Kerry Tries to Tie the Future of the Dollar to the Iran Deal

US Secretary of State John Kerry was on a negative roll yesterday. Not only did he thoroughly exaggerate the power of UN resolutions to keep Iran out of the Middle East terrorism business, Kerry also exaggerated the power of a US rejection of the Iran nuclear deal to torpedo the US dollar as the world's reserve currency. Kerry was speaking at a Reuters Newsmaker event when he warned that if the United States walks away from the nuclear deal with Iran and demands that its allies continue to comply with US sanctions, a loss of confidence in US leadership could threaten the dollar's position as the world's reserve currency. Kerry said : "If we turn around and nix the deal and then tell them, 'You're going to have to obey our rules and sanctions anyway,' that is a recipe, very quickly...for the American dollar to cease to be the reserve currency of the world." ~~~~~ Kerry is engaged in a no-holds-barred battle to keep Congress from rejecting the deal. Yesterday's vastly overstated assurances by Kerry of the UN's and the P5+1's ability to contain Iran's dissemination of weapons to Middle East terrorist groups was part of his battle to save the Iran deal from congressional rejection. Congress has until September 17 to act. ~~~~~ The Kerry rhetoric around the ability of the US to lead its allies in difficult decision-making and position-holding is troubling. His response to whether a better deal with the Ayatollah’s murderous regime could be possible is a good example of this. Kerry said, “Are you kidding me? The United States is going to start sanctioning our allies and their banks and their businesses because we walked away from a deal? And we’re going to force them to do what we want them to do, even though they agreed to the deal we came to?” ~~~~~ But, even Kerry realized that his warning of a potential loss of US financial and political clout in the aftermath of a rejection of the Iran deal was over the top. He later said this was not something that would happen overnight but that many countries are "chafing" under the present international financial arrangements. He said that US Treasury experts are : "doing a full dive on how this works and what the implications are. But the notion that we can just sort of diss the deal and unilaterally walk away as Congress wants to do will have a profound negative impact on people's sense of American leadership and reliability." He said killing the deal may strengthen efforts over time by Russia, China and other nations to undermine US economic power : “There will be an increase in this notion that there ought to be a different reserve currency because the United States is misbehaving and not in fact, you know, living by the agreements that it negotiates itself,” he said. “So it has broad implications." ~~~~~ The financial community was not impressed with Kerry's reserrve currency warnings. New York-based Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, challenged Kerry's reasoning. He said the dollar’s status could be compromised only if the United States were unable to compete economically on a global scale : “The reality of the situation is that the US dollar hasn’t been this strong in decades. The thought that it could be replaced as a reserve currency is laughable at this point on a geopolitical basis and nothing in the Iran deal even remotely touches upon that issue,” he added. Economists and financial analysts have often conjectured that a competing currency like the Euro or the Chinese yuan will eventually replace the dollar as global trade and financial patterns shift. But the US currency’s position has been largely immune - mostly for lack of any good alternative. ~~~~~ In an hour-long moderated discussion at the Reuters Newsmakers session, Kerry also : (1) said the tone of the Iran debate had taken on a political edge. President Barack Obama last week accused critics of the deal of making common cause with Iranian hardliners who chant “Death to America" and said some had beaten the drum for the Iraq war. "You can squabble maybe with the choice of words," Kerry replied when asked about Obama's comments. He stressed his view that the Iran deal should be argued on its merits. "I think the merits are very, very strong and I think the President does too," he said. (2) said it would be impossible for Iran to create a secret program for developing atomic fuel without the United States being able to detect it under the deal. (3) said the Iranians were open to discussing disputes in the Middle East, where Washington and its allies accuse Teheran of backing proxies in Iraq, Lebanon, Syria and Yemen. "They said to me, 'If we can get this deal done then we're ready to sit down and talk about the regional issues and we may be able to work things in different places,'" Kerry said. Iranian Foreign Minister Mohammad Javad Zarif is currently in Lebanon and had already visited Kuwait and Qatar in a bid to reach out, Kerry said. (4) said violations by Iran of an arms embargo or restrictions on its missile program would not force an automatic return or "snapback" of United Nations sanctions under the nuclear deal, although other options would be available. The agreement gives Iran relief from economic sanctions in return for strict limits on a nuclear program that the West has suspected was aimed at creating a nuclear bomb. Teheran has long denied seeking a nuclear weapon and has insisted on the right to nuclear technology for peaceful means. Obama has never ruled out military force if negotiations fail, and has said that he and future Presidents would still have that option if Iran quit the agreement. (5) warned about a rejection of the deal leading to the dollar being replaced as the world's reserve currency. ~~~~~ Dear readers, as one Wall Street financial trader put it : Replace the dollar with what!!??" That seems to be a particularly pertinent question since China has devalued its yuan by 3.5% in the last two days -- in an effort to improve its exports that are the backbone of its economy, while at rhe same time strengthening the dollar. Meanwhile, Russia's talk about a market basket reserve currency composed of the ruble and yuan has stopped now that falling worldwide petroleim prices and sanctions levied because of its Ukraine aggression have driven the Russian economy down by as much as 8%. Secretary Kerry really ought to fact check and then stick to his script when he speaks publicly. Right now, Kerry is his own worst enemy when the topic is the Iran deal.