Zoom event with Alan Pentz

On Monday, March 20, we will talk about interest rates, inflation, and the nature of a regime change that seems to be underway in the financial world. For paid subscribers

The next live event for paid subscribers will be a conversation with Alan Pentz of Corner Alliance, a small management consulting firm that works with government agencies. At

The New Rules

he has written some provocative posts speculating on how the U.S. debt position is likely to resolve. The discussion will take place on Zoom at 8 PM New York time, Monday, March 20. The link is below the paywall.

In one recent post, Pentz wrote,

As we bought more and more and cheaper and cheaper goods from the new upstart countries in the 1950s and 1960s, gold started pouring out of the country. Finally, it got to be too much. The US faced a choice, either close its markets or go off the gold standard. In 1971, President Nixon took us off the gold standard.

You can date the rapid increase in both US debt and foreign imports to that fateful decision. If we had closed our markets rather than gone off the standard, it probably would have collapsed the world economy. Countries all across the world had structured their economies to export to the US and use the US dollar as a medium of exchange and a readjustment would have ruined them. At the same time, the US got really good at providing assets like Treasury debt to those same countries

I am currently reading Perry Mehrling’s biography of Charles Kindleberger. Charlie did not mind going off the gold standard, and I think he would have agreed that the U.S. was inevitably going to export IOU’s in exchange for goods. But he was not at all a fan of the floating exchange rate regime that Nixon created. Charlie thought that other countries should just peg their currencies to the dollar and be done with it. I’ll have more to say about Charlie some other time.

I think that the present reminds me in some ways of 1971. A financial regime change seems to be underway. Pentz seems to agree with that. The challenge is to figure out what we might be transitioning to, and what might happen along the way.