Bipartisan Senate legislation has been introduced to require the Federal Reserve to set a charge on holdings of financial and many other assets based on the view that increasing the cost of U.S. obligations will reduce the attractiveness of doing so in dollars, thereby suppressing global demand for dollars and thus the dollar’s exchange rate vis-à-vis other currencies. This is then said to reduce or even eliminate the U.S. trade deficit. Although anticipated employment and output gains are at best uncertain, the legislation’s adverse impact appears clear on financial markets, U.S. funding costs, and the economic and the financial-market role the U.S. has long enjoyed.
The full report is available to retainer clients. To find out how you can sign up for the service, click here.