Dollar is Our Currency But Your Problem

France was willing to allow the dollar to depreciate against the franc, but not allow the franc to appreciate against gold. In 2011, Paul Volcker expressed regret over the abandonment of Bretton Woods: “Nobody’s in charge,” Volcker said. “The Europeans couldn’t live with the uncertainty and made their own currency and now that’s in trouble.”

Unrestrained by trade concerns, and gold outflows, central banks could and let money supply growth run rampant.

Credit exploded, and a series of economic bubbles began, each with a bigger amplitude than the one that preceded it.

Bubbles of Increasing Amplitude

  • Dotcom Bubble – 2000
  • Housing Bubble – 2007
  • Everything Bubble – 2018
  • Powell’s Self-Serving Whitewash Warning

On May 8, Jerome Powell, chairman of the U.S. Federal Reserve, Warned Against Overstating Impact of Fed Policy on Global Financial Conditions.

Our subject is the relationship between “center country” monetary policy and global financial conditions, and the policy implications of that relationship both for the center country and for other countries affected.


The well-known Mundell-Fleming “trilemma” states that it is not possible to have all three of the following things: free capital mobility, a fixed exchange rate, and the ability to pursue an independent monetary policy. The trilemma does not say that a flexible exchange rate will always fully insulate domestic economic conditions from external shocks. And, indeed, that is not the case. We have seen that integration of global capital markets can make for difficult tradeoffs for some economies, whether they have fixed or floating exchange rate regimes.

In an attempt to absolve the Fed of wrongdoing, Powell cautioned: “The influence of U.S. monetary policy on global financial conditions should not be overstated. The Federal Reserve is not the only central bank whose actions affect global financial markets. In fact, the United States is the recipient as well as the originator of monetary policy spillovers.”

Powell then posted a series of charts and comments allegedly exonerating the Fed. “Research at both the Fed and the IMF suggests that actions by major central banks account for only a relatively small fraction of global financial volatility and capital flow movements,” said Powell.

This article has been republished with permission from Mish Talk.