Swap With Your Friends

On today’s show we’re talking about how our economy depends on the printing of money. Let’s put this in perspective. The fortunes of entire industries rest on whether governments around the world are going to print a virtually unlimited amount of money in order to get the economy back on track.

The political impasse in Washington over how much to spend and for how long is a case in point.

The bureau of labor and statistics published data that more than 2/3 of those who are receiving unemployment benefits are making more money in unemployment benefits than when they were employed. Why would they want to go back to work? The unemployment benefit is breeding dependence. Many politicians see the need to cut the benefits to incent people to go back to work.

Canada has traditionally been among the most liberal countries when it comes to social programs. Here too, the government has announced that they will be terminating the emergency relief benefit for employees and transitioning to the predecessor employment insurance program which has a finite period of 14 weeks for recipients to get a check.

We know that the unlimited money printing can’t last forever, and at the same time, the printing of money has created such a dependence that it will be difficult for governments to stop.

In the US, there are about 32 million people out of work as a result of the pandemic.

The economic damage falls into two categories:

1. Temporary damage
2. Permanent damage

Temporary damage happens when a business is forced to close temporarily. A dental practice might be a good example. The reception staff and the dental hygienists would be on a temporary layoff but would be still considered “employed but not at work”. They would be collecting employment benefits during the furlough, but it’s reasonable to expect that a dental practice will continue when allowed to re-open.

Permanent damage happens when a business that has been operating for decades, closes its doors permanently. Those jobs are gone and are not coming back. Lord and Taylor just filed for bankruptcy. This iconic department store that started in NYC may not re-emerge from bankruptcy. It’s too soon to tell. You can’t just assume that the salesman selling mens suits at Lord and Taylor can now go get a job in an Amazon fulfillment center because that’s where the retail jobs have moved.

Right now the Federal Reserve is doing what it can to maintain the reserve currency status. There is a list of 15 countries that the US lends money to through the Swap Lines that are managed by the Fed.  The big issue is whether the US dollar will lose its reserve currency status. Right now the Federal Reserve is doing what it can to maintain the reserve currency status. There is a list of 15 countries that the US lends money to through the Swap Lines that are managed by the Fed. These lines of credit are typically 30 days in duration and friendly countries to the US have the privilege of rolling over the loan for another 30 days. The Fed has permanent swap arrangements with Canada, England, Japan, Europe, and Switzerland. When interest rates hit rock bottom in March, that list of countries was expanded by 9 countries on a temporary basis to include Australia, Brazil, South Korea, Mexico, Singapore, Sweden, Denmark, Norway and New Zealand to tap up to a combined total of $450 billion dollars. Note which countries are not on the list. Cash strapped Argentina is not on the list. Nor is Russia or China. None of the Pacific rim countries like Vietnam, Thailand, Cambodia, none of the African nations. 

At what point will those countries who didn’t get a free loan from the Fed turn to China or Russia for financial or military assistance? There is a game of geopolitical chess underway and it involves buying loyalty from friendly allies, to the tune of $450 billion dollars in the past few months.