Doug Noble, Bill Gross, Henry K. Liu on the Dollar

Doug Noble, Bill Gross, Henry K. Liu

Noble consistently views the loose-dollar policies of the fed and the securitization of debt by wall st or shadow finance as distorting credit markets, preventing the flow of credit to where its best employed and its proper pricing and availability.

"Inflationism doctrine is riddled with failings: Easy Credit distorts system pricing mechanisms; foments destabilizing speculation; spurs societal wealth transfer; distorts the underlying economic structure; fosters financial fragility; and debases the currency – to name just a few. History – including recent history – validates this analysis"

loose dollar policy of this century did not result in destabilizing inflation rates, rather, led to the mighty swell of the credit bubble and consequent asset bubble in housing and oil. inflation is not so much to be feared as dollar distortion of economic investment away from production, towards speculation in housing and other hard assets. this will happen again as true structural rebalancing of the economy is again deferred in preference to reflation.

as global production picks up, the search for a more solid reserve currency will pick up. those nations which attempt to maintain the competitiveness of their currency will be tempted to follow the inflationary lead of the us dollar. a global distortion of investment predictably will follow.



For Gross, domestic interest rates must be kept low for an extended period to allow the economy to gradually reduce its debt load by financing it at lower interest rates. there is currently no sign that inflation is to be feared.

"Let me start out by summarizing a long-standing PIMCO thesis: The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up – then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services."

according to Gross, fixed assets have a dollar value perhaps 100% greater than what the real domestic production should support. nevertheless, according to Bill we need to maintain these inflated prices:

"This is where it gets tricky, however, because policymakers, (The Fed, the Treasury, the FDIC) recognize the predicament, maybe not with the same model or in the same magnitude, but they recognize that asset prices must be supported in order to generate positive future nominal GDP growth somewhere close to historical norms. The virus has infected far too many parts of the economy’s body, for far too long, to go cold turkey"

Gross calculates that the range of debt supporting asset prices is overpriced by 6% above what it should be. if the government doesn't at least support GDP stabilizing at 4-5%, there will traumatic price deflation and a spiraling downward of an econ that has become reliant on leveraging these overpriced assets.

While China pours money into production, the US tries to refloat overpriced debt. Would it not be better to pump money into production outlets and let the debts resettle lower without support?

the losers here are those with dollar savings. those savings will be able to capture only minimal returns. those possessing dollars will be tempted to gamble for higher yielding riskier assets.

who are the winners and losers with asset deflation?

we are told again and again, of the haunting lesson that Japan's econ of the early 90s represents for the us econ today. as was seen early in the recession, asset deflation can cripple debt markets, as lenders attempt to limit exposure to debt holdings. stimulus is key, this would represent a transfer of wealth from debt holders to those who are earning income by producing actual goods and services.


For Liu, the dollar, as all sovereign currencies, should have as the priority for its policy, to increase the real wealth of the country, the full employment of its resources and its work force. the role of global reserve currency sidetracks what should be the dollar's domestic role, and further distorts the currency policies of foreign countries.

the true value of the domestic currency is related to its purchasing power. currency policy should promote the full productive powers of the country, which in turn, will increase the value of the currency.