The Debt Ceiling, the Dollar and American Living Standards

 

By Fowler W. Martin

 Earlier this month, economist Paul Krugman wrote a column for the New York Times on the dollar as a reserve currency and whether that status is threatened. After discussing certain concerns, this was Krugman’s bottom line:

 “In reality, however, the dollar’s role looks pretty secure — with one major caveat. I have no idea what will happen if, as seems all too possible, we end up defaulting on debt payments because a Republican House refuses to raise the debt ceiling. But it’s not likely to be good. Who will trust the currency of a nation that appears to have politically lost its mind?”

In the body of the article, Krugman didn’t mention political stability as a factor underling the dollar’s long-standing preeminent role as a store of value for what amounts to the savings foreign governments accumulate largely because their countries export more than they import. Rather, he pointed to the depth, breath and liquidity of U.S. financial markets, an absence of capital controls, and a reliable legal system.

In my experience as a financial journalist reporting on such matters for many years, those are, indeed, the time-tested explanations for this phenomenon.  Some would add the enormous size of the U.S. economy relative to other nations although that is arguably captured in the nature of U.S. financial markets. Others point to military power: the U.S. is unlikely to suddenly fall victim to an expansionist foreign nation that might (among other things) impose capital controls and change critical laws and the manner in which they are implemented.

I personally would add that the U.S. political system, where to date power has been reliably transferred in a transparent fashion at regular intervals, is a major source of foreign confidence as well.

This isn’t the first time questions have arisen as to whether the dollar should continue to enjoy its privileged position. But when they have, a quick answer has been: “What are the alternatives?” and in that vein, Krugman in his column advanced that notion, citing China’s problematic policies and practices as the prime example.

But the situation may be changing. Earlier this month, Christine Lagarde, head of the European Central Bank and former head of the International Monetary Fund, told the U.S. Council on Foreign Relations that at present, about 60% of international reserves are held in dollars, 20% in the Euro and the remaining 20% in the Chinese renminbi, the yen, the pound sterling, the Canadian dollar, the Australian dollar and a few others.

So alternatives are out there with the Euro having gained the most ground against the dollar during the recent past.

“We are also seeing increased accumulation of gold as an alternative reserve asset, possibly driven by countries much closer geopolitically to China and to India,” she said.

The thrust of Lagarde’s remarks was that the world economy appears to be fragmenting into competing blocs – a development, she said, that “is likely to have first-order implications for central banks.”  That would, of course, include the U.S. Federal Reserve.

In his column, Krugman argued that even if the dollar were to lose its reserve currency status, it wouldn’t matter much. Pointing to other countries – principally Britain – where this has happened, he said non-reserve currencies “do just fine at home, continuing to serve the traditional roles of money: medium of exchange, store of value, unit of account.”

While that statement is perfectly true as far as it goes, it doesn’t go far enough. The balance of payments is a complicated and difficult topic, but in a nutshell, because of very large inflows of capital from foreign governments who want to hold their reserves in dollars, mainly in the form of U.S. government securities – inflows not offset by comparable outflows of capital – the U.S. has not just been enabled, but arguably required, to run significant deficits the trade of goods and services for decades.

Simply put, we have been long living beyond our means by consuming more than we produce. Another way of describing it is that because the dollar is the key reserve currency, our standard of living (in economic terms) has been higher than otherwise would have been the case.

What happens when a limited or non-reserve currency country tries to live beyond its means in similar fashion?  As we have seen on many occasions, a crisis ensues and the country is forced to go to the IMF for capital inflows in the form of loans to offset the outflows of payments resulting from a trade deficit. Generally the IMF requires domestic austerity policies, aimed at cutting consumption and boosting production, as a condition for such hopefully temporary support.  In other words, living standards take a hit in the borrowing nation, which generally causes governments to delay turning to the IMF for as long as possible.

What if foreign governments decide to sell all or a significant part of their holdings of U.S. government securities – securities that help finance U.S. budget deficits?  Interest rates could rise in order to attract other buyers, which, all other things being equal, would also adversely impact U.S. living standards. Or the federal government might be faced with cutting spending and/or raising taxes.

Leaving governments out of picture for a moment, Krugman said foreigners in general “probably hold more than a trillion dollars in U.S. currency, mainly in the form of $100 bills.” To the extent they tried to convert such holdings into other denominations, the Fed, he said, would have to sell off some of its massive securities holdings, but to whom?  If conversions of $100 bills took place as a result of a loss of confidence by foreign government in the dollar’s reserve status, the securities would have to be priced to attract domestic investors away from alternatives. In other words, higher interest rates and presumably less capital for commercial uses.

How important is the latter?  Well, Krugman just had another column celebrating a revival of investment in U.S. manufacturing that in his view stems from recent, very large government spending bills signed by President Biden – the CHIPS Act and the mis-named Inflation Reduction Act.

“Goldman Sachs predicts that the Inflation Reduction Act will involve substantially higher government outlays than was initially projected, but will also induce trillions of dollars in private investment,” Krugman said.  That would mean the government would have to sell more securities at the same time private demand for capital funding was increasing substantially.

Suppose foreign government and private funding were diminishing or “pulling out” as a result of questions over the dollar’s value as a reliable store of value, possibly as a result of a debt-ceiling default? American living standards could be at risk from that direction as well.

The reserve status of the dollar is far from inconsequential.

(During more than 30 years as a financial journalist, Mr. Martin was the Managing Editor of the AP-Dow Jones Economic Report, an international financial newswire, and Washington Bureau Chief of Dow Jones News Services. He currently lives in Seattle in retirement.)

(c) 2023 All Rights Reserved

Chekhov's "Uncle Vanya:" A Play with a Message, or Not

I have recently been taking a Continuing Studies course on the short stories and plays of the Russian writer Anton Chekhov (1860 - 1904). What follows is a couple of things I wrote up for a discussion thread on the play "Uncle Vanya."

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One question that almost always arises is: "Does this play have a message?" (It doesn't have to. Many, many plays have been written as a source of entertainment for a night out, and some serve to illuminate an issue without resolving it -- hopefully with great acting along the way. "Up to you to decide," the author says, leaving one to horse it over with one's companions over a post-theater drink or two.)

If "Uncle Vanya" has a message, it would appear to be that "work" has both value in and of itself and will be rewarded by God. (In view of Chekhov's generally bleak outlook on human existence and his eventual atheism, not to mention the doctor's discovery that much in the way of human endeavor is destroying the earth, one can wonder about that.)

In any event, Yelena is criticized on more than one occasion for not working. When she serves to distract Vanya and the doctor from their work, their lives fall apart and the continued existence of the household is threatened as the crops aren't properly harvested, bills go unpaid, and the necessary paperwork is left undone. And the region's sick are left unattended.

At one point Marina tells Telegin not to pay attention to a shopkeeper who has called him a hanger-on (a terrible insult, it would seem). "Don't pay the least attention to them, master; we are all dependents on God. You and Sonia and all of us. Everyone must work, no one can sit idle."

Most significantly on that front, Sonia -- ever a voice of hope no matter how bleak the outlook (Vanya would have liked to be another Schopenhauer!) -- is given the last word, reinforced by music. "We must live our lives ... We shall work for others without rest, both now and when we are old ... God will have pity on us ..."  And the reward for working steadily in this life will be rest and happiness -- beyond the grave.

Did Chekhov really believe that, and is that really the "take away" one is supposed to get from this play? Or are we to view poor Sonia as the biggest fool of all?

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One can definitely just enjoy the show, as one might any other accomplished artistic creation.

It need not have a message -- at least not one specifically intended by its creator. Asked what a work of art means, the artist may well say (and many have): "It means whatever it means to you."

Early in the English translation that I read, Telegin says a particular scene is "worthy of Aivazovsky's brush," the latter being a Russian painter of considerable renown. (The phrase apparently gained popular currency in the wake of Chekhov's play as a means of labeling something beautiful or of considerable value.)

One can take the view that "Uncle Vanya" in its totality is "worthy of Aivazovsky's brush." Here we see Chekhov's impressive skills in full bloom as he paints a picture of a slice of Russian society. a picture in which playgoers can see themselves or people they know. A certain degree of artistic license enhances or amplifies notable aspects of the scene.

What then to make of Sonia's concluding soliloquy or the doctor's environmental lecture? There is no particular message for playgoers. These are simply aesthetic depictions of the nature of certain people one might encounter and of the role they play in society. Sonia, Marina and perhaps Telegin are recognizeable as the glue that holds things together.

Vanya's repeated attempt to shoot someone, quickly forgiven? An important role of theater is that of a safety valve: an outlet for emotions that can't easily be expressed without dire consequences in real life. Plays like "Vanya" need a dramatic focal point. Whether the action is entirely credible is less important than the emotional impact.

In short: sit back and enjoy the brush strokes -- and the resulting vivid imagery. That's enough.

"Wednesday's Child" Perhaps Better From a Different POV

 In "Wednesday's Child" by Yiyun Li, a short story in the Jan. 16, 2023, on-line version of the New Yorker, Marcie, the nearly 16-year-old daughter of Rosalie, the story's protagonist, commits suicide by lying down across some railway tracks. This occurred just three weeks after Marcie began attending a "highly selective prep school" to which she had apparently been determined to gain admittance.

Marcie had been a precocious child who read challenging books and otherwise apparently walked to her own drum, such as in the manner in which she ate melon. That's about all readers are told about her.

The bulk of the story consists of Rosalie pondering her daughter's death as she travels toward a famous WWI battlefield where as many as one million soldiers died. An analogy for the apparently senseless nature of Marcie's demise?

What's odd about this story is that while her daughter's death is quite naturally a major preoccupation for Rosalie -- recalled here through associations with current events -- Rosalie apparently made no inquiries as to what may have transpired during Marcie's first three weeks in what was probably a pressured school environment. Or if she did, her findings were apparently of insufficient interest to recall or relate. 

Rather Rosalie thinks about what may or may not make a good mother and whether she mistakenly allowed her daughter -- and in one instance encouraged her -- to read age-inappropriate books. A version of the familiar female refrain: "It's all my fault." 

Perhaps Rosalie's self-absorption lies behind the untimely death of her daughter to even a greater extent than either she herself or the author of her story realizes. “Any time a child chooses that way out, you have to wonder what the parents did,” Rosalie’s mother at one time told Rosalie. One thinks the word "readers" could easily be substituted for the word "you" in that statement.

Rosalie considers the comment cruel and in line with her mother's streak of such behavior. But at the same time, "Rosalie and Dan (her husband) had received their verdict," or so the narrator would have readers believe, In view of the contents of the story, it's a classic case of tell, don't show. Readers are left with no depiction of the child's upbringing.

After finishing Ms Li's piece, it occurred to me that a story about Marcie, from her point of view, would have been far more interesting than the one I had just finished about Rosalie. Perhaps Ms Li will oblige, or maybe she already has. 

Chekhov's "The Darling:" Controlled Variation Says Saunders

 A "darling" is a beloved person who can do no wrong. One thinks of Peter Pan's friend Wendy. 

Wendy was quite literally a Darling -- that was her last name. The implication, of course, was that she was also a darling in the definitional sense and, as depicted by J.M. Barrie in his stories about Peter Pan, that seems to have been the case. She was indeed a beloved person and except that her difficult father at one point objected to her telling "silly stories" to her younger brothers, she was apparently about as perfect as a girl, and later a woman, can get.

But unlike Chekhof's darling, a woman named Olga Semyonova, or Olenka as she is known to family and friends, Wendy had to make a difficult choice: whether to stay in Neverland with Peter and remain a child forever, or return home and face adulthood with all of its challenges. Olenka, about whose background readers are told little, just drifts through life, falling in love with one male after another and then conforming her life to theirs -- sharing not only their activities but their opinions.

"The Darling" is one of three Chekhov short stories that American author and creative writing instructor Geoge Saunders elucidates in his recent book "A Swim in a Pond in the Rain." The book's look at seven Russian short stories is based on workshop sessions Saunders has conducted with students at Syracuse University over a period of about 20 years.

Olenka, "the daughter of a retired collegiate assessor," is presumably not uneducated. But her fundamental characteristic is that "she was always enamored with someone and could not live otherwise." Physically warm and comfortable, she's otherwise an empty vessel that needs to be filled from some external source and remains over the years unchanged in that respect. 

After first focusing on a French teacher, then on her now-dying father and then an aunt, Olenka as young woman first falls in love with a rather unattractive theater impresario because she feels sorry for him. When he somewhat mysteriously dies on a business trip shortly thereafter, she marries a lumberyard owner and lives happily with him for six years although they are unable to have children. Next comes as an army veterinarian (armies had a lot of horses back then), but he's married so her infatuation is removed and mostly one-sided. Finally, as a mother figure, she loves the now-retired vet's young son, who finds her annoying. 

End of the story.

For Saunders, "The Darling" is a "pattern story" -- a tale in which a basic theme recurs, but each time with slight changes that both give readers pleasure and appear to infer new meaning.  In his book about Russian short stories, he spends a lot of time explaining just how Chekhov went about constructing it.

Readers who like music will probably immediately recognize this technique as theme and variation. It's ever-present, such as when jazz musicians pass around various riffs on a particular melody, but I most enjoy it Handel's vocal music where theme and variation is ever present and with great imagination. Easily approachable in that respect is "Every Valley," the second aria from "Messiah." 

The technique is probably a lot less used in literature, and especially as blatantly as in "The Darling." And not without reason: as the tale proceeded, Olenka seemed came across for me as more caricature than character and, indeed, at one point Saunders admits she can appear to be somewhat robotic.

No matter how good a melody is, it can become boring if it is simply repeated in unchanged form. Likewise, Saunders warns against stories are too static in nature. One or more expectations need to be set at the beginning and resolution comes through a series of what he calls "escalations." In other words, the stakes have to get higher.   

At the end of the day, and in view of the fact that "The Darling" ends without a striking development that proclaims "Resolution!" one can't help wondering what the theme that was subjected to variation was all about.

In Saunders view, Chekov was writing about love, and how it can become a complete absorption for one person as opposed to a form of communication between two. Others, such as Leo Tolstoy ("War and Peace," "Anna Karenina") have tried, Saunders said, to make tale about the nature, or natures, of women. There is, of course, the age-old question: "what do women want?" In Olenka's case, the answer would seem to be "to be a caregiver." 

Well, fine, but it still seems to be told as caricature, or too simplistic. Olenka lacks complexity and as such, it's tough to find her of any great interest as an individual. 

At the end of the day, Saunders said that he teaches "The Darling" as "a brisk little primer on just how much organization the story form can bear and will reward," adding that in this instance, he finds Chekov's tale "a beautiful system for presenting a tale of controlled variation."

Now let's see, where did I put my cd of "Messiah" arias and choruses? Talk about a beautify system of controlled variation!

   

An Alternative To Saunder's Sense of Chekhov's "In the Cart"

 Since I am about to take a continuing education course on Anton Chekhov's short stories and plays, I thought I would get a copy of George Saunder's recent book "A Swim in a Pond in the Rain" and see what he had to say about three of them.

Saunders, an award-winning American author, is also a professor of creative writing at Syracuse University where he has taught a course on Russian short stories, in translation, for about 20 years. "A Swim in a Pond ... " is essentially a collection of seven of his workshop sessions and it begins with Chekhov's "In the Cart," published in 1897, one of seven stories that Saunders says are clear, simple and moving, but also meant to challenge, antagonize and outrage -- "and in a complicated way, to console."

He also says that while the stories are for the most part "quiet, domestic and apolitical," they are also resistance literature written at a time when writers could face censorship, or even exile, imprisonment and execution, for anything considered transgressively political. 

In general, the key to success in story writing, Saunders says, is an emotionally moving tale that a reader feels compelled to finish.

While at one point Saunders says he considers terms such as "theme," "plot," "character development" and "structure" not very useful, as he takes readers page by page through "In the Cart," character development is what he mostly talks about.  

We initially encounter the chief protagonist of the story, a woman named Marya Vasilyevna, and discover that she is "unhappy because of the monotony of her life" -- and as a result, "the story has become restless." So says Saunders.

Eleven pages later, after various interactions with her cart driver, with a wealthy, but useless local landowner and with some peasants in a tea-shop, things are going downhill. But a momentary vision of a woman on a passing train reminds Marya of her mother and her much better life as a child, leaving her at least momentarily elated.

The result of all this, says Saunders, is that readers have been taken through the depths of Marya's loneliness to the point where one feels her loneliness as if it is one's own.  

"Over the course of these eleven pages, the blank mind with which you began has been filled with a new friend, Marya, who, if my experience is any indication, will stay with you forever," the professor says. End of the workshop.

In other words, this story is an example of successful character development. The bottom line for Saunders is that Marya, as an individual person, is timeless.

While I can't take issue with anything Saunders has to say, I came away with a completely different reading of what the story was all about. To me, Marya is of no great importance, or particularly memorable as an individual. Rather, her life helps to elucidate the state of Russia at a particular time.

"In a Cart" (that title pretty much says it all) takes place about eight years before the tumultuous if  ultimately unsuccessful Russian Revolution of 1905 and the country, other than wealthy cities such as Moscow and St. Petersburg, is gradually falling to pieces. The cart in which Marya, a schoolmistress, is riding and the terrible roads over which it is traveling exemplify the state of most of the country. The express train that temporarily halts the cart and the sophisticated woman she notices riding on it speak of profound income and opportunity inequalities. A few Russians can ride such trains; most of the rest are stuck in carts -- and stuck in other ways, too.

As the cart bumps along on a damp day in early Spring, some snow still on the ground, readers learn:

-- Marya, originally from a middle-class Moscow family, "could imagine no other future than the school, the road to town and back, and again the school and again the road." [Russia is a country without upward mobility.]

--The mayor of Moscow has just been killed. [An actual event at the time of the story.] 

--The wealthy landowner in his four-horse carriage who encounters the cart drinks heavily and when servicing as an examiner of students at the school, gives nothing but the highest grades because he knows nothing. He could easily have improved the roads, but doesn't. He gives the school globes, which Marya considers of no need. [These students aren't going anywhere.]

Saunders makes much of Marya's thoughts about the wealthy landowner as being handsome despite all his flaws and perhaps a way out of her situation -- and how that helps readers understand her. My sense is that Chekhov added this to the story to help disguise its true nature: a critique of the state of Russian society and thus of the country's rulers. The Marya-landowner relationship, or potential relationship, turns out to be just a bit of wheel spinning by Chekhov. Nothing comes of it -- but it helps cloak the underlying nature of the tale.

--Marya wants to get the school janitor, who does nothing but cuff the boys, discharged, "but no one paid any attention to her." The person with such authority can rarely be found and when he is, claims to have no time for whatever needs to be addressed. An inspector has only visited the school once in three years and has no understanding of anything connected with it -- and got his job not because he was qualified, but because of who he knew. The School Board rarely met and no one knew where. Someone with the title of Trustee of the school is half-illiterate, stupid and a friend of the janitor. [So much for the education of rural Russian children.]

--"Marya continues to think of the school and its corrupt administration, and the fact there is no one for her to turn to."

At one point, Sauders talks about how Chekhov keeps describing the road the cart is traveling as getting worse and worse, indicating "a steady degrading situation." That, in my view, is an allegory for the state of Russia in general at the time of the story. 

--Marya had begun to teach school from necessity (her parents died when she was young) and she has little interest in the students themselves -- just getting them past the examinations. "What kind of Russia is this that compels a person to work a job to which she has no calling, and so be reduced by it?" Saunders asks in his commentary. My view: that is exactly what this story is all about; not Marya the individual woman, but Marya the representative of the state of Russia.

-- "Teachers, impecunious physicians, doctor's assistants, for all their terribly hard work, do not even have the comfort of thinking that they are serving an ideal or the people, because their heads are always filled with thoughts of their daily bread, of firewood, of bad roads, of sickness. It is a hard, humdrum existence, and only stolid cart horses like Marya Vasilyena can bear it for long; lively, alert, impressionable people who talk about their calling and about serving the ideal are soon weary of it and give up the work." [With that passage, Chekhov interrupts his narrative for the sake of more critical social commentary. Russia is in such bad shape its best people simply give up.]

--The cart driver claims that when a local school was being built, graft was rampant. Marya tries to dismiss it as nonsense, but Chekhov says no one believed her and thought she was both paid too much and guilty of graft herself. [This is a society where those on the bottom trust no one higher up the social ladder.]

Well that's pretty much it. For me, Chekhov may well have painted a compelling picture of a lonely woman deserving our sympathy -- "an emotionally moving tale," as Saunders put it -- but only to serve a greater purpose: a scathing critique of the prevailing state of Russia at the arrival of the 20th century. Marya, like the cart, is a vehicle upon which the critique rides.

  

"Notions of the Sacred" by Ayşegül Savaş Seems Mistitled

 "Values" is a word frequently tossed about.  Although there can be an overlap, one's values are not the same as one's morals. Values are what one thinks are more important as opposed to less important, or not important at all.

For instance, while it is far from immoral to pull out a cell phone and answer a message at dinner, an important family value might be no electronic devices at the dinner table. 

I bring this up because values seem to loom large in "Notions of the Sacred," a short story by Ayşegül Savaş in the Dec. 26, 2022 electronic edition of The New Yorker.

The story begins with an unnamed protagonist relating how she had entered a new dimension upon learning that she had become pregnant -- almost as though she had become like the Virgin Mary in scenes of the Annunciation. 

She's unmarried and the pregnancy was unintended, the product of a brief affair with a man she would prefer not learn what happened and become upset. "I just wanted to enjoy my new state."

Thus far, it seems what is important to this woman -- what she values -- is her pregnancy and presumably the welfare of the child since she isn't inclined to get an abortion. 

But as time goes by, it becomes increasingly clear that what she actually values most is her lost friendship with a college friend named Zoe -- lost because they had "grown apart over the years," in part as a result of a careless comment one had made. But then one day, after Zoe and her husband had moved to a nearby town, it was Zoe who had gotten back in touch, in part to disclose her own pregnancy.

Eventually, a certain development occurs (I won't totally spoil the story) and it turns out what is most important to Savaş' protagonist is whether Zoe will still like her or not after what has happened. I found it a curious sense of values. Somehow, this woman doesn't appear to have her priorities straight.  

A question along those lines does come up in the usual New Yorker author interview, but Savaş' answer fails to explain why the protagonist considers one thing more important than another. Rather, she ends a somewhat rambling response with a complaint about "the way that the sacred and the body have been commodified in New Age discourse" -- which seems to relate more to the title of the story than to what the tale comes across as being all about.  It's about values in my humble estimation. 

Matthew Klam's Hectic Depiction of a Slice of Society

 Matthew Klam's "The Other Party" in the Dec. 12, 2022, online version of The New Yorker is another example of short fiction as a snapshot in time as opposed to a traditional story with a beginning, middle and end. It's also fiction for our time in that it offers a convincing depiction of a contemporary inter-generational relationship, in this case a father and his teenage daughter in a very white middle-class neighborhood of Washington DC, as evidenced by a reference to Wisconsin Ave. 

Having lived there for 20 years, I know it well.

The wife and mother of the family is present too, but she doesn't loom particular large in the sequence of events. That's because in the pandemic, she has moved her practice into the basement of their house and is depicted as dealing onscreen with an endless stream of patients "in states of dislocation and despair." Having recently lost a job, dad, the chief protagonist, is managing quotidian affairs, 

Publication of the piece is well-timed in that it depicts a hectic pace of events connected with the Christmas season -- a neighborhood party centered on a traditional decorated cookie swap lubricated by a bowl of punch for the older generation and something far less structured, and, given the state of the world, a lot more dangerous for the teenagers.

Dad's method of coping seems to be "go with flow" because there is really no alternative.

Klam's prose style is almost stream of conscious in nature, mostly from the father's point of view.  It's as though readers are seeing and hearing the smallest of developments, as they take place, in exquisite and often colorful detail. The mix becomes increasingly cacophonous as the chief protagonist attempts to deal with the cookies, think about his wife, cope with rapidly changing developments involving his daughter and her friends, and try to absorb and properly relate to a piece of very bad news about a long-time neighbor and friend of his own.

The amount of detail is so rich and the flow of events so fast-paced I personally felt rather exhausted by the time I reached the end of the piece -- and very impressed with Klam's ability to convincingly assemble and depict so much information. 

What the point of all of this?  Hard to say. As I mentioned at the beginning, this is fundamentally a snapshot in time of a certain strata of contemporary society. There is a stab at a conclusion with a somewhat sappy message (although one with which I can identify) -- but the main point seems to be that life is increasingly messy: don't fight it.