Wall Street and China are trampling on dollarization and the Federal Reserve

“Chinese companies are trying to conquer new markets around the world, and American financiers are making money by helping them.” That’s how the Wall Street Journal Rory Jones reported it in a recent article on the front page of the newspaper.

Jones reports that Chinese companies have raised $23 billion as of September. Noting the impressive sums raised for 65 newly listed companies in Hong Kong, Jones writes that “Morgan Stanley and Goldman Sachs are the top banks in fundraising.” The only ‘closed economy’ is the global economy. Robert Mundell lives!.

All of this is worth remembering as the obsessed Federal Reserve continues to obsess – yes – over whether the central bank will remain “easy” or “tight.” These concerns are more than pointless, as the story of China-Hong Kong-US investment banking shows.

While it can’t be said enough that the Fed doesn’t have easy credit in the first place, it does can It can be said that whether it is easy or frugal is immaterial in a world of globalized credit. If machinations succeed in pushing the price of credit higher than the market itself, it’s safe to say that non-bank and non-U.S. credit sources will eagerly jump on funding opportunities that the Fed could take away from certain U.S. funding sources. There are many reasons, but only two are mentioned here.

First, credit is produced in the private sector, rather than allocated by central bankers. If this is true, the only limit to investments, loans or intermediate credits is the amount of production in the world.

From there, or secondly, the money goes to where it is treated well. That reminds us that, assuming what is initially impossible, namely that the Fed can artificially inflate the real market-based cost of capital, global money sources will mobilize to profit from undermining the Fed’s vain attempts to control prices. Markets always speak.

Jones adds that while Chinese companies used to simply raise money in New York, “Beijing authorities have become suspicious of US listings,” while conversely, US stock exchanges have “become wary of entering politically sensitive territory.” Government barriers to the natural flow of capital? Most certainly, but also easily overcome for reasons already discussed.

Hong Kong’s capital markets are filling the funding gap, helped by US investment banks. Here is your “closed” global economy, and here is the globalized rejection of popular views that will not go away that the Fed caused “recessions” and, even more ridiculous, the so-called Fed “tightness” that caused the Great Depression. No chance.

That’s because credit is a consequence, not an instigator. It goes again to the place where it will be rewarded if it goes. Assuming the Fed remains tight through 2025, or into the 2030s, markets will ride roughshod over central bank interventions. In the 1930s, fewer dollars circulated in the United States precisely because economic activity fell due to horrible government policies.

That’s useful to keep in mind amid the constant calls from Milton Friedman-worshipping pundits who claim that the inability to dollarize is holding Argentina’s economy back. No, not really. See Hong Kong again. Because there are countless innovative companies in China, billions of dollars are being linked to them by American investment banks.

Dollarization, like credit, is an effect and not an instigator. If Javier Milei wants dollars in abundance in Argentina, he will have to attract the kind of human capital for which dollars are always matched.

Like central banks, decrees are toothless. Dollars migrate to production and flee from a lack thereof.