Today is the deadline for the outline for a deal on Iran's nuclear program and the date unilaterally dictated by China for other countries to decide whether to join the Chinese-led Asian Infrastructure Investment Bank (AIIB).
The Iranian nuclear talks, along with concerns about whether Greece will stay in the European Union and as a member of the monetary union, have absorbed much of the media's attention.
Although the Greek situation is more important for traders in the immediate term, for investors the creation of the AIIB is far more important. I expect that once the Iranian and Greek issues have been resolved -- even if just temporarily -- the media will cover the AIIB more.
The media has regarded the establishment of the AIIB as evidence of a transfer of political and economic power to the Far East from the West, specifically from the U.S. to China. That reflects the popular notion of waning U.S. power and U.S. dollar primacy, the end of the West, the rise of the East, and China's domination in the 21st century.
My observations here concern the more immediate actions being taken by public and private financial-market participants and how they may relate to the creation of the AIIB.
I've written many columns concerning U.S. monetary policy during the past six months, about how the Fed won't and can't raise rates, although Fed members have signaled that they will raise rates soon. That's disconcerting because economic data indicate that the Fed should be preparing for another round of quantitative easing, rather than for the opposite.
In the chart below, compiled from data available at the Federal Reserve's economic research Web site, a troubling issue is evident.
On the far right of the screen, you can see the black line declining while the red and blue lines are rising. The black line are payroll-tax receipts received by the Treasury Department from employers, the red line is reported civilian employment, and the blue line is reported wages.
I will discuss this is in more detail later this week, but for now, note that this likely indicates that job and wage growth is being overstated and has been for the past year. Rising wages and declining tax receipts are inconsistent. Something is wrong.
I don't know whether the FOMC members are aware of this inconsistency, but the reduction of the lower end of the estimated natural rate of unemployment to 5% from 5.2% may partially be attributed to this situation.
That would logically cause the Fed to also indicate that it's backing off on expectations for a rate hike soon, but the opposite is occurring. I've written in the past that this may be a warning to speculators to back off from putting on new carry trades, but it may also reflect the Fed's awareness of the potential negative impact on the value of the dollar as the AIIB begins to operate, which is scheduled to begin before year's end.
What's most interesting about the formation of the AIIB is not that the Chinese are doing it, but that other countries are interested in participating at this juncture.
The Chinese economy is showing signs of a rapid deceleration with the potential for the country to be caught in the middle-income trap I wrote about a few weeks ago.
Raising global sovereign capital to fund the AIIB in the midst of this occurring is somewhat similar to taking your company public while your sales and revenue are declining.
The question is why are so many countries willing to participate now? It may be an indication that the rest of the world isn't enamored with the concept of U.S. hegemony, dollar primacy and globalization on U.S. terms, a concept that has been held by U.S. government officials and business leaders since the end of World War II.
The Fed may be revealing that its primary interest has become supporting the value of the dollar rather than managing monetary policy, which is its mandate.
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