Billionaire investor Sam Zell says the U.S. must turn its attention to fighting inflation caused by loose monetary policy to counteract the effects of the coronavirus pandemic and protect the dollar’s status as the world’s reserve currency.
“The number one concern is the loss of the dollar as the reserve currency,” Zell said, speaking at the inaugural Forbes Iconoclast Summit in New York. “I don’t think anybody really understands what an incredible benefit it is to the United States and our standard of living that we are the reserve currency and that we can print.”
During the pandemic, the Federal Reserve cut interest rates and purchased government bonds to help keep businesses and families afloat. As the crisis ebbs, that influx of cash has spurred inflation at levels not seen since the 1970s.
At that time, inflation was essentially quelled for decades after a painful tightening of monetary policy by then-Fed Chair Paul Volcker, who raised the cost of overnight money to 20% in 1981.
The same measures are required now, according to Zell. “We need to get back to where money is valued and priced accordingly,” Zell said.
Because the greenback is considered the world’s reserve currency, the U.S. is able to run considerable budget deficits and still borrow in its own currency. The euro and yuan are potential rivals, but so far the dollar’s strength and stability–in part a reflection of the Fed’s tight monetary policy when measured against other industrialized countries–have supported the status quo.
Zell is chairman of Equity Group Investments and is worth $5.2 billion. He is encouraging the companies in his portfolio to maintain high levels of liquidity. “In the end every period of economic stress has ended in a liquidity challenge,” he says. “How it is addressed separates the men from the boys.”
The players who survive in economic turmoil will be the people considering where we will be in a year from now “catching up versus anticipating creates very different kinds of results,” Zell said.