Thursday, October 15, 2009

Rumors of the dollar's death: greatly exaggerated

So says Martin Wolf of the Financial Times in his most recent column. Excerpt:

It is the season of dollar panic. These panic-mongers are varied: gold bugs, fiscal hawks and many others agree that the dollar, the dominant currency since the first world war, is on its death bed. Hyperinflationary collapse is in store. Does this make sense? No. All the same, the dollar-based global monetary system is defective. It would be good to start building alternative arrangements.

It's worth reading Wolf's column in full, but he makes a point there similar to one David Merkel made on his Aleph blog1 recently [Merkel]:

Whatever country of our world has the status of reserve currency must issue debt, and a lot of it, that other countries can invest in to park their idle cash balances.

Wolf sketches out the "Triffin dilemma" this leads to: an overhang of debt that eventually undermines confidence in the reserve currency. Wolf's proposed solution is to look for an alternative to the dollar as a reserve currency, but I wonder if a simpler alternative would make sense in the near-term: instead of having surplus countries buy up U.S. debt to satiate their demand for dollar-based assets, why doesn't the U.S. government offer them an equity-like investment instead? Specifically, why not offer shares in a sort of massive master limited partnership that would invest its assets in nuclear power plants and other infrastructure, and pay dividends out of the revenues generated from those infrastructure assets?

Unlike the proceeds from the sale of Treasuries, which can go to fund transfer payments and health care for retirees, or extended military expeditions, proceeds from the sale of shares in this master limited partnership would go toward increasing productive capacity, which would fuel future economic growth in the U.S. This idea is a similar to (but simpler than) one proposed by Professor Yu Qiao of the School of Public Policy and Management, Tsinghua University, Beijing, in the Financial Times last spring.

1Speaking of Merkel's blog, last month he asked if any readers had any stock ideas to share. I mentioned three: USEG, AYSI.OB, and DSNY.OB. As of yesterday's close, they were up 26%, 390%, and 60%, respectively.


Paul Price said...

It seems like this option is available right now simply by purchasing shares in exisiting publically traded utility stocks.

Why would foreigners want to be illiquid when they can have the same benefits with the ability to exit at will?

DaveinHackensack said...

Perhaps I should have been more explicit, but I assumed it was implicit that the massive master limited partnership (MMLP) I described would be publicly traded, just as existing MLPs are. To accommodate new funds, perhaps additional shares could be issued or new MMLPs could be offered; in either case, dilution wouldn't have to be a concern because the proceeds from the initial sale of new shares would go to create new revenue-generating infrastructure projects.

VictusFate said...

First, "far out" yet rational idea about a different type of offer besides bonds to global investors.

Second, please Dave get Disqus this comment system is why you don't get more feedback from readers.

DaveinHackensack said...

I don't know if that's the reason, Mark, but I'll probably add Disqus when I move to my new Wordpress blogs. Can't hurt.

DaveinHackensack said...

Oh, btw, Mark: the CEO I alluded to on Fred's blog is Gene Kostecki, the CEO of Alloy Steel International, mentioned in a recent post here.

Anonymous said...

The gov should have stockpiled, pre-approved plans to build nuke plants or what have you. Then if you needed a stimulus, it could be done swiftly. While there would be waste, usually power plants would eventually be used. Better than some of the boondoggles they do now.