Opposite Stanley Druckenmiller, 10-Year Treasury Note Isn’t Important

Argentina doesn’t need to dollarize, but it very much needs a stable dollar. There’s a difference. But we’re getting ahead of ourselves.

For now, Stanley Druckenmiller is incorrect. The 10-year Treasury note is not the most important price in the world. Why would the cost of borrowing for an entity that produces nothing be important, or relevant to the productive parts of the global economy? Druckenmiller probably has an answer, though not a satisfactory one.

Since no one spends the money of others as carefully as they do their own, we can extrapolate that no one borrows money as carefully if they’re not the ones paying the monies borrowed back. Translated, Druckenmiller’s recent commentary about the 10-year’s relevance to global economic activity is conventional wisdom, but also simplistic as so much alleged wisdom is.

Since the 10-year is decidedly not the most important price in the world, what is? The answer is simple, and was plainly foreshadowed by what was written in this opinion piece’s introduction. It’s the dollar, stupid.

That’s because the dollar is the currency of business not just in the U.S., but around the world. Forget what’s legal tender and just know that no matter where you are anywhere in the world, the dollars in your pocket will be accepted in return for market goods and/or services rendered.

It’s a reminder of what’s true, but that economists and those who talk like economists don’t grasp: central banks don’t control so-called “money supply,” money in circulation, or anything else adjacent. Money in circulation is production-determined precisely because producers are more than discerning about what they’ll accept in return for what they bring to market.

From this, readers can hopefully see the abject stupidity of the central bank narrative. Economists, and “free market” monetarist economists in particular, literally believe that consumption, unemployment, the fraud that is GDP, and so much else can be centrally planned by the PhDs inside central banks. Supposedly they can do this by planning so-called “money supply” and the various Ms associated with the latter. The dollar’s global circulation mocks this obnoxious conceit. See Argentina.

If you want to buy a house there, you had better have dollars. Precisely due to the checkered history of the Argentine peso, no sane Argentinean is going to accept perpetually devalued exchange media for something as valuable as a house. And it’s not just houses. The exchange of any big-ticket items in Argentina is refereed by dollars.

Crucial about this is that the Fed didn’t place so-called “money supply” in Argentina. More important, the Fed didn’t need to. Production itself, along with the exchange of goods and services of notable value, presumes a reasonably credible measuring stick as the facilitator of exchange.

Which means what’s true about the dollar in Argentina is yet again true around the world. For so much of the world to dollarize would be superfluous. That’s because global production presumes dollars, or currencies like it known for reasonable stability. It is producers, not economists, who yet again decide what money circulates, and in what amount.

This explains why the dollar is the most important price in the world. It’s quite simply what producers use as a medium of exchange, which means its movements up and down affect wages, prices and contracts around the world, along with global investment without which there’s no growth.

Unknown is if Scott Bessent agrees. If not, that’s too bad simply because a stable dollar price would do more for the U.S. and a dollarized world than any other price, and nothing else comes close.

Originally published on Forbes.