for Ms Gideon during campaign stops in Maine.

Theresa Greenfield, the Democratic senate challenger in Iowa, seems to be holding her cards close to her chest. She has not endorsed Mr Biden although she is reportedly open to parts of his vision on American labor policy. My review has also found no campaign trips to Iowa on the part of Mr Biden or his surrogates in support of Ms Greenfield. Should Ms Greenfield win her senate race against Ms Ernst without Mr Biden’s support, she may have sufficient political capital to maintain her independence of the White House.

John Hickenlooper, the Democratic senate candidate trying to unseat Cory Gardner in Colorado, may have established his independence from Joe Biden early as well. Although Mr Hickenlooper expressed his support for Mr Biden during the former vice-president’s primary campaign, Mr Hickenlooper also expressed his support for Tara Reade, a woman alleging that Mr Biden had sexually assaulted her. My review has found no expression of support by the Biden campaign for Mr Hickenlooper. Given Mr Hickenlooper’s ability to raise campaign finances on his own and his ten point lead in the polls without Mr Biden’s assistance, Mr Hickenlooper may, should he and Mr Biden win their respective races, be able to express a lot of political independence in the Senate.

Raphael Warnock is challenging Kelly Loeffler for one of Georgia’s seats in the U.S. Senate. Georgia is a toss-up state and Mr Biden has not come out and endorsed the former pastor. Mr Warnock has racked up support from various political action committees and received endorsements from at least 25 Democratic senators, U.S. Representative James Clyburn, Democrat of South Carolina, and Stacey Abrams, a former Georgia Senate minority leader and gubernatorial candidate. Mr Warnock is running ahead of Ms Loeffler and looks like a shoe-in for a run-off with the other Republican challenger, U.S. Representative Doug Collins. All three are in a special race to fill the unexpired term and fill the seat in the 117th Congress of retired U.S. Senator Johnny Isakson.

Jon Ossoff is challenging for Georgia’s other U.S. Senate seat currently held by David Perdue. Our review also found no expressed support or endorsement of Ossoff on the part of the Biden campaign. The Ossoff-Perdue face-off like the Trump-Biden face-off is a toss-up. If Ossoff holds his slim lead over Perdue, it will not be due to any help from the Biden campaign.

Finally, a sex scandal involving the Democratic candidate for North Carolina’s U.S. Senate seat, Cal Cunningham and a positive Covid-19 test for incumbent Republican senator Tom Tillis might not completely evaporate Mr Cunningham’s lead over Mr Tillis. Mr Biden has not endorsed Mr Cunningham. Like the other candidates discussed, if Mr Cunningham holds on to his lead, he would have done so without the help of Mr Biden and could exercise independence from the White House while in the Senate.

While a Democratic sweep is increasingly likely, though not a surety, Mr Biden’s approach to bunker campaigning will not carry over to governing. A president’s most important power is his ability to persuade and with the possibility of six senators, where five of them win tight races, optimizing their independence, Democratic voters should expect the occasional bumpy ride as Mr Biden tries to convince his own party to pass his initiatives.

The Narrative: From Red to Blue to Purple to Beige …

The United States, in order to compete with #China, will have to assume leadership of a new Eurocentric economic block. It cannot afford to have China producing and selling cheap technology to Europe while the Asian Tiger increases its debt leverage over Africa.

To counter China, the United States, over the next two decades, will have to present itself as a one-party, “culturally and physically beige” customs union that emphasizes European values. Diversity will have to take a back seat to Eurocentrism; an action that will make aligning with Europe a lot easier.

Central banks in Europe and the United States will eventually have to start raising interest rates as pressure increases from aging Boomers seeking higher yield and social programs in need of more financing.

With an increasing number of the black and Latino elite more than willing to dilute themselves to a “people of color”, Eurocentrism should take hold pretty easily among ethnic minority communities.

What does the narrative of fair trade with China mean?

This morning I watched the Fox Business Network‘s Mornings with Maria.  They have been featuring news clips of an interview that U.S. Secretary of State Mike Pompeo had with host Maria Bartiromo where he criticizes China’s trade policy toward the United States and warns Americans of the Chinese intent to steal American intellectual property and Americans’ personal information.  The United States has been making it clear for years that it is unhappy with what it describes as an imbalance in trade between the two nations.

China has a potentially large consumer market, its emergence stymied in part to its current status as a creditor nation where it finances other nations, including the United States versus living off of the dead aid provided by western nations as part of their policy of noblesse oblige toward emerging, lesser developed countries.  In addition, given its growing economic power, it is easily in a position to influence economic affairs in southeast Asia.  As a provider of inexpensive telecommunications equipment it has been able to enter Europe’s telecommunications market providing competition for American made telecommunications products.

But at the heart of the American narrative may be the fear that the Anglo-American world view or philosophy is being challenged by an alternative Chinese view that, if not held under control, will replace the Anglo view thus making the current American narrative on political economy i.e. the greatness of the republican form of government combined with a free market, less attractive for leadership in other nations to use the American model for governing their domestic and foreign trade affairs.

Pompeo and other American leaders have been using the media to signal to Americans that China’s actions are a threat to the American economy thus a threat to the American way of life.  I can see the broad strokes.  For example, if China continues to lock the US out of additional trading opportunities in China and can price the US out of European and other Asian technology and manufacturing markets, America’s wealth and trade influence would shrink and the US would be forced to become more self-reliant.  America, facing a challenged supply chain, would see shortages and increasing prices for goods and services thus the threat to the American way of life.

Pompeo also describes China’s activity as a threat to American democracy.  That threat I don’t buy into and I see it more as a jingoistic ploy than anything else.  Democracy refers to a citizen’s ability to participate in the process whereby political leaders are selected.  Pompeo has yet to state his case in a cogent manner.  He has insinuated that China has deployed an influence campaign targeting voters and elected officials alike but has provided no specifics.

In addition, the terms fairness and balance are continuously uttered, likely part of the jingoism campaign, as Americans tend to conflate fairness and balance with democracy.  A fair and balanced trade relationship between two countries has nothing to do with how the leaders in each respective country are chosen.  Americans should be asking themselves and their leaders why connecting these points creates such a sound political narrative that US electorate would have no other choice but to support any legal initiatives or actions that promote escalated tensions.

And the legal actions and initiatives are being turned up.  The Justice Department recently told PBS News that 60% of its trade cases are against China and that its actions against China are more in line with stopping illegal activity versus expressing an intellectual bias.

I see law as the codification of an originating philosophy transmitted via a narrative and  refined by politics and policy.  What is missing here is the jurisprudence.  For the citizen to properly understand the government’s legal actions against China trade policy, the focus has to come off of messages that conflate democracy, fairness, and balance, and look for the philosophy that is being promoted.  Conflation promoted by government officials should open up the citizens’ minds to questions about the mismatch between the politics, the policy, and the messaging.

Getting to the why is critical.

Social media: Democracy takes a back seat to the need to control political messaging …

Narrative is a public resource and it should be expected that political factions will try to exercise control over a narrative in order to validate their authority to administer other public resources and implement policies for society.  Arguably China is among the most stringent in controlling expression of thought while pursuing a path of collective prosperity for its citizens.

The American model for expression places an emphasis on the individual and places the onus to pursue prosperity on the individual with certain safety nets in place to take care of the individual should she fail to capitalize on the opportunities provided by a predominantly capitalist and democratic society.  But is the promotion of individual expression and pursuit of prosperity more façade than reality in American society?  I think the attack on social media is peeling the onion on that façade with a suspect business model providing the knife for a brutish peeling of this tear causing bulb.

President Donald Trump and conservatives have made no bones about their perceptions of treatment by social media platforms such as Twitter and Facebook.  They believe that Twitter and Facebook have used their algorithms to divert or silence conservative messages exchanged on their platforms.  Conservatives have been building the narrative that these platforms silence free speech and the narrative has fed the idea among the conservative rank and file that their free speech rights are being violated.

On this point the conservative rank and file should take a quick read of the United States Constitution and stay consistent in their support of the private sector.  Facebook and Twitter are not the government.  They are not state agencies.  The right to free speech is a restriction on government behavior and private sector agencies such as Facebook and Twitter are free to associate with and facilitate the inclusion on their platform of the type of subscriber of their choosing pursuant to the behavior they prescribe in their subscriber agreements.

Sections 230(c)(1) and (2) of the Communications Decency Act provide Facebook, Twitter, and other social media platforms additional protections by holding them harmless for any indecent or libelous content produced on their platforms by their subscribers.  This code was birthed by a policy to encourage commercial growth on and use of the internet as a communications medium.

As a medium for exchanging political messages, it should really be no surprise that political factions would target the applications that run on internet infrastructure and enable the exchange of information to a global public.  If political messaging is managed properly, the most potent narratives could be created that shift political power from one faction to the next.  Conservatives, who already perceive social media platform owners as liberals, are wary that stifling conservative messages as policy serves to weaken their ability to acquire, expand, and maintain political power.

What Americans should be mindful of is that the end game of a political faction in the United States is no different than the end game of a political faction in China, The Gambia, Ghana, or Italy.  The end game is to control the matrix of narratives that validate a political faction’s authority over public resources and speech is one of those resources.  Democracy introduces inefficiencies in the end game strategy, but these inefficiencies are the costs incurred from maintaining a social policy of freedom of expression.

What the politician must constantly be mindful of is maintaining the strategic position of controlling the narrative and ensuring that position via tactics that disclose a preference for squelching public opinion.  I have heard this concern expressed by administrators and regulators behind closed doors.  This is the reality of democracy and its relationship to free speech and media.  It’s a front and the best politician paints the best narrative to maintain this front.

Unfortunately for social media, it has unwittingly become the target for the front …