Growing instability
Establishment figures have been expressing alarm over the decline of the US dollars’ role in international reserves. A recent example is the BoE’s Andrew Bailey (h/t Mega), who laments that a loss of the dollar’s reserve status threatens global economic stability. Not to single out Bailey – I’m sure his US counterpart would say the same thing – but the argument is about an inch deep.
Let’s peel back another layer of the onion skin. They want to fight the fall of the dollar as reserve currency. But if it were a stable circumstance, there would be no fall to fight. In other words, the dollar as reserve currency is already unstable. So the source of instability would have to go back a lot further than just yesterday.
What threatened the status of the USD as global reserve currency in the first place? The abuse of the “exorbitant privilege”. The US has milked it for all its worth and then some, first by debasing the dollar, and then by weaponizing it. Tariffs are but the whipping boy du jour. Complaining about a problem while ignoring its cause is patently unconstructive, worthy of the Ostrich School of Economics.
We have one more layer to plumb. What enabled the abuse of the dollar as global reserve currency? Making it global reserve currency! In short, the ultimate source of the instability was abandoning gold and insinuating fiat.
Now here we are, completing the circle, with the dollar fading and gold retaking its rightful place as the ultimate money. We are not moving in the direction of instability; we’re moving away from it. The establishment, ironically, is resisting a change towards stability in the name of opposing it.
Backwards thinking like this alas is not unusual in the financial world. Central bankers regularly for example resort to flooding the system with liquidity when markets decline. They do this in the name of stability, failing to recognize that by insuring against losses and kiting asset prices they encourage the buildup of leverage and speculation, fomenting instability. Pushing a boulder to the top of a mountain peak does not make it stable. Hyman Minsky famously summed it up with the aphorism “stability is destabilizing”.
So if Bailey, Powell & Co truly want stability, they should do the opposite of trying to maintain the status quo, and instead work towards an orderly glide path to reduce reliance on fiat reserve currencies in favor of gold.
I’m not holding my breath, but the alternative is to continue down the road trod by another empire, overstretched and overrun, centuries ago. Its ruling class must have imagined too that its struggle to maintain an unstable status quo was stabilizing.
Not being a personality politics or celebrity gossip venue, Financology has been silent on the Trump-Musk drama playing out in the media. But being as this involves the world’s most powerful political figure and the world’s foremost industrialist, financial and economic ripples are inevitable.
Moreover, at front and center of the tiff is a financial and economic issue, the “Big Beautiful Bill” snaking its way through Congress. I’ve already opined that “big” and “beautiful” are a contradiction in terms when it comes to chunks of legislation, and Elon Musk had the temerity to agree with me. But more pointedly, not with Donald Trump. And very publicly. So while in terms of substance I’ve already taken Mr Musk’s side, it would be better for all concerned for these two to bury the hatchet. I think they will, if only because despite their starkly contrasting personalities, I think both have America’s best interests at heart. I’m not holding my breath, but hope Mr Trump will say something like let’s roll up our sleeves and see if we can find a way to slim down this Big Beastly Bill.
With the dark shadow of WWWIII looming ever larger over our troubled planet, America has more important business to tend to.
More perspective from the Daily Reckoning’s Adam Sharp:
Crashout: Musk vs. Trump, the Real Story
Sharp provides some support for Trump’s allegation that Musk is motivated by cuts in EV subsidies. On which front Trump holds the high ground. Government subsidies and other forms of micromanagement are harmful to the overall economy, and a lot of trouble could have been avoided had they never been implemented in the first place. Musk also took the low road in alleging Trump withheld Epstein files because they implicated him; whether true or not it does nothing to promote good policy. To the contrary, it gets in the way, distracting from Musk’s legitimate gripes about the BBB.
This is no spaghetti western where there are only good guys and bad guys.
Lets see:- Elon has
Made a Cybertruck that is nor selling, talk round the camp fire is 10,000 in stock & not going anywhere fast. That’s $1Billion sat there…………now given that ALL nations have cut the EV “Freebees” to the bone Elon’s free cash is coming to an end.
Sales have more than halved in Europe & crashing else where. Once apron a time if you wanted an EV (other than a crappy Nissan leaf) then your choice was model 3 or model Y. Now a flood of new EVs are coming & suddenly he not top dog anymore.
Also that C02 tax credit where deal Elon was allowed to shake down every other car producer is over. Government’s now deeply worried about their car producers/jobs/banks who loan both cash. They are suddenly QUITE happy to loosen the rules if it means saving them & NOT EXPORTING CASH TO ELON.
Then there is his “Rocket”, he hit major problems with it & NASA is losing interest in him. Given the fact that he has shown himself to be a drug addled lose cannon i suspect people are now making plans to distance themselves from both his companies & him.
Not many people would want to attract the attention driving something as conspicuously out of place on a road as the Cybertruck. Especially the traditional pickup truck buyer. I think Sharp is right though that SpaceX is in a good place.
Tesla makes some excellent cars if you have the deep pockets to go upscale. (I don’t like those ugly screens sticking up on a pod in front of the dash … integrate the damn thing into the dash!) Electric cars are just too expensive, and subsidies haven’t done anything to make them less so. The cost is paid one way or another. Heck, cars in general are too expensive in the US, due in part to over regulation. Government meddling makes a mess, and the government solution is to meddle more. The senescence of an empire.
I think EVs are great……………..once the tech is there.
The Sodium ion battery is an game changer.
175wh/kg (same as todays VW ID3), can be made on the same line as an LFP battery. uses Aluminium NOT copper, no nasty expensive stuff. Am told $20 per Kw hour not $80…………massive saving, no rare earths.
British Alumotor, little to NO copper or rare earths, 93% efficiency, much lighter, 60% cheaper!
Am mid size EV car is now cheaper to make than a gas car.
Oh, I do too … I do almost all short trip driving and an electric car would be ideal. Unfortunately around here dealers are scarce and from the buyer’s point of view they’re still not a good value proposition in the US.
“EVs are more expensive than their internal combustion engine counterparts, and even if you take into account the fuel savings you’ll reap over the years, the price can be a tough initial pill to swallow.”
https://www.edmunds.com/chevrolet/bolt-ev/
“Most of the BEV configurations start at less than $100,000, which—at the same time—means that a third of the configurations are vehicles with six-digit prices.”
https://insideevs.com/news/565883/electric-car-prices-us/
Hopefully a lighter regulatory touch will help turn this around and let the positive fundamentals prevail.
Quite a fan of the Bolt, small quick EV…….rather than build some 2000 bhp 4 motor monster. Rather heavy but with next gen LFP battery tech a good weight reduction+range increase.
The electric Equinox also looks good, albeit at a higher price. Nice all around car. Very little inventory at the local dealer though, none with AWD.
News coming in of a “lucky hit” for the Russians…………….a secret store of large numbers of SCLAP missiles + a lots of other high end missile systems..did Trump buy off Russia by giving them the location?
Mike
Elon is in HOT water…………
https://x.com/Megatron_ron/status/1931392814304125297?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Very HOT
https://x.com/Megatron_ron/status/1931395691852562800?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet
Musk was on solid ground to criticize the BBB for deficit bloat. Trump went low by threatening to pull his contracts. Musk went even lower in tossing in extranealities like the Epstein files and impeachment threats. Policy disagreement is healthy; making it personal, not so much. Mistakes were made.
I see all the Ro-bo self driving taxi have been gutted …………….outstanding
BiBi has blinked………………he now “OK” with Irans plan ref nuclear sites
Trump has told Bibi “No” to war with Iran & to STFU about it
Mega’s dispatch from England:-
https://www.youtube.com/watch?v=sfobI30WeeI
Also factor in the Ukraine has defaulted on loans that the UK had Guarantee
Labour gov new housing policy
https://www.telegraph.co.uk/politics/2025/06/10/rayner-decriminalises-rough-sleeping-to-tackle-homelessness/
The Musk-Trump dust-up may be fading. Musk has apologized – not for his criticism of the BBB, but for the right things – and Trump has referred to him as a “friend“. This is good news not only for them but for the rest of the America if not the world … with everything it’s up against, having these two pulling together, or at least not wasting energy on battling each other, is all to the good.