Milton and (Charlie) Rose

by Don Boudreaux on December 29, 2005

in Trade

Milton Friedman was the guest on Monday night’s The Charlie Rose Show.

Unfortunately, a free link to the show — or even its transcript — is unavailable.  But I don’t regret the $9.95 that I paid for the transcript to be e-mailed to me.  Friedman remains brilliant and important.

Here, for example, is Friedman responding to the oft-expressed concern that foreigners holding dollars and dollar-denominated assets is dangerous for America because foreigners might ‘dump’ these assets.

    MILTON FRIEDMAN:  Why – who — how would they dump it?

                CHARLIE ROSE:  They would sell it back.

                MILTON FRIEDMAN:  Sell what?

                CHARLIE ROSE:  The interest on the debt that they have.  The dollars they have.

                MILTON FRIEDMAN:  To whom?  To whom would they sell it?

                CHARLIE ROSE:  Your point is that there is no buyer.

                MILTON FRIEDMAN:  Well, there are buyers, of course there is always a buyer.  At what price?

                CHARLIE ROSE:  But wouldn`t that be destabilizing?

                MILTON FRIEDMAN:  Who would lose money?  Who would lose money on that kind …

                CHARLIE ROSE:  Wouldn`t that be destabilizing?  Wouldn`t that suggest a lack of confidence in the American economy?

                MILTON FRIEDMAN:  Yes, it might.  But the people who would lose by it would be the foreigners who held that and who dumped those dollars.

                CHARLIE ROSE:  Well, then are they in a frozen position then, so that they – they have no flexibility?

                MILTON FRIEDMAN:  They are not in a frozen position.  They are in a position they want to be in, because that`s why they are holding these assets.  Because they are afraid of risk, of political risk.

                CHARLIE ROSE:  What happens if they would allow …

                MILTON FRIEDMAN:  And in general, let`s suppose foreigners start dumping their assets here.  They would dump them at distressed prices.  They would have no …

                CHARLIE ROSE:  Once it started (INAUDIBLE) would begin.

                MILTON FRIEDMAN:  And who would buy them?  The people at home, here, the people in the United States, who had confidence in the United States.  So what you would have would be that the assets would go from weak hands to strong hands.  It isn`t going to happen, because there is no reason for foreigners to dump the dollars.

                CHARLIE ROSE:  But nothing is certain, is it?  I mean, certainly in economics …

                MILTON FRIEDMAN:  Of course not.  Nothing is absolutely certain.  But you can be pretty damn sure of what is likely to happen and what isn`t.

                CHARLIE ROSE:  What might — but argue the other side.  What might cause someone to say we`re holding too many dollars and – and we don`t think it`s healthy.

                MILTON FRIEDMAN:  There is only one thing that would cause them to do that, and that`s if we engage in inflation.

(Hat tip to David Boaz.).

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Stefan Karlsson December 29, 2005 at 1:04 pm

Actually, non-Americans have a very good reason to dump American assets particularly U.S. government securities. I am in fact hard pressed to come up with a worse investment choice than U.S. government securities. Low yields even though they are denominated in the inflation-prone currency called the U.S. dollar.

That does not mean that they are likely to do so. Various Asian governments and Oil exporting governments like Russia, Norway and Saudia Arabia desperetely want to avoid a sharp decline in the dollar so they would likely step in were private investors to dump U.S. assets.

Ivan Kirigin December 29, 2005 at 1:35 pm

"inflation-prone currency"

Compared to what? Over the last few years, the CPI has been low.

A bigger risk is a transition away from using the USD as the unofficial petro-dollar. The EU is trying to get Russia to sell oil for Euros. That could get very ugly.

Keith G. Derrick December 29, 2005 at 9:11 pm


"Over the last few years, the CPI has been low."

Low doesn't mean no price inflation. It just means there is not as much price inflation as before.

If you want to see what the FED has done to the value of the dollar, check out the graph on my blog at:

or just view the graph at:

This graph is a real eye opener.

gman December 29, 2005 at 11:17 pm

If only all the holders of shares traded by the same logic. "I don't want to sell because if everybody sells(this worthless #$%##) the price will go down and we will all lose money….so nobody will sell" In reality, as long as enough market particpants believe they wont be late or last to the exit, this will hold. It is never "different this time". The sterling was once worth $4+.

Mark December 30, 2005 at 1:25 pm

The US dollar is not just the American currency, it is the currency of choice around the world. If a Zimbabwean wants to trade with an Azerbijanian then they will probably use US dollars for the trade (they will also proabably conduct business in English but that's another matter). Thus as long as countries like China achieve spectacular growth and want currency to trade with each other, they will want to hold more US dollars.

This was the position once held by the British pound, the fact that the US dollar has now taken over is one of the reasons why the pound no longer fetches $4.

Joel December 31, 2005 at 12:45 am

Those inflation graphs are always interesting. The gold window closes and the presses start running overtime. Gotta love it.

Babatu Ferguson January 2, 2006 at 4:00 pm

For those who want to watch this episode, it's online here:

kahnbalaya January 3, 2006 at 8:35 am

Two comments:
1. The gold window didn't close. If you look at graphs for the gold supply, it has grown at a steady (if not quite as steep a rate as the dollar) since the turn of the century.

2. Gman's comment is very appropriate. At some point, all shell games must come to an end. Same with the dollar. Milton seems to think that foreign speculators are the only ones hurt in this situation, but what would actually happen is a huge hit in wealth for the American people. A gradual adjustment towards exports would commence, but the shock upward on prices we pay for imported goods (or their comparable domestics) would hit most people quite hard.

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