There is a shortage of dollars in the global market, according to independent market adviser Hugh Hendry. He says US should look at the value of the national currency, instead of targeting bonds as a form of economic stimulus.
In an interview with CNBC, Hendry said that quantitative easing programs, where central banks buy assets like government bonds to inject liquidity into the economy, are not working.
“Quantitative easing – we’re being missold something,” Hendry argued. “Simply publishing or expanding these inert central bank reserves and trying to scare us all to death that they’re actually printing real money is a fraud.”
He said that “America has decided over several decades to impose a global dollar standard, a monetary standard on the rest of the world. It’s one thing to be the king, [but] you have to behave regally, you have to behave like the king.”
“So, if you’re going to impose a dollar standard on the world, you have to stand by and provide sufficient liquidity. And that’s actually where they’ve been failing.”
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According to Hendry, the widespread sell-off in March, where global markets plunged amid the coronavirus pandemic, was partially due to investors having to sell assets in order to create dollars and repay debt.
Hendry then suggested an alternative approach to support the economy, saying: “In terms of stopping these periodic dramatic flares, would it not be better to target not bond prices, but instead to target the actual value of the dollar?”
Hendry explained: “When I look at the world of macro, I think it’s telling us that we need a lower print on the dollar itself. I think we need the Treasury, and not the Fed, to step up to the plate and tell the world ‘we’re going at target 70 or 60 on the dollar index.’ That would change the world.”
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