Whenever I see headlines like this, I ask: what happened in 1994?
It was post-Cold War and central banks were trimming USD reserves to test alternatives.
Then, crises hit (tequila, Asian, Russian, dot com) and the world reconsolidated around USD, thanks to the immense strength of the Federal Reserve and IMF.
Similarly now, reserve share is falling as countries hedge sanctions and geopolitics, yet dollar usage in trade, debt, and crisis funding remains dominant, and unless a true full-stack alternative (liquidity, safety, yield, and crisis response) emerges, history will repeat.
Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Dollars are currently only in demand for short-term use in transactions.
Most of the world still relies on dollars for transactions, because that is what all the banking and payment infrastructure uses.
But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
It's a game of hot potato where everyone is forced to hold equities, commodities or other assets by default in order to preserve their wealth, and then convert to dollars to transact.
The days of savings accounts are over, and everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world.
Meanwhile, the big players in the current financial system are trying to figure out how to continue playing the current game without resetting everyone's progress.
They don't want to lose their hard won position to pay for bad decisions by American voters.
It's a coordination problem, and the shelling point looks like it is still gold, same as it has been for thousands of years.
> Dollars are currently only in demand for short-term use in transactions
This is all currencies. You store value in debt. You spend in the hot currency.
> no one wants to hold them because they devalue and will continue to do so at an accelerating rate
Literally what Treasuries are for.
> everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world
One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
But in today’s economy, you generally can find checking accounts with pay around inflation. And if it really worries you, you can buy TIPS.
> One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
Talk to Mr. Buffet and see what he thinks about this with his mountain of cash… Cash being just transacting might be the most insane thing I’ve read here this year, well done
I think it speaks volumes that Buffet has nowhere else to put that ~$382B in cash; that speaks more about current asset valuations ("everything bubble" [1]) more than that US cash is trash. If assets classes are inflated, US treasuries are no longer a safe haven, gold and other precious metals are overbought, where do you go? There is no immediate answer, imho, but only a slow burn as the world reconfigures around the US not being a superpower, the dollar not being a reserve currency, etc. As Workaccount2 comments downthread, "The dollar sucks but everything else sucks more. [2]"
damn shit is really bad, sky is failing, bubbles are bursting… any other clickbait I need to read up on before I go spend the last of the good days with my kid…?
coolest thing about us in the 50’s is that we’ve seen and read this shit many times before and don’t fall the “bubble du jour” or “shit’s really bad this time…” - especially readers here on HN, bubbles be bursting for yeeeears now, recession is coming, crashes are coming… genuinely am sitting here scared and shook about Buffet hoarding cash, that never happened before…
I've lived through the '00 crisis, the '08 crisis, and a global pandemic. In all cases, there were signs the event was upon us, but you won't know for sure until the event is in full swing. The advice remains the same as it always does: carry as little debt as reasonably possible, don't overextend yourself without good reason, ensure sufficient liquid reserves, maximize employment and income opportunities, and have a strong network, both professional and community. Stay healthy to the best of your ability. Humans have existed for some time, we're going to exist for a while longer. I have many people who depend on me, and I'm prepared for anything short of global unexpected nuclear conflict. As long as you care, that's half the battle. Wishing you a favorable outcome.
To be early or late is the same as being wrong, and I had a friend who lost everything trying to be right take their life when they were wrong. It is true, you have the potential to make money, and if you can afford it, who am I to stop you? But, you can also lose it all, and I hope that those who try don't. It's just numbers in a database after all. Gamble responsibly. There is always someone smarter or faster on the order book.
I would love to find a "casino winning streak" spanning 6+ years :) while you and other people talk about bubbles and gambling the rest of us are getting rich and getting ready to retire... it is what it is...
the crazy ones might put all their chips in at some point and lose it all but of course you should read perhaps earnings reports (go quarter by quarter 2025 and hit it back to say 5 years which is decent enough timeframe and then perhaps think through whether or not investing is ridiculously profitable companies with insane growth and the same as putting all your chips on black :)
maybe if another decade goes by it'll be enough to convince people that just perhaps (to steal this from someone) while every one is digging for gold you want to be the one selling shovels :)
100% - that is the case. except this current "bubble" has been "bubbling" for years now (just look at HN commenters since say 2023-ish). the funny thing is something at some point will happen and there will be a pullback in the market (it's been on a run for waaaaaay to long) and everyone will be like "hey hey hey, see, told ya so, this was bubble all along" except most people that say we are in a "bubble" cannot even define what the bubble is what will it meant for it to pop. Cisco-like?! That is too much?! Perhaps 1/2 of the Cisco!? 1/4? no one knows but for sure I am expecting (markets are that way) that whenever there is some form of pullback (large or very large or meh) HN will go nuts with "told ya so"
the funny thing is, if you were invested in this bull run, even 45% pullback (certainly possible) and say you are an idiot (or just clueless) with a stoploss - you'd still be handsomely up from where you started from...
so we were in a farm-it-by-hand bubble until we invented tractors? :)
I am not trying to disprove the bubble because that is as impossible, you can’t disprove something which doesn’t exist other than in people’s figments of imagination. and whatever happens in the future the bubble people will find a way to justify that it was a bubble all along and non-bubble people will say it is a normal market correction after yeeeears of bull market. makes the entire bubble discussion meaningless
"you can't disprove something that doesn't exist" - Great, so you believe in God then. And Russell's teapot. And a natural number called fentanum, whose successor is itself.
People born in different eras often develop different worldviews by the time they reach their 50s. Not everyone is lucky enough to be born in the "right time".
this depends on which "headlines" you are looking at... if you are right/right-leaning your headlines from a year ago are much worse than those today, sky is falling, biden opened borders, immigrants are murdering 1/2 of the population, economy is shit, eggs are $20/piece...
a year later, if you are left/left-leaning your headlines are "sky is falling, democracy is dying, corruption is through the roof, the country is hanging on by a thread..." too funny to observe what has become of America...
If you're in your 50s you should have at least noticed that things have gotten progressively worse, if not for you (e.g. working in FAANG and getting by better than ever) for the majority in all kinds of ways in those 50 years: housing costs, healthcare, jobs, public debt, private debt, it's a huge list.
So, yeah, those "shit is really bad, sky is failing, bubbles are bursting" shit has been consistently right all those years, and it will get worse.
Of course some people only grok that things are bad when it happens to them personally. 80% of the people could be coughing blood outside their door, but as long as they get their bonuses, all is fine, as far as they're concerned.
> If you're in your 50s you should have at least noticed that things have gotten progressively worse...
This is exactly what I am saying, things have gotten progressively worse. The argument most people are making here is that the worse is not progressive, that it is somehow last 11 months that shit's been going really, really bad (just note how many people are talking about "degree" and "scale" of shit in this thread alone. As if somehow sky is falling right now and it was amazing before.
funny thing is - same people back in October during the election campaign were pitching how economy is "great" and how they do not understand how GOP can run on economy platform when US economy is doing amazing, much better recovery post-COVID than any other country without a doubt. now though, economy is really bad, just horrible, can't be any worse :) in both cases, the 80% of the people you are mentioning are suffering, they were in October and they are even more so now. but everyone is in their own bubble, the "opposition" (myself included) in the current political order is saying "oh shit's really bad now" and "ruling party" people are like "oh man, how great are things, tariffs are doing their thing, exports are up, imports are way down, market is red hot..." etc...
Coolest thing about you in the 50s is that you’ve spent your grandkids’ money (and used up their resources and polluted their environments) so you wouldn’t have to face any consequences for your poor decisions.
Unfortunately your grand kids have run out of money and descendants to steal money from.
it is OK, I made enough for my grandkids and their grandkids so they'll be just fine. and all without stealing a penny from anyone (well this is a lie, I did steal a chocolate once from a grocery store to impress a girl but I think I'll be forgiven for that...)
> Talk to Mr. Buffet and see what he thinks about this with his mountain of cash
When finance types say "cash," we mean cash and cash equivalents. Berkshire Hatahway doesn't literally hold cash, they hold yield-generating cash equivalents.
> Cash being just transacting might be the most insane thing I’ve read here this year, well done
I strongly recommend a home economics course if this is the case. If you want to go deeper, anything about monetary theory
Does he really hold cash? Or does he hold TIPS for example, and people colloquially refer to it as "cash"? I assumed it's the latter since it makes much more sense.
Cash and cash equivlants are referred to in finance as cash, since they are–for all practical purposes–equal to it. Except yield generating. Which, if you're not an idiot, is how you hold cash.
Source? Every indication is that dollar-denominated financial assets are tremendously in demand. (What metric are you looking at?)
The Fed has been reducing rates while selling assets, all while U.S. public debt explodes. The Treasury is selling more debt. The Fed is selling debt. Rates went up, and then they went down. That means there is, ceteris paribus, more demand outside the Fed and Treasury than there was when Russia invaded Ukraine.
It isn't cetiris paribus, the Fed rate tells us nothing about demand because they purposefully devalue the dollar. The entire world could be refusing to accept US debt except Broke Boris and they could technically negotiate a 4% rate with just him. Assessing demand for US debt has to be linked to real goods/services/assets somewhere along the line or there just isn't anything to say. The BRICS arguably make up around 40% of the world's economy and they appear to be either slowly evacuating or less-interested in treasuries [0]. It is by no means clear that US debt demand is up or even stable.
Great time to own gold, unfortunately. I wish mine had been a bad purchase but with all the "real growth" it has been experiencing I'm probably going to need a bigger vault box.
I wish I was more sophisticated in these areas. But I'm not. My fear isn't so much reduction in USD is our American stupidity in current account deficits, and debt which is to precisely point fingers at our insipid Congress. The last gasp --- which proved to be all air --- was Paul Ryan who was gonna try to fix things. Since that time it's a combination of we didn't, and we can't, plus reactionary moves. In so doing we're just wasting our soft power here. The other head wind is trade deficits. But unlike that, our budget and it's knock on effects is more directly in control.
I once ran into Tom Keene of Bloomberg news around 2014. In discussing this his view of Washington's view was we can print whatever we want. I was surprised he didn't criticize that ... but it's stuck we me ever since.
The 10-year Treasury rate has more than doubled since 2001. I skipped Econ 101 - If you have to pay people twice as much to take your debt, is there more or less demand for it?
Extend range to "Max". Yields in 2001 -- looks like the peaked at about 5.4%. Yields today are about 4.13%.
What am I missing?
Also, this phrase... is a strange one.
> If you have to pay people twice as much to take your debt, is there more or less demand for it?
If your economy is running red hot (with relatively low inflation rate), then the central bank normally raises interest rates. Yields on central gov't debt will closely follow these rises. Controversially, I will say within a "reasonable" yield range (maybe 1% to 8%), the yield itself says very little about demand for it. Before COVID-19, Germany's 10 year gov't debt yield was frequently zero or slightly negative. Again: What does this say about demand for it? Not much.
You are mistaking owning US debt and having your debt denominated in dollars. Many foreign countries find it desirable to own US treasuries, but they don't want to borrow dollars and have a dollar-denominated debt. When that happens, and your own currency is devalued, you still owe the same number of dollars. You now have to buy these more expensive dollars to repay your dollar-denominated debt.
People want to be dollar debtors, not dollar creditors.
When I said no one wants dollars, I was referring to people's willingness to hold actual dollars or obligations that pay them dollars in the future.
Your other comment mentions the AI bubble, and also makes me think you don't understand what I'm saying, since we seem to agree about what happens to dollars and debt in a bubble.
Companies are glad to take dollars now in exchange for owing dollars in the future (something they would be less willing to do if the dollar was strong).
They then turn around and spend those dollars on GPUs and electricity.
They think they can get more done with a dollar this quarter by trading it to NVIDIA or a power company than by holding T bills.
Fed rates do not track the real demand to be a dollar creditor.
That's kind of the point, the Fed is the lender of last resort.
If no one wants to give dollars now for more later, then the Fed becomes a creditor to the treasury at an arbitrary rate.
Try that same argument with a zero coupon bond. It works fine because you don't have any coupon payments, thus no income tax until the principal is repaid at maturity.
> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro, but even that has serious issues for Europe's export oriented economies [1].
The EUR/USD FX rate has been pretty stable for about 10 years. I think (sadly, didn't check notes before I wrote this), the trade balance between US and EU is well-balanced. As a result, the FX rate should also be well balanced.
> Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro...
I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead.
Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Instead think about:
1. The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held.
It should have a positive real yield, but right now it doesn't.
2. How much your personal basket of monthly expenses costs in terms of dollars.
Ignore a basket that someone on the news told you to care about, like CPI.
I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
If you stored value in business or a precious metals in the last year and then converted back, you would probably have more dollars, or be able to buy more stuff, that's all there is to it.
> I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead. Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Forex rates, balance of trade, and relative strengthening are great ways of understanding international fluctuations. They are exactly the way to understand reserve currency movements
> 2. How much your personal basket of monthly expenses costs in terms of dollars. Ignore a basket that someone on the news told you to care about, like CPI. I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
This hits at a major part of the issue: goods that have no importable replacement good (housing and healthcare, namely) are a huge part of what lead to the huge bout of inflation. But those are domestic economics, not international economics.
>The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held. It should go up, but right now it goes down.
It depends.
Positive real interest rates do not necessarily mean deflation, and deflation isn't necessarily a bad thing.
As an example, you could give a loan for $1 to someone for 5% interest.
In a year they pay you back, so now you have $1.05.
That dollar could get you exactly the same amount (of real goods or services that you personally want) as last year, or it could get you more, or it could get you less.
Inflation and deflation typically refer to the price of a basket of intrinsically valuable goods and services.
That is separate from the interest rate which is just what you, the creditor, and the debtor shake hands over.
If the dollar gets you the same basket as last year, then you are net better off because now you can buy the basket and you have $0.05 for lending to someone who was able to pay you back.
The missing variable here is the productivity of the rest of the economy, if the economy is growing, then you can see a decrease in dollars per basket (deflation), but that's not necessarily a bad thing.
The interest rate is sort of like a best guess for the productivity of the debtor.
> Hum... There are no reliable numbers out there, but I don't think the dollar devaluation has been keeping up with the US inflation.
There isn't anything like "dollar devaluation has been keeping up with the US inflation". You are interested in what is called the import/export price index [1] and for imports that has been relatively flat for the past ~24 months(import +.3%, export +3.8% for TTM). So in a sense, imports for a fixed good are relatively unchanged in constant-currency terms.
It's more along the lines of "if the EUR goes to 1.5, what does this do to eurozone economies?" and the answer to that isn't pretty for europe. This would greatly impair the economy of Germany and other large eurozone economies pretty substantially(see this article for why [2]).
And finally, remember: the US actually exports inflation [3]. Most economies cannot simply say no to this effect.
> If all the prices rise in the US to compensate, Europe stays exactly as competitive as before.
Yes, but my point is exactly the opposite has occurred for imports: the US is still roughly flat in terms of import inflation. Since Nov '22, import inflation has been sub-3% without exception and sub-2% since 2023 without exception. The US is still exporting inflation effectively, and US inflation is due to factors other than currency fluctuations.
That's the real issue: the USD weakened 8% against the EUR, and prices remain the same. For eurozone exporters to the US that's an absolute disaster.
No, this is an artifact of Russian reserves getting frozen in 2022 and autocracies the world round getting more careful about having all their eggs in that basket.
The PRC’s SAFE is selling dollars and buying gold in a very covert but absolutely massive fashion, and most likely, so are many other countries in a smaller way.
India has also been quietly bringing back its gold reserves stored abroad. NATO west made a very bad call by freezing, and then publicising their threat to also seize, Russia's foreign reserves in their country.
2 Star Trek tv shows airing and one in development and a movie came out. West coast grunge scene in full effect. Kurt cobain died. MLB baseball strike after a killer Montreal expos team and then no World Series. OJ trial. Friends debuted. Channel tunnel opened. Mandela elected. PlayStation debut. Amazon founded. Yahoo founded. Netscape founded. USA World Cup. NAFTA. QR code invented. The Downward Spiral. Justin Bieber born. Shohei ohtani. Born. Nixon died. Jackie Kennedy died. Senna died. Ukraine gave up its nukes. Guantanamo reopened. Kim Il-sung Died. Forrest Gump.
No, each pushed alternative is just worser. The euro could take over, but europe just revealed itself as a "lawful" player with no plan and no pants (security-wise) - so the euro is just defacto tied to the dollar value wise. For without the us guarding europe, the euro is just loaded with invisible gigantic security and pension debts.
BRICs is dealing in store credits and raw-materials. Every other empire and kingdom is not to be trusted or only to be trusted as long as the town power-drunk world-police-man does his job. He may be the towns drunk, mumbling "Screw you guys, im going home!" but he is also the only one so far doing a decent job as sheriff.
You can grasp how unreliable the other actors are, by how one of the hostile actors (russia) recently complained about the (world-police) doing what its proxies in yemen and ukraine are constantly doing (piracy) to venezuella. They complained about the break-down of maritime safety- to the us. Yep, its that bad.
Everyone knows what’s going on. Europe is slowly reacquiring pants (too slowly for my taste).
The US has this ridiculous belief that Europe has no military ability. The truth is that Europe is far too skilled at war, and collectively disarmed after the Second World War and let the US make the decisions and pay for it all because that was the only way to achieve a lasting peace. European armed forces aren’t ready for war, but they are skeletons on which wartime forces can be reconstituted.
Now that the US is dropping its responsibilities it’s also losing its privileges, but everyone is moving quietly so that the amateurs in the White House don’t cotton on. The world doesn’t need a sheriff; it’s just going to have a bunch of players looking after their own interests. The historical attitude to war already prevails: ‘it’s fine as long as it doesn’t affect us.’
Unfortunately the skeleton analogy is not correct, because it assumes that the foundation is fine, and you just need more beef/muscle/money to scale it up.
With the exception of few European countries that did maintain a functional army (Finland, France), other countries' military skeletons suffer from terminally low levels of bone density due to decades of under- and malnutrition. The whole bodies (incl. skeletons) have to quickly be build anew.
It still has enough equipment and manpower to easily get through Baltics and defeat Germany and others. Fortunately for the latter, Poland is in the way and can perhaps put enough of a fight.
The thing that you are missing is the huge development in drone technology. Ukraine and Russia are the top2 countries that know how to use this technology as part of the military action, and Western countries would have a rude awakening as nails. More technologically advanced "tanks" would not matter much.
Those words hit harder when you've an executive that isn't beholden to Russia or threatening to fucking annex part of an ally, and a Europe that isn't investing heavily into rearmament.
Ah yes, because the US has been sooooo fucking supportive recently. Give me a fucking break. Your GDP is bigger than ours, and you claim to give more aid to Ukraine, but you haven't even remotely matched it. The sheer fucking arrogance of you.
> Can you help Ukraine enough so it can win?
Can you (the American executive) stop collaborating with Russia[1]?
> If not you can’t defend your own countries alone.
Are we talking about the EU or Europe here? Because only one is relevant to the Euro here. It's important to get this right, because it does tend to get confused by bystanders from the far side of the Atlantic.
The Baltics are in the Eurozone. If Russia invaded the Baltics tomorrow, Europe would be dependent on America to stay intact. That isn’t really a risk one wants to take with a reserve asset.
Do central banks really asses the risk of total collapse of the Euro (only) in response to Russia's currently frazzled military launching an invasion against NATO borderlands which NATO fails to mount any effective defence as higher than than the risk the current US administration freezes assets for arbitrary and capricious[1] reasons?
In practice, of course, most countries are willing to accept both risks.
[1]a lot of states that can be reasonably confident that they won't provoke the US in the manner Saddam Hussein or Putin did whether they're friendly or not can be rather less confident the current president won't take extreme measures in response to something completely innocuous like jailing someone for domestic corruption, being a source of emigrants to the United States or maintaining a trade surplus...
It's worth emphasizing this: without the US Navy, the remaining European powers don't have the naval force to stop Russia from blockading the Baltics. And without the ability to break such a blockade, there's little hope in aiding the Baltics against a land invasion from Russia and Belarus. Russia wants a land route to Kaliningrad, and they'll take it at this rate.
My understanding is that European Air and Ground forces have been able to deter or destroy Soviet/Russian Naval operations in the North and Baltic Seas since the start of the cold war. Land based anti-ship missiles have more than enough range to cover the entire water way on their own.
This was a major reason the Soviet Union and now Russia never invested in a large navy outside of Submarines.
Where would this blockade be? In the NATO sea (baltic sea)? Covered by European Nato countries at every direction, and then whole entry passes through Denmark.
Something like the brics can challenge that. Having a safe currency vehicle that can sustain itself much like the dollar that the world will trust is all the momentum you need. Much like why the dollar is. You have a big player now like China backed by other large populated countries etc brazil.
Brics is nothing but a meeting, conversation and PR arena. It is not an Union of any kind, not military, not scientific, not political, not trade, not cultural.
BRICS having it own separate currency and a central bank is as far from reality as the samw thing happening to the qualifying countries in Mundial.
no society is going to just bow down for eternity and accept things as they are for long. if an opportunity presents itself. I'm not understanding what "reality" means as if the BRIC nations aren't in that "reality" as we speak. weaponizing sanctions and intimidating macro foreign economies isn't something that other peoples take lightly. the circumstances from the 90's and now are very much different with very much different rulers taking charge today. less dictators in third world countries and more dictator impersonators of developed countries. There was a less will to do more harm that can be public before vs now everything is public and you become immune to the affects of what could be until it becomes the norm for you. Things change my friend, its frugal thinking otherwise.
This article is literally about the decline of american dollar dominance. i'm not sure with in denial is still at play here. There is a clear panic alarm in the US, look at the policies and attitude of the US. things are changing.
You have to put stuff in perspective. Despite the recent decline (which is still way above the 50% and much higher than the lowest it has ever historically been), the percentage USD has is still several times larger than the EUR in second place.
Yes, but global reserves are the domestic total foreign debit, and the government does not control that one. (I mean, it can weight in how it grows, but it's not the one that makes it.)
I think what you are saying is the sum total of global economic activity from the US point of view is foreign debt. The US has no direct control over this debt other than control of printing treasuries.
Okay, only 4 surplus years. 10% uptake of GLP1s, okay, they'd be in surplus. 100% uptake, it would be a deficit.
Any number of things could have happened. This was just one thing that definitely was completely in control of people - it was in the control of Pfizer's commercialization team - it wasn't some unforeseeable crisis.
My point is, the little HN takes here and there like yours, better to not make them, because frankly you don't know anything about the budgeting process or governance, so why say anything at all?
I don't doubt he was lucky which is why I parenthetical referred to the dot com boom. I don't quite understand the relevancy of GLP1s to his luck. I think obesity wasn't what it is today back in the 90's.
I mean, luck is always a part of it, but you need responsible policy too. The US was lucky from 2010 to 2020, with the the economy growing basically that whole stretch, and we still ran a massively growing deficit the entire time because we decided to try and reform the middle east while lowering taxes.
A really important detail that I don't think gets enough mention is that the second gulf war was paid for off the books. The war was not part of the federal budget.
would his policy have been to pay for GLP1s? Yes. And is that a little more than a hypothetical? yes. People who don't know US budgets don't know what drives faster-than-GDP growth in expenses (it's real estate, biotech and college).
I'm unable to follow the point of the significance of GLP1s. I also wouldn't describe the expense as biotech I think healthcare is a better description.
Finally the US's current healthcare system is truly broken. Our elected officials choose to ignore the issue and act as if we are fortunate to have this system. Which must be the least efficent way to deliver healthcare.
> People who don't know US budgets don't know what drives faster-than-GDP growth in expenses (it's real estate, biotech and college).
That's just wrong. Social Security, Medicare, debt interest, and the military eclipse everything else. Discretionary spending outside the military is only like 15% of the budget.
Also, why are you even connecting GLP1 drugs and the 90s federal budget surplus? The drugs didn't exist back then, and the government isn't paying for everyone to take them now, so I have no idea why you'd even draw a connection there.
Because new drugs are what make the federal spending pie larger. Slower growth also does. Wars can also make budgets balloon, but then you’d be like “well Clinton wouldn’t want wars.” Okay, so would he want faster medical progress? Of course, and that turns out to be budget busting!
The drugs could have existed back then. You’d have to read the link. And today they do, and under Clinton, would he pay? All great things to talk about.
I am trying to have an interesting conversation and instead it’s just, downvote this downvote that.
You made a claim (budgeting wasn't good, they were just lucky) and backed it up with a strange hypothetical (if GLP1 drugs were released it would have driven the deficit higher).
Your connection between the two is that new drugs are a primary driver of the federal deficit, which just isn't supported by the the reality of where the US government spends money.
I don't know what interesting conversation you expect from any of that. If you can show why you think drugs are driving the deficit, that'd be interesting.
It was written contemporaneous to Clinton. You are welcome to read about the budgetary process of the Clinton years, healthcare was THE primary issue. Like why am I talking about this stuff, and why was everyone talking about it under Clinton? Because we’re all stupid? Military spending is PERCEIVED to be something about the budget, but it is ALL ABOUT HEALTHCARE, it has been since 1965 in this country, and it is all about healthcare everyone else in the developed world, acutely so in Europe and Japan.
You're glossing over the leap between "is a driver of spending increases" and "is a primary driver of spending increases". IIRC healthcare costs rising has far more to do with an aging population than new drugs, so, again, I'm not seeing a strong link between new drugs and the government deficit.
The dollar's share hit a historical bottom around 45-46% in the early 1990s (specifically hitting roughly 45.8% in 1991 and remaining in the high 40s/low 50s through 1994). By the end of 1994 and into 1995, the share began to rise again, eventually peaking at over 70% in 2001.
Another factor was that the 1990's was the Pre-Euro Era, the peak of the "multi-polar" reserve system. Before the Euro was launched in 1999, global reserves were split among many more national currencies (the French franc, the Dutch guilder, etc.), which naturally diluted the dollar's total share more than the current "USD vs. Euro" system.
> The dollar’s share had already been below 50% before, in 1990 and 1991, after a long plunge from the peak in 1977 (share of 85.5%). This plunge accompanied a deep crisis in the US with sky-high inflation and interest rates, and four recessions over those years, including the nasty double-dip recession.
Or, in other words, at 1991 the US started recovering from the Oil Crisis and the subsequent fuckery. There's a dip in that number around the time the USSR felt, but it's just a small acceleration to the trend.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Do you think the world is relatively "stable" right now?
Oh, and I'd check the data before believing usage in trade debt and crisis funding are going strong. Two of those are constantly making headlines for how they are decreasing, and "crisis funding" is basically another name for "reserve currency".
We are at constant peripheral micro-wars in the last 33 years. The US are behind these, selling weapons to both sides. Nothing will change. Ukraine saga will continue as it is for many years, before the next one. God bless nuclear weapons that we don't see any direct US-Russia-China conflict.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
No. Its the result of the US, UK and the EU stealing Venezuelan and Russian state and private dollar funds and every country on the planet realizing that they could get the same treatment if they are at odds with any of them at any point.
Seems interesting that cryptocurrency has suddenly been bolstered with legislation. A secondary market might become important were the dollar not to recover.
I'm not sure I'd call our current geopolitical status stable in any way. Multiple major wars, historic superpowers losing their absolute minds, fascism rising, even discontent in the EU.
This is an artifact of the instability of our current times. USD reserves are falling because the US is no longer a stable country offering a stable currency. Plus we keep demanding more tarriffs in effect reducing the real value of a US dollar.
Stability would appear as more confidence in USD, not less.
I'm not an economist so someone please correct me / expand on this;
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?
Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.
You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity
Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.
Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.
The printing of dollars by the Fed comes with a secondary effect - the dollars are not evenly distributed amongst the population. They are printed via market action, and the ones who are closest to the market action are free to capture as large of a share as markets allow.
Over time, it's natural that actors will optimize the above system to capture as many dollars from the printer as they can.
This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.
The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.
Gold-backed currencies, and even Bitcoin, are really good if you want your economy to be only this big, and never grow bigger. Eventually, a crisis will happen, and you'll say "actually, its now 1.3 yuan to the gram, because we need to build tanks", or "actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines", or "its now illegal for citizens to own gold, turn it in at your nearest party headquarters" (even the US participated in that one!)
"actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines"
I know you mean it as in governments won't return to a system that doesn't let them inflate the money supply, but that doesn't mean it's a bad thing...
Yes, inflationary policy is a tax. But its better than the alternative, where the commodity cant keep up with the economy, and that money goes to the holders of the commodity instead with nobody in control
Can you rephrase that? Because I think you have it exactly backwards here unless I'm misunderstanding you.
In inflationary systems money becomes worth less, but 'things' tend to hold their value. This is precisely why the very wealthy are accumulating massive amounts of 'things' - it creates profit out of nothing thanks to inflation. So you're most incentivized to buy up as much as you possibly can, and then rent access to it. This is precisely how you get the WEF saying things like, 'You will own nothing, and be happy.'
By contrast in a deflationary system the value of things tends to decrease over time, all other things being equal. That is to say that obviously things like land can still increase in value over time if demand, in an area, significantly outpaces supply, but relative to inflationary systems - the 'natural' direction for prices is down. And so in this system there's much less motivation to hoard things. Of course in exchange there's a far greater motivation to hoard money, but at least that's fairly equitable. Right now lower classes simply can't avoid paying the inflation tax, whereas the wealthy not only avoid paying it, but directly profit off of it.
The amount of currency does not have to correlate with the size of an economy. When the economy grows while the amount of currency stays the same then your money simply becomes worth more. For the overwhelming majority of history this was taken to be a good thing. The argument for inflation is that if money become worth more over time then it would discourage investment and encourage money hoarding.
That's probably not untrue, but that critique doesn't simply make the alternative better. Money becoming worth less, inflation, creates an arguably worse scenario where now wealthy individuals are motivated to hoard things instead of currency. For instance Bill Gates is currently the largest private landowner of farmland in the US. This issue is where you get the WEF also publishing their 'You will own nothing, and be happy.' goal. I find this more unpleasant, and even dystopic, than Scrooge nosediving into his stash of ever more valuable dollars.
Another major issue here is that lower classes are the most unable to deal with inflation. They can squirrel away some money, but in an inflationary system that's the last thing you want to do. For instance stuff like bank CDs are basically just exploiting economically illiterate individuals. Nobody wants money in an inflationary system, but lower classes need immediate access to their money for the next time e.g. their car breaks down, and they are extremely risk averse. The net result of this is a system that not only perpetuates but directly drives ever greater extremes of wealth inequality.
If you want to see how much a deflationary currency fails as a currency, just look at bitcoin. The wild value swings are caused by more people hoarding it than using it as a currency, which is caused by it being deflationary. Now look at monero, which is inflationary, is largely used for day to day purchases (of mostly illegal items) and has a much more stable value, which is one of the key attributes of a good currency.
The USD was metal based, in one way or another, from 1792-1971, with two brief interludes after the Civil War and Great Depression. That's a really good pedigree.
So our current inflationary system only really kicked off in 1971 and is already looking somewhat clearly unsustainable. But what makes this particularly relevant is that 1971 was also right when major breakthroughs in computing were about to unlock a huge economic leap. That helped briefly enable the infinite exponential growth that this inflationary system requires. Without that, I doubt this system would have seen its 50th birthday.
On the topic of stability, the Fed worked to calculate inflation levels from 1800 onward here. [1] You'll notice that from 1800 to 1950 prices never shifted by more than 50% relative to the initial baseline of 51. That's pretty wild if you think about it because it includes the Civil War, both world wars, Great Depression, Spanish Flu, and all of these sort of things. Then in just the relatively calm ~50 years from 1971 to to today, prices increased around 800%.
for much of that time you could not actually receive any metal from the US, notably after the great depression domestically. The entire issue is that the US economy grew far faster than the supply of gold so could not physically purchase the required amount of gold as it did not exist.
There were ~10 years after the great depression where convertibility was suspended. One decade out of nearly two centuries is not "much."
The amount of currency need not, and arguably should not, scale with the size of the economy. Everything is relative in an economy. When the amount of 'stuff' in an economy grows faster than the amount of currency, then prices decrease - your money becomes worth more - deflation. Vice versa, if the amount of currency in an economy grows faster than the amount of stuff in that economy, then prices increase - inflation.
Inflation is undesirable, but it's in a constant tug-of-war with governments and fiat currency. When governments give themselves the power to print infinite money, they end up doing exactly that, often to the point of destroying their own economy. This is precisely why the Founding Fathers chose the US currency to be coins made of precious metals. It limits the government's ability to damage the country through reckless monetary policy.
Think about how fragile everything is already seeming being glued together by massive fed involvement, quantitative easing, and ever more archaic economic ideas like zero or even negative interest rates. And we're only 50 years into this experiment which, on the scale of something like a broad monetary concept, is barely a blink, and it's starting to come apart at the seams. And this is all during extremely stable years compared to the World Wars and other such events that we overcame in the past.
> The replacement will probably be a multinational currency with strictly controlled quantity tied to [...] probably [...] gold.
This is econolibertarian fan fiction. Literally no one wants that except people already involved in speculating[1] on gold. Are there bad externalities to relying on a unlitaterally controlled reserve currency? Yes. Are they made better by handing financial control over to a bunch of fucking mine and vault operators? Let's be real, here.
Basically this idea appeals to people who've convinced themselves they can get rich betting on financial policy and stay rich by burying their loot in their metaphorical backyard.
[1] The very fact that such speculation even exists should be a triple exclamation point red flag on any argument about hard currency, but alas no.
SDR valuations were tied to gold when the USD was still gold-based. Needless to say Bretton Woods didn't survive that transition at all. Again, it was a failed (!) experiment, not a recipe to try again. Believing otherwise is fan fiction.
Because dumping all of your US treasuries is a political statement. You can only sell to a willing buyer and announcing that you’re going to do that is tantamount to lighting wealth on fire. Treasuries are assets so there’s no counterparty that will “run out”.
I’m pretty sure no-one has argued that a gold standard would prevent economic disasters. That sounds like a straw man. My understanding is that there would be more of them but the individual and cumulative impact would be far less. You can still have fractional reserve banking with the gold standard so the gold standard alone is not sufficient to prevent that.
> I’m pretty sure no-one has argued that a gold standard would prevent economic disasters. That sounds like a straw man. My understanding is that there would be more of them but the individual and cumulative impact would be far less.
Contrary to popular opinion, the historical record shows that gold does not actually bring price stability; see "Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts":
Before what we call "The Great Depression" (of the 1930s), that label was applied to another years-long economic malaise, which was in part caused by using gold-backed currency (as was the 1930s Great Depression):
Many things work just fine right until they stop working, our current strategy of blowing ever bigger economic bubbles has worked for a long time and I expect it will continue for long time. It has the very stable property of enriching the already wealthy.
But it will not last forever and I do expect to see the end of it within my lifetime. It is this calamity that I'm interested in diminishing and it is on this basis that I think a weaker federal reserve would be less damaging. Since the federal reserve obscures the true state of the economy uncovering the true state will coincide with a weakling of the federal reserve and will appear causal.
I'm not a gold bug, I don't own any of it, I do own some bitcoin but my main asset is my software company.
> Many things work just fine right until they stop working, our current strategy of blowing ever bigger economic bubbles has worked for a long time and I expect it will continue for long time. It has the very stable property of enriching the already wealthy.
The enriching of the already-wealthy is happening because of non-progressive policies (taxes, and others). Plenty of countries have fiat currencies and independent central banks, and yet don't have inequality rates like that of US currently has.
In fact, the US used to not have inequality rates that the US currently has. This is a phenomenon that has a fairly definitive starting point, with particular policies that (US) society has "accepted" and can 'simply' choose to start rejecting:
The US is a completely different country compared to what it was 100 years ago, or even 50 years ago, and economic policy is not the only thing that has changed.
It appears that you see ‘progressive solutions’ as an answer which I would expect to arrive in the form of tax normalization which alongside monetary inflation constitutes the much coveted wealth tax. I am in disagreement with progressives that this would result in a decrease of inequality, for one the state will be completely reliant on the wealth of the wealthy increasing, as opposed to the income of the middle class increasing. I see inflation as a regressive tax, the poor will pay a higher percentage in tax but a lower in relative terms due to the increase in inequality caused.
> I am in disagreement with progressives that this would result in a decrease of inequality, for one the state will be completely reliant on the wealth of the wealthy increasing, as opposed to the income of the middle class increasing.
Funnelling more money from the top tax brackets to social programs like childcare, better teacher salaries (to attract better talent), lower tuition for (community) colleges and (public/state) universities would be helpful to the lower deciles of the population IMHO.
> I see inflation as a regressive tax, the poor will pay a higher percentage in tax but a lower in relative terms due to the increase in inequality caused.
Look at the history of the gold standard and deflation (which often happens under gold regimes): it was poorer folks that were mostly against it. Inflation helps those with debt (like mortgages, student/car loans), which I would think is more helpful to lower income folks. Deflation helps creditors.
It hurts those with debts more, they have to pay a higher interest rate than the wealthy and with things being more expensive they have to borrow more. Wages don’t keep up with inflation.
The problem with large redistribution initiatives is that they invite corruption. When such initiatives can be reliably delivered without corruption then maybe I could have some faith in it. I’m to see how all these Somali ‘learning’ daycare centers shake out. Prima facie it looks rather fraudulent. I fail to see how giving more money to fraudsters will help matters.
Price stability is overrated. Prices must change according to scarcity. Letting the government print money any time prices start to fall is literally letting the government profit off your back. It makes accounting easier, but it destroys market information like "Supply of goods is catching up to demand, find something better to produce".
And the money supply that is created by government(-ish) institutions is by central banks, which—in modern times—are generally operated independently from the government (except in, e.g., Turkey; and some folks want less independence). Central banks often work in opposition to what politicians want: just ask Powell.
You are preaching to the choir, for the most part. People just got brainwashed into expecting prices to be "stable" but what is really happening is the price of money is being manipulated for various reasons.
Credit is a very thorny issue. Politicians and banks have promised people impossibly good and contradictory outcomes.
>And the money supply that is created by government(-ish) institutions is by central banks, which—in modern times—are generally operated independently from the government
In all cases the independence is an illusion. Conflicts over policy are manufactured to make the government appear more frugal than it is. Every fiat currency ever has gone to zero.
Hah. This is merely your lack of imagination speaking. It could be that reality plays out that you are right, but what a sad, constrained world of ideas that would be.
US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).
As for where that money is going now? Other currencies and saving instruments probably..
In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.
Many economists take the stance that being the world's reserve currency is something of a two-edged sword; a curse that does come with geopolitical advantages, but bundles those advantages with significantly more difficult global financial responsibilities.
It’s either printing or increasing taxation for constant benefits. We all know what happens when the government tries to increase taxes at all, now try doing it for zero increased benefits. This is a populace that’s had candy for dinner since WW2, and forcing them to eat their vegetables will result in a never before seen level of civil unrest from people of all political inclinations.
The Fed most commonly uses Open Market Operations to modify the money supply, with "money printing" or Quantitative Easing used in more emergency situations.
But more broadly your comment doesn't really represent reality, whatever happens in the markets and economy the Fed manages inflation (or deflation) and it's much more complicated than a single relationship like you describe.
More interesting is trade, where the US consumes so much and pays out so many dollars for goods that places like China which run huge surpluses have few choices other than lend it back to the US.
Sure; and I'm referring directly to those "emergency situations", which aren't much of an "emergency" as most people would understand the word given that they've engaged in QE for ~7 of the past twenty years.
But you seem upset by QE in general. It seems to upset a lot of people, possibly because the Fed created a lot of money, but that's what central banks do, they create and destroy money. It's really not that much of a big deal. People lose sight of the fact that money is an abstraction and not something concrete.
It's always been that way. The notion that currency is backed by something concrete like gold is an illusion, one that some people cling to these days.
Even if it were true, inflation makes the whole issue moot. Money is only worth what it will buy, so it is at the mercy of prices.
Finally money depends on people's collective acceptance of it. No point in holding gold if people lose confidence in gold, for instance if people start producing convincing fakes. How does the average person verify gold? It almost always goes back to trusting some central authority.
It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.
Ok, let's see - yuan isn't a freely traded currency, it's heavily regulated by China. From that alone it can not be used a reserve currency by anyone - unless they want to hand over all control over their assets to CCP.
The rupee is better, but there's not a lot of trust in Indian institutions globally, so black swan events are more likely. I can see it becoming a better proposition as India further matures and taps into its population more.
No, euro - that's a solid contender. Not only it's already used in a lot of countries, and therefore backed by more than one economy, the EU institutions are legit to a fault - they continuously refuse to seize Russian assets, because there's no solid legal grounds for it, despite all political will towards doing so.
That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
The main issue with the euro has been the stinginess of the ECB. The Fed always makes plenty of dollars available but during the Great Recession this was not the case in Europe. This is a problem for euro-denominated debt. (It is also a problem for the yuan.) The unusual political structure of the EU — not a single country — is also potentially concerning, as is its apparent dependence on the United States for defense.
> That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
Lack of integration/solidarity. A common currency is a pretty bad idea if economies are allowed to diverge (see previous sovereign debt crisis, there's no reason why eg France can't be the next trigger).
You need a common tax base, and solidarity across member (much more than the current state) to have an effective monetary policy.
The in-between status quo for EU really isn't great (either you need to keep building EU institutions/start having proper eu taxes and budget -- something that is not really popular at the moment--, or euro should be reconsidered). (From what I understand it's not really a controversial opinion in economic circles).
Who considers them politically suspect? I’m guessing the people who live in the countries that use them don’t, and on the contrary would increasingly be seeing the USD as politically suspect.
The people who live in the countries that use them aren't relevant, because we are talking about them as reserve currencies. What matters is whether other countries see them as politically suspect.
Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.
Not sure what your links are supposed to prove but here is the link[1] to the actual yield on the 10 year bond, higher yield means the bond is sold at higher discount i.e. cheaper.
> higher yield means the bond is sold at higher discount i.e. cheaper
Yes. The Fed set a policy of higher rates. It did that by selling bonds and driving the price up.
Then it set a policy of reducing rates, and was able to do that by just selling fewer bonds. Not buying them. That implies strong demand for these assets. (You can’t use price as a proxy for demand in Treasuries since it’s an explicitly manipulated price by its issuer.)
Long bond rates have somewhat decoupled from short term rates set by the fed. For instance, they just slashed short term rates 25bps, but long bond rates (10+ years) have actually gone up a few basis points since the cut.
This is exactly what we'd expect if demand for treasuries wasn't keeping pace with US debt issuance. I mean, if you look at the debt, and the USD's current position, there really is no way out for the US government other than inflating the currency and cashing in that reserve status for a reset. The obviousness of that reality is why precious metals are going nuts.
> For instance, they just slashed short term rates 25bps, but long bond rates (10+ years) have actually gone up a few basis points since the cut
Could you point to the date range you’re referencing?
> if you look at the debt, and the USD's current position, there really is no way out for the US government other than inflating the currency and cashing in that reserve status for a reset
Of course there is. Loads of options.
Broadly speaking, the talk around rates and commodities tends to involve serious people totally divorced from the talk-show/Zero Hedge circuit.
> Could you point to the date range you’re referencing?
The last two months. There was a rate cut in October and again in December, but since late October long bond yields have been rising.
> Of course there is. Loads of options.
For instance?
The US debt is currently rolling over into higher rates bringing the average yield of our debt up. The only way around that, if long bond yields don't come down, is to roll the debt into short term treasuries where the rate is tied more to fed funds rate. That would be inflationary.
If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.
If it's more profitable to keep your money under a mattress than to make things, provide services, or provide loans, the economy will tilt toward hoarding cash instead of more productive activities.
Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.
Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).
Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.
Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).
Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.
That argument comes from an ancient list of arguments against gold. But nobody seems to be able to explain why that would matter at all. There doesn't need to be any correlation with the amount of currency and the economic output. And there has never been any such correlation, including right now with the dollar or any other currency.
If you want an economy to prosper the currency value has to remain stable. That means it has to scale with economic output. You can, of course, not do that, if you want to kneecap yourself.
OK, now do dollar-denominated assets. Stocks, bonds, commodities, real estate. How have those fared over the same time period? Those types of assets are where I put my money for long-term savings.
Only idiots that don’t understand inflation hold lots of cash, bringing that up is a strawman. Cash is not a store of value, it’s a unit of exchange and unit of account. Again, cash is not for saving, it should be used to purchase assets if you want to create long-term wealth.
Inflation is a tool used to encourage people to spend or invest their money instead of hoarding it. By spending it or investing it in dollar denominated assets, economic activity and GDP increased. Hoarding cash doesn’t help anyone.
Have you ever considered that perhaps your ideas about the monetary system are wrong?
If you think 3% inflation is bad, wait until you see what happens when you don't have it. The value of money has to decrease or it won't circulate - see Bitcoin.
Only the fact that it would be an idiotic policy that would destroy the economy.
Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.
Conversely how is the Fed supposed to manage inflation if it runs out of gold?
Gold is an industrial metal, also used in jewelry, not a financial panacea.
Now you know why so many countries want to leave the dollar system. There are no meaningful constraints on the supply of dollars.
Gold at least places real constraints on the growth of the money supply. Imperfect as it is, it’s better than a financial cabal in one country creating money to suit their needs irrespective of any other objective.
Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).
All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.
As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.
Price of a commodity metal can do whatever they want without causing a big problem. It is just a resource allocation signal. However if you base your currency value on it suddenly you are forcing debtors into bankruptcies if the value shoots up. Credit relationships aka investments are what make an economy run and grow, not some arbitrary commodity price.
Debtors who roll their loans also go bankrupt when the fed raises interest rates.
Rolling loans is par for the course for many capital intensive businesses. This is because in a low interest rate environment if you act prudently you’ll get outcompeted.
You're just so used to a debt fueled economy that you can't think of it being any other way. That is the problem though in that 99 times out of 100, debt goes rogue in a runaway sense and blows up the system. It is a time bom.
In essence, debt doesn't need saving from the system; it's the system that needs saving from debt.
A system that lasts a hundred years before failing is a successful system. This reminds me of comments about bankrupt companies that made massive profits for 10 years, calling them failures. That's a success and the comment is sour grapes.
Insane this administration wants pimp the US out to the highest bidder and let the crypto weirdos run the world. If we ever lost the reserve currency peg treasury bills will spike and it’ll be impossible to fund the government. We spend 7T every year and take in 5T in taxes. This admin is gutting the IRS and banking on tarrifs which are just taxes. So … without the ability to keep interest rates very low because everyone wants our debt …
My understanding is that it has happened. The oil market was tied to the USD. The BRICS have now implemented a payment system as robust as SWIFT system. Oil is now being paid for using that system.
Panics about how oil is being traded in non-USD terms are as old as the internet and, in all likelihood, even older than that. You can find usenet slop from 20-30 years ago about the petro-euro and the "tehran oil bourse". Here's an old site that is/was daily panics about the fall of the dollar, from 15-25 years ago. http://www.engdahl.oilgeopolitics.net/
Nobody is panicking. BRICS has gotten steadily larger and is gaining as an alternative banking system. This is competition. This just requires more thoughtful strategies.
The steady building up of alternatives will happen until one day the reserve currency status will change hands all of a sudden.
I think the Fed could stem the whole thing by just issuing a stable coin itself pegged to the dollar and re-assert itself as the dominant currency/arbiter... but who knows. Maybe then it'd have insight into every transaction and be able to stem things with even more power than it can now.
Nobody stays king forever. Maybe it's time the US is forced to balance its books and stop riding on cheap credit. Losing the power of the reserve currency and the power that that gives to SWIFT and things will take a lot of soft power away from the US. Without allies the US couldn't stop a united China, Russia, insert-other-would-be-ally-of-theirs in a world conflict.
As another commenter said there's no leadership at teh top just chaos. People, countries, banks don't invest in chaos.
> steady building up of alternatives will happen until one day the reserve currency status will change hands all of a sudden
This is not how it has ever happened. Instead, we’ll see a gradual erosion as the world switches to multi-polarity and spheres of influence. (And, with decreasing international trade, every country’s reserve mix will vary.)
I agree that the next wave may not be dominated by a single currency. I also think that is a superior system. I think the BRICS system is based on honoring multiple currencies rather than using a single currency for settlement.
It’s more robust and less efficient. Transaction costs—and opportunities for middlemen—will increase. But the chances that your country’s economy is entirely shut down on the whim of one man in Washington is reduced.
> the BRICS system is based on honoring multiple currencies
The BRICS system is nonsense, as evidenced by basically nobody using it beyond a totem amount. Both the PBoC and RBI have superior settlement systems they could open up if they wanted to. Neither does because neither wants an unrestricted capital account.
I agree that it has been unused but disagree that it will always go unused. I think that China is using the US current global antagonism to encourage others to participate.
> disagree that it will always go unused. I think that China is using the US current global antagonism to encourage others to participate
China is in a border dispute with another founding member of the BRICS. Another is in the Western Hemisphere and will become a proxy-financial frontline.
There will be yuan, Euro and dollar payment rails. (If the EU had failed to unify, they’d be getting divided up between Washington and Moscow again.)
I think the Fed is under powered without consistent planning from our executive office. Erratic behavior does not instill confidence for people trying to rationally plan.
I also think the US used the banking system to punish enough nations that an alternative became viable.
I would say it's a mystery. The US has corporations that are better funded than many nations. These corporations are also rationally managed and operate globally. As a patriot I hope that the US starts to utilize rational thought.
I wish you would elaborate how being a net exporter relates to it being a myth. I don't see the connection. My point is that global trade of which oil is a major component needs to settle the books nightly. If the books aren't reconciled in an efficient manner trade has to slow down.
> how being a net exporter relates to it being a myth. I don't see the connection
Petrodollar a U.S. policy comes from the 1970s, when the U.S. guaranteed the House of Saud’s security in exchange for them selling their oil in dollars. The reason wasn’t to do some currency scheme, but to ensure the U.S. could always buy Saudi oil in a currency we controlled. Saudi Arabia then invested its profits in Treasuries, which closed the loop on Wall Street [1].
When America imported oil, keeping oil exporters close was strategically vital. Petrodollar recycling helped with that. Now that we don’t, it doesn’t.
I see that as a side show to the overall banking system. I trying to express that this was a reactionary response to an immediate problem rather than a key part of banking.
> see that as a side show to the overall banking system
See what? The geopolitics? The petrodollar was entirely a geopolitical affair. If anything, one could argue petrodollar recycling—together with the fall of the USSR-created the modern American banking system. (The timeline is compelling for e.g. LBO debt.)
The reaction to 70's era oil embargo as opposed to the overall global monetary system. The oil embargo was a use of the monetary system not an intrinsic part of it's development.
Oil embargo was about America not having oil. We didn’t react with a financial tool to that, but with security guarantees via our military. Putting the financial piece first reverses causation on the order of a decade.
I don't think so I think the US had many levers one might have been security guarantees. To try to separate the US influence into specific categories is the same as trying to dissect a joke or a frog.
> forcing oil to be bought with dollars, the USD was pegged to oil demand, especially from developing nations whose consumption was growing
If you give me one source, I'll break down why this is wrong.
(In case there isn't one, the U.S. dollar was never pegged to oil demand [whatever that means]. And nothing about petrodollar recycling thought about developing nations for one second.)
Hasn’t all recent oil purchases been settled using USD. My understanding is that most countries buy US treasuries to maintain US credit ratings and to settle global trade debts.
> Hasn’t all recent oil purchases been settled using USD
No. I’ve traded and settled oil in British pounds from a desk at a bank in New York.
> most countries buy US treasuries to maintain US credit ratings and to settle global trade debts
No to the first, partly to the second. Holding Treasuries doesn’t affect creditworthiness. That said, Treasuries are a universal collateral, so some lenders may require Treasuries be held in reserve for their safety (usually in a third-country bank).
The main reason countries buy Treasuries is for reserves. These are maintained so they can defend their currency. They need dollars to do this if their country trades in and/or finances with dollars. (If they trade in or finance with yuan, they should hold yuan bonds, which they can quickly turn into yuan to sell into the market to buy back their currency, thereby stabilizing it.)
So gutting public institutions and the tarifs do not work as trump intended because the fed opposed it? What did they do achieve that? (Sorry if i come across as trump deranged.)
> Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?
The Fed isn't opposing Trump's measures, on the contrary, the Fed is doing everything to accommodate as much of his policies as possible without wider damage to the economy.
It's Trump who doesn't understand the risks of unhinged tariffs and low interest rates which he demands because of his personal conflicts of interest.
The US worked hard for this outcome. After stupidly weaponizing the financial system, and stupidly outsourcing their industrial capacity and basing GDP progress on bubbles, there's no wondering why countries and global players wont trust their money to the dollar...
There is a global shift toward higher US equity allocations seeing how well they've performed in the last however-many years. Also it seems like President Trump's sole mandate is to keep the stock market from crashing, so that helps.
Highly unpopular opinion here and I'm going to get downvoted into the ground (who cares), but ... this has been a very long time coming and has very much been a self-inflicted change.
My bet is that it will end up being a very good thing for the world at large.
China has recently started to buy Arabian oil and paying with yuan.
Major countries (India, China) are starting to buy Russian raw materials and paying directly using rubles.
In both cases, trade is happening and completely bypassing the once unavoidable USD.
The US choosing to weaponize the USD for geopolitical purposes has finally made the world realize the immense loss of sovereignty they had allowed themselves to be subjected to by making the USD the global trading currency.
This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
The golden triangle of Russia (raw materials), India (highly educated workforce, strong demography), China (industrial powerhouse, stole the bulk of Western IP, is now producing more cutting-edge research than the west) finally free of the shackles of the USD and establishing direct overland trade routes that 100% avoid the seas (thereby 100% avoiding potential US embargoes, both financially and militarily enforced) ... the world is going to change in a rather profound way, finally relegating the US to being a simple country instead of the has-been empire it currently is.
Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines, not data. From a global payments share, dollar is still the single largest currency from a percentage standpoint, and is at historically highest share of global trade. Any changes to currency share are coming from lower volume from the Euro. On top of that, if you look at foreign reserves, yes there has been a recent selloff from the peak, but we are still at 60% of global reserves and its still kind of around the same historical average for the last 30+ years.
Edit: I also want to add, that while having the international trade entirely in dollar sounds very appealing, it can actually destroy US exports and damage the trade balance. This can have massive impact on domestic as well as global economies. What you want is a strong enough dollar.
I think youre conflating 2 different things, share as a payment currency and share as reserve.
Share as a payment/trade currency is not going away though it will be greatly reduced especially with CIPS that bypasses SWIFT.Andmost data showing no change is usually from SWIFT - with zero visibility to the volumes in CIPS.
Share as reserve is more visibly viz central banks stacking gold and hedging on treasuries , with most tresurie bids coming in from offshore financial hubs likethe Caymans.So could be a whole shellgame there to inflate the volumes.
So yeah the $ isnt going away anytime soon (cross border trade still requires it in many places),the exorbitant privilege it enjoyed is.
> Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines
I would encourage you to actually take a gander at the history of reserve currencies, how long they last, how they lose their reserve status, and what the current state of thinking around where the dollar is headed.
Unless you would classify the IMF as a clickbait farm, of course.
Start with the brit. pound and what led its downfall to the niche financial instrument it is today.
But the pound is just the latest, and by no mean the only one.
> get the bloody USD printing machine under control
The amount the US government spends on debt service is already unreasonable. If the US dollar lost reserve status, the first thing that would happen is that the Fed would have to buy the debt with newly created money to prevent bond rates from causing interest payments to explode. Meanwhile the act of other countries unloading US dollar reserves would cause significant inflation in itself.
Basically, loss of reserve status = hyperinflation. At least at the outset.
On the plus side, that would pretty much wipe out the excessive amount of US consumer debt as long as wages stay consistent with the value of the dollar.
Russia is a joke, India is somewhat irrelevant and doesn't seem like that will change soon, China is a different story, although they also have their share of demographic and economic issues.
And Putin and Xi are 73 & 72, and I doubt they will give up power as long as they're living which may result in significant turnmoil for both countries.
> US to being a simple country instead of the has-been empire it currently is.
The US isn't going anywhere for now, although it is trending in the wrong direction, but it's not yet a lost cause, not to mention that its still basically a fortress with endless natural resources and relatively good climate.
And then you also have the AI race which might be a dud or might be a winner takes all scenario. So gonna be an interesting next decade.
Agree it will land more stable for most parties but it will be turbulent getting there. Global free trade under the USD has created many structural fragilities. Principally that we have global overproduction outside the USA.
> My bet is that it will end up being a very good thing for the world at large.
I generally agree with pretty much all your points other than this one.
While it will be good for other countries to regain sovereignty - and the weaponization of the US dollar for trivial reasons will be the biggest self-own perhaps in history - I do not think the world is going to be a better more peaceful place in 50 years.
It might be more free in a certain sense though, which may or may not end up long-term (over multiple generations) being better overall for humanity. Time will tell.
Certainly though, the average quality of life in the US is about to plummet.
Frankly, this will be good for the world if it happens. The U.S. War Industry will for the first time after Bretton-Woods be deprived of a bottomless piggy-bank.
Lot of emotion in this comment; not a lot of substance. I think you're misunderstanding how some of these systems work.
> This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
It is not the case that the US didn't "need" to get the USD printing machine under control because of the reserve status; it is the case that the US
"could not" get the USD printing machine under control, because of the reserve status. When there is demand for US dollars, domestic or foreign, US dollars sometimes needed to be printed to satisfy that demand. If the US decides to not print those dollars; this is literally "defaulting on the debt", and would be bad-bad.
This gets at where you're misunderstanding how these systems work, because I think you're imagining that US debt is, like, an account in your Chase app that goes up, then you pay it down. US debt are, obviously, bonds. The USG says "we've got bonds to sell, they're at N year M% interest". Buyers say "we want those bonds we'll buy them". The USG is now in debt, and is obligated to repay those bonds; and sometimes has to print money to do so. This gets at the previous paragraph; money, broadly, is printed to satisfy debt obligations, not directly to service the deficit (proceeds from the initial bond sale are what could be said to directly service the deficit, but that's pennies compared to the size of the overall market).
Extending the Chase app analogy, you have it internalized that if we just get the deficit under control, then we could start "paying down the debt". In fact, probably, even our President understands it like this. But this isn't how it works. To "pay down the debt" would require two things to happen: We stop issuing new treasury bonds, and we pay off the already issued ones over 20/30/etc years as they mature.
The general professional sentiment on what would happen if the US even communicated it wanted to, in totally good faith, begin doing this at some point in the future, is basically armageddon. You have it in your head that, because Dave Ramsey says debt bad, the US should have no debt; but the world wants our debt; it has an insatiable (though, decreasing) appetite for it. Depriving the world of this debt would leave trillions of dollar-equivalents without anywhere to park safe from inflation, which would descend global financial markets into chaos. Tens of millions of people would starve in the first three months, among other undesirable outcomes. Some actively make the argument that the USG refusing to take on new debt would be net-worse for the world than the US defaulting on their existing debt, though its an interesting space to game out; a little game of global-cataclysm worst-thing-to-ever-happen-to-humanity olympics you can play.
But, debt servicing is becoming unmanageable for the US budget; so the best case for the United States is that USG debt demand from the rest of the world drops slowly and naturally, so we can naturally slow the issuance of new debt; and over 100 or so more years let managed inflation catch us up to recover from the utter shitshows that was 2001, 2008, and 2020. Everything I've seen, and I do mean everything, suggests that this is what is happening; but we'll know for sure in 90 more years.
Your entire wall of text has conveniently and completely omitted the hard fact that the U.S. Treasury has borrowed to pay for its defense (oops, sorry, I meant "war") budget for many, many years now. The war budget (~$850B) has been larger than the deficit in many years.
No other nation except the U.S. can sustain this without running into hyperinflation and consequent national rioting.
Ooooh that must've struck a nerve. Seems we can't post that here without massive loss of reputation. Progressivism != liberalism. That stuff just doesn't fare well, even as sarcasm.
Dude is giving what many have wanted for years, the largest of which is a massive reduction in US hegemony. Restarted militarization of Europe, accelerated the expansion of China into Africa. Causing Five Eyes to curtail the flow of intel.
But at the same time, utterly burning US soft power with the shuttering of USAID and most likely causing 14M excess child deaths world wide. Shutting down USAID was a bigger "mistake" than the invasion of Iraq and the blowback will be even larger.
Bro just drove the US empire off a cliff. Manufacturing will have to come back if they succeed in burning US currency. Good thing the rich have so much of it, Elon at 1/10th is still 40-70B.
In the process of burning down democracy, Trump has brought about changes that progressives have wanted for decades, namely a vast reduction in US hegemony. He has also caused massive suffering, inflation and will lead to the deaths of millions of people.
Dollar dominance erosion shifting towards dollar inertia. Post RU sanctions dollar lost much of it's leverage (as geopolitical weapon), i.e. actual useful dominance function (transaction panopticon, sanctions)while still retaining most of the liability (Triffin etc). Dollar going to remain popular by volume because plumbing in place, but parallel payment systems last few years = systematic blindspots where US treasury can't monitor what others buy outside of dollar system, and generally weaker ability coerce countries. What's left of dollar system is US enjoying exorbitant privilege of going into ~35T and rapidly increasing debt to serve as asset for everyone else, while dragging down export via uncompetitive FX.
One interesting attack vector vs USD is PRC recycling it's dollar surplus / shadow lending it's USD reserves at more favorable rates than US gov can, i.e. countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand and drive up US interest -> further increase US debt. PRC basically hijacked and weaponize USD liquidity to make increasingly ineffective dollar system (as geopolitical tool) even more expensive to maintain while PRC can enjoy dollar liquidity without the maintenance costs. And that's probably the ultimately the goal, smart play is not to inherit reserve obligations, but to turn reserve holder's exorbitant privilege to exorbitant curse.
> countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand
This makes no sense. If the PRC is lending U.S. dollars, that doesn’t reduce Treasury demand. It increases demand for dollar-denominated assets, goods and service providers. The borrowing country has to spend those lent dollars after all.
PRC lending their USD surplus to countries to buy more PRC shit. "Increases demand for dollar-denominated assets, goods and service" =/= increase demand for US treasury, aka it doesn't fund US deficits. The attack is not on dollar circulation / liquidity but cost of treasury
Old: PRC recycle surplus USD into US bonds, increase US treasury demand, subsidizes cheap US debt.
New: PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds, decrease US treasury demand, treasury increase interest to fill hole, makes exorbitant privilege more exorbitant.
PRC parallel dollar bond lending COMPETES with US treasury bond lending. PRC dollars gets recycled towards PRC goods / BRI projects, not US treasury. PRC leveraging dollar liquidity for PRC geopolitical interests, meanwhile taking demand away from treasury bond sales, so US drive rates up to compete. US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers (vs PRC who previously default recycled into treasury), so raise interest, increase debt servicing. US 10 year going from 0% (countries basically paying to hold USD) to ~0.8% cost US ~300B+ annually. Now that's not all PRC doing, but 100 billion here and there and soon we are talking about real money.
> attack is not on dollar circulation / liquidity but cost of treasury
No real way this can work between similarly-sized trading economies. Worst case, a couple central bankers' weekends would be ruined.
> PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds
How? PRC sends dollars into BRICS. What do they do with the dollars? If they aren't sitting on them, they're contributing to the dollar economy.
The PRC financing using dollars would be nuts because it puts their sovereign financing into American hands.
> PRC parallel dollar bond lending COMPETES with US treasury bond lending
Not in any meaningful way. (There aren't that many indisctiminate buyers of international debt anymore. Put another way, most Treasury buyers have and will never buy any Chinese paper and vice versa.)
> US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers
Not really. You fire up the Fed. If it's China that's doing it, that's national security. Hell, sanction the accounts the dollars are going into.
> but 100 billion here and there and soon we are talking about real money
Have you traded Treasuries in an instituional setting? You're talking about the size of a single desk's intraday exposure.
Or you know, a few basis points increase in interest rate that adds up to 100s of billions of new debt obligations a year (now more than defense), but it's America, no one loses sleep over that.
>they do with the dollars
Sign PRC development contracts, which = PRC products. Not US treasury. Dollars circulating =/= dollars going into treasury to finance US solvency.
>meaningful way...
>aren't that many indiscriminate...
>single desk's intraday exposure
Churn =/= net absorption, liquidity =/= funding, which is 2T new issuance per year to cover deficit right now (speed =/= volume of plumbing). The exact vulnerability is not many indiscriminate buyers... and losing a whale like PBOC that was one of them, and their 100s of billions has outsized effect as marginal buyer that closed auction regardless of price. Now they've been replaced by price sensitive buyers which means FEDS raise rates to attract non indiscriminate buyers who buy for yield/valuation not storage to close auctions. Meanwhile PRC lending out their USD which further decrease demand for treasury. Instead of exorbitant privilege of cheap debt, treasury payouts closer and closer to market rate because indiscriminate price takers like PRC out. Structural cost of capital increases when debt velocity and refinancing reach fiscal trap levels.
>using dollars would be nuts
>national security
I mean it's happening, lots of PRC loans / shadow lending / swaplines backed up by their dollars, because it's better for PRC use them to further PRC interests than subsidize US debt. What's national security crisis? PRC not using dollars to buy treasury? AKA US going to announce to world surplus USD now must be mandatory recycled/loaned to US gov or be sanctioned? Are they going to sanction countries for buying PRC tractors and end up increasing USD risk premium even more? The virtue of mechanism is PRC is sustaining US dollar system (which Trumps seems to like, i.e. threaten to sanction countries who goes off), but incrementally stripping dollar strength into liability. There's shit all US can do about it without looking even more delulu and making system worse (granted for everyone). US/Trump still gets to see the privilege of dollar liquidity/churn/circulation, but now they have to pay through the nose for it because PRC marginal buyer not there to keep interest floor down.
Could you explain what do BRICS do with dollars they borrowed from PRC? Buy oil and so the dollars flow to SA. Then what do BRICS do when the dollars loan to PRC is due?
It's not limited to BRICs but many emerging economies or distressed countries PRC wants to gain influence. Dollars attached to specific PRC projects, i.e. BRI, so they buy PRC industrial inputs, goods, equipment, contracts PRC SEOs to build XYZ. It goes from a Chinese bank to a Chinese contractor who buys other shit. But the shit they are not buying is US treasuries, and even if they did, not at PBoC/central bank for storage low yield rates that subsidizes US debt. Sometimes there's more generalized debt servicing swaplines, but regardless When dollars come due, PRC can take rmb/commodities/assets (rarely aka debt trap). If borrowing countries payback in USD, then cycle repeats. PRC is basically exploiting UDS network / liquidity effects without paying exorbitant privilege. Well they do pay, as in they take on lending risks, but their USD reserve is inherently not safe anymore post RU sanctions, so might as well as use it now.
USD position as global reserve is very much based on trust.
Between the weaponizing that for sanctions via SWIFT, US becoming unreliable as a partner (militarily, politically and economically) and Trump rambling about replacing pieces of the financial system with crypto [0] that trust was bound to waiver
Think we'll have a parallel system in record time. Question is who/how. Russia wants it but they're well Russia. China's yuan isn't open enough. Euro is a bit to regional and dependent on the US lead system anyway. So there isn't an obvious candidate.
Something is going to have to give though given US shenanigans.
Judging by the comments Americans still don’t intuitively understand what the rest of the world does. Everyone is trying to create distance from the United States. The US no longer represents the smart deal, it represents risk, risk that countries can’t afford. The US has spent the last year creating chaos and punishing its closest allies and trading partners. The instability goes beyond Trumps term too, they’re rightfully afraid of the system that elected Trump twice. When they have a choice between euro’s, dollar’s or yuan they’re going to choose dollars less frequently to avoid exposure to the US.
Can confirm, one example: the company that I am currently working for put all its plans for investing in the US in the fridge and is exploring other markets now.
That’s entirely the point. Leave the USA financial system or contribute more. If you pick an single alternative currency I’ll run through the reasons why most would choose the US Dollar.
There’s more to international trade than what central banks do. The US is still a good place to invest overall, which is why we can run trade deficits. The money earned by foreigners, whether it’s from selling oil, cars, or anything else, goes into US investment of all kinds. Foreigners can buy the S&P 500 just as easily as bonds.
US interest rates have been declining lately, so perhaps other investments are more attractive.
Whenever I see headlines like this, I ask: what happened in 1994?
It was post-Cold War and central banks were trimming USD reserves to test alternatives.
Then, crises hit (tequila, Asian, Russian, dot com) and the world reconsolidated around USD, thanks to the immense strength of the Federal Reserve and IMF.
Similarly now, reserve share is falling as countries hedge sanctions and geopolitics, yet dollar usage in trade, debt, and crisis funding remains dominant, and unless a true full-stack alternative (liquidity, safety, yield, and crisis response) emerges, history will repeat.
Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Dollars are currently only in demand for short-term use in transactions. Most of the world still relies on dollars for transactions, because that is what all the banking and payment infrastructure uses.
But no one wants to hold them because they devalue and will continue to do so at an accelerating rate. It's a game of hot potato where everyone is forced to hold equities, commodities or other assets by default in order to preserve their wealth, and then convert to dollars to transact. The days of savings accounts are over, and everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world.
Meanwhile, the big players in the current financial system are trying to figure out how to continue playing the current game without resetting everyone's progress. They don't want to lose their hard won position to pay for bad decisions by American voters. It's a coordination problem, and the shelling point looks like it is still gold, same as it has been for thousands of years.
> Dollars are currently only in demand for short-term use in transactions
This is all currencies. You store value in debt. You spend in the hot currency.
> no one wants to hold them because they devalue and will continue to do so at an accelerating rate
Literally what Treasuries are for.
> everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world
One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
But in today’s economy, you generally can find checking accounts with pay around inflation. And if it really worries you, you can buy TIPS.
> One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
Talk to Mr. Buffet and see what he thinks about this with his mountain of cash… Cash being just transacting might be the most insane thing I’ve read here this year, well done
I think it speaks volumes that Buffet has nowhere else to put that ~$382B in cash; that speaks more about current asset valuations ("everything bubble" [1]) more than that US cash is trash. If assets classes are inflated, US treasuries are no longer a safe haven, gold and other precious metals are overbought, where do you go? There is no immediate answer, imho, but only a slow burn as the world reconfigures around the US not being a superpower, the dollar not being a reserve currency, etc. As Workaccount2 comments downthread, "The dollar sucks but everything else sucks more. [2]"
[1] Look around: Bubbles are everywhere. - https://news.ycombinator.com/item?id=46303596 - December 2025
[2] https://news.ycombinator.com/item?id=46407032
damn shit is really bad, sky is failing, bubbles are bursting… any other clickbait I need to read up on before I go spend the last of the good days with my kid…?
coolest thing about us in the 50’s is that we’ve seen and read this shit many times before and don’t fall the “bubble du jour” or “shit’s really bad this time…” - especially readers here on HN, bubbles be bursting for yeeeears now, recession is coming, crashes are coming… genuinely am sitting here scared and shook about Buffet hoarding cash, that never happened before…
I've lived through the '00 crisis, the '08 crisis, and a global pandemic. In all cases, there were signs the event was upon us, but you won't know for sure until the event is in full swing. The advice remains the same as it always does: carry as little debt as reasonably possible, don't overextend yourself without good reason, ensure sufficient liquid reserves, maximize employment and income opportunities, and have a strong network, both professional and community. Stay healthy to the best of your ability. Humans have existed for some time, we're going to exist for a while longer. I have many people who depend on me, and I'm prepared for anything short of global unexpected nuclear conflict. As long as you care, that's half the battle. Wishing you a favorable outcome.
Wishing you a favorable outcome too!!
I love pretend bubbles cause while everyone is waiting for them to burst one can make shitton of money
To be early or late is the same as being wrong, and I had a friend who lost everything trying to be right take their life when they were wrong. It is true, you have the potential to make money, and if you can afford it, who am I to stop you? But, you can also lose it all, and I hope that those who try don't. It's just numbers in a database after all. Gamble responsibly. There is always someone smarter or faster on the order book.
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People have winning streaks in casinos too.
I would love to find a "casino winning streak" spanning 6+ years :) while you and other people talk about bubbles and gambling the rest of us are getting rich and getting ready to retire... it is what it is...
They end up losing it all at some point
the crazy ones might put all their chips in at some point and lose it all but of course you should read perhaps earnings reports (go quarter by quarter 2025 and hit it back to say 5 years which is decent enough timeframe and then perhaps think through whether or not investing is ridiculously profitable companies with insane growth and the same as putting all your chips on black :)
Right, because you were predicting chstgpt in 2018…
Amazing how you are quite literally proving you got lucky and yet you seem to believe that you’re hot shit.
Remember that before chatgpt there was a crypto craze which created demand for nvidia
And big tech have been buying loads of GPUs for like a decade at this point.
maybe if another decade goes by it'll be enough to convince people that just perhaps (to steal this from someone) while every one is digging for gold you want to be the one selling shovels :)
and gaming too before and after and now... damn this nvidia is the luckiest company on the planet ;)
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This is also the case with real bubbles.
100% - that is the case. except this current "bubble" has been "bubbling" for years now (just look at HN commenters since say 2023-ish). the funny thing is something at some point will happen and there will be a pullback in the market (it's been on a run for waaaaaay to long) and everyone will be like "hey hey hey, see, told ya so, this was bubble all along" except most people that say we are in a "bubble" cannot even define what the bubble is what will it meant for it to pop. Cisco-like?! That is too much?! Perhaps 1/2 of the Cisco!? 1/4? no one knows but for sure I am expecting (markets are that way) that whenever there is some form of pullback (large or very large or meh) HN will go nuts with "told ya so"
the funny thing is, if you were invested in this bull run, even 45% pullback (certainly possible) and say you are an idiot (or just clueless) with a stoploss - you'd still be handsomely up from where you started from...
Real bubbles also bubble for years. You have done nothing to disprove a real bubble.
so we were in a farm-it-by-hand bubble until we invented tractors? :)
I am not trying to disprove the bubble because that is as impossible, you can’t disprove something which doesn’t exist other than in people’s figments of imagination. and whatever happens in the future the bubble people will find a way to justify that it was a bubble all along and non-bubble people will say it is a normal market correction after yeeeears of bull market. makes the entire bubble discussion meaningless
"you can't disprove something that doesn't exist" - Great, so you believe in God then. And Russell's teapot. And a natural number called fentanum, whose successor is itself.
I do not believe in God but I cannot disprove that it exists, there is a slight difference between the two...
You can't prove there isn't a boogie monster under your bed
People born in different eras often develop different worldviews by the time they reach their 50s. Not everyone is lucky enough to be born in the "right time".
Yup. It’s wild seeing the internet chat about the latest flavor of the week of “the sky is falling”.
Try going back 1 year and look at those headlines. What you’ll find seem silly looking back.
this depends on which "headlines" you are looking at... if you are right/right-leaning your headlines from a year ago are much worse than those today, sky is falling, biden opened borders, immigrants are murdering 1/2 of the population, economy is shit, eggs are $20/piece...
a year later, if you are left/left-leaning your headlines are "sky is falling, democracy is dying, corruption is through the roof, the country is hanging on by a thread..." too funny to observe what has become of America...
If you're in your 50s you should have at least noticed that things have gotten progressively worse, if not for you (e.g. working in FAANG and getting by better than ever) for the majority in all kinds of ways in those 50 years: housing costs, healthcare, jobs, public debt, private debt, it's a huge list.
So, yeah, those "shit is really bad, sky is failing, bubbles are bursting" shit has been consistently right all those years, and it will get worse.
Of course some people only grok that things are bad when it happens to them personally. 80% of the people could be coughing blood outside their door, but as long as they get their bonuses, all is fine, as far as they're concerned.
> If you're in your 50s you should have at least noticed that things have gotten progressively worse...
This is exactly what I am saying, things have gotten progressively worse. The argument most people are making here is that the worse is not progressive, that it is somehow last 11 months that shit's been going really, really bad (just note how many people are talking about "degree" and "scale" of shit in this thread alone. As if somehow sky is falling right now and it was amazing before.
funny thing is - same people back in October during the election campaign were pitching how economy is "great" and how they do not understand how GOP can run on economy platform when US economy is doing amazing, much better recovery post-COVID than any other country without a doubt. now though, economy is really bad, just horrible, can't be any worse :) in both cases, the 80% of the people you are mentioning are suffering, they were in October and they are even more so now. but everyone is in their own bubble, the "opposition" (myself included) in the current political order is saying "oh shit's really bad now" and "ruling party" people are like "oh man, how great are things, tariffs are doing their thing, exports are up, imports are way down, market is red hot..." etc...
Coolest thing about you in the 50s is that you’ve spent your grandkids’ money (and used up their resources and polluted their environments) so you wouldn’t have to face any consequences for your poor decisions.
Unfortunately your grand kids have run out of money and descendants to steal money from.
it is OK, I made enough for my grandkids and their grandkids so they'll be just fine. and all without stealing a penny from anyone (well this is a lie, I did steal a chocolate once from a grocery store to impress a girl but I think I'll be forgiven for that...)
> Talk to Mr. Buffet and see what he thinks about this with his mountain of cash
When finance types say "cash," we mean cash and cash equivalents. Berkshire Hatahway doesn't literally hold cash, they hold yield-generating cash equivalents.
> Cash being just transacting might be the most insane thing I’ve read here this year, well done
I strongly recommend a home economics course if this is the case. If you want to go deeper, anything about monetary theory
> I strongly recommend a home economics course if this is the case. If you want to go deeper, anything about monetary theory
I have a degree in Finance so it is not all that necessary but maybe a 2025/26 refresher course will do me good :)
Does he really hold cash? Or does he hold TIPS for example, and people colloquially refer to it as "cash"? I assumed it's the latter since it makes much more sense.
> Does he really hold cash?
No. Berkshire Hathaway isn't a squirrel.
> people colloquially refer to it as "cash"?
Cash and cash equivlants are referred to in finance as cash, since they are–for all practical purposes–equal to it. Except yield generating. Which, if you're not an idiot, is how you hold cash.
This seems a little pedantic, but sure, no one wants to be owed debt denominated in dollars.
> no one wants debt denominated in dollars
Source? Every indication is that dollar-denominated financial assets are tremendously in demand. (What metric are you looking at?)
The Fed has been reducing rates while selling assets, all while U.S. public debt explodes. The Treasury is selling more debt. The Fed is selling debt. Rates went up, and then they went down. That means there is, ceteris paribus, more demand outside the Fed and Treasury than there was when Russia invaded Ukraine.
It isn't cetiris paribus, the Fed rate tells us nothing about demand because they purposefully devalue the dollar. The entire world could be refusing to accept US debt except Broke Boris and they could technically negotiate a 4% rate with just him. Assessing demand for US debt has to be linked to real goods/services/assets somewhere along the line or there just isn't anything to say. The BRICS arguably make up around 40% of the world's economy and they appear to be either slowly evacuating or less-interested in treasuries [0]. It is by no means clear that US debt demand is up or even stable.
Great time to own gold, unfortunately. I wish mine had been a bad purchase but with all the "real growth" it has been experiencing I'm probably going to need a bigger vault box.
[0] https://ticdata.treasury.gov/resource-center/data-chart-cent...
The dollar sucks but everything else sucks more.
I wish I was more sophisticated in these areas. But I'm not. My fear isn't so much reduction in USD is our American stupidity in current account deficits, and debt which is to precisely point fingers at our insipid Congress. The last gasp --- which proved to be all air --- was Paul Ryan who was gonna try to fix things. Since that time it's a combination of we didn't, and we can't, plus reactionary moves. In so doing we're just wasting our soft power here. The other head wind is trade deficits. But unlike that, our budget and it's knock on effects is more directly in control.
I once ran into Tom Keene of Bloomberg news around 2014. In discussing this his view of Washington's view was we can print whatever we want. I was surprised he didn't criticize that ... but it's stuck we me ever since.
The 10-year Treasury rate has more than doubled since 2001. I skipped Econ 101 - If you have to pay people twice as much to take your debt, is there more or less demand for it?
By rate, do you mean coupon or yield? I will assume that you mean yield.
Restated:
No, it has not. See chart from the US Fed: https://fred.stlouisfed.org/series/DGS10Extend range to "Max". Yields in 2001 -- looks like the peaked at about 5.4%. Yields today are about 4.13%.
What am I missing?
Also, this phrase... is a strange one.
If your economy is running red hot (with relatively low inflation rate), then the central bank normally raises interest rates. Yields on central gov't debt will closely follow these rises. Controversially, I will say within a "reasonable" yield range (maybe 1% to 8%), the yield itself says very little about demand for it. Before COVID-19, Germany's 10 year gov't debt yield was frequently zero or slightly negative. Again: What does this say about demand for it? Not much.You are mistaking owning US debt and having your debt denominated in dollars. Many foreign countries find it desirable to own US treasuries, but they don't want to borrow dollars and have a dollar-denominated debt. When that happens, and your own currency is devalued, you still owe the same number of dollars. You now have to buy these more expensive dollars to repay your dollar-denominated debt.
People want to be dollar debtors, not dollar creditors. When I said no one wants dollars, I was referring to people's willingness to hold actual dollars or obligations that pay them dollars in the future.
Your other comment mentions the AI bubble, and also makes me think you don't understand what I'm saying, since we seem to agree about what happens to dollars and debt in a bubble. Companies are glad to take dollars now in exchange for owing dollars in the future (something they would be less willing to do if the dollar was strong). They then turn around and spend those dollars on GPUs and electricity. They think they can get more done with a dollar this quarter by trading it to NVIDIA or a power company than by holding T bills.
Fed rates do not track the real demand to be a dollar creditor. That's kind of the point, the Fed is the lender of last resort. If no one wants to give dollars now for more later, then the Fed becomes a creditor to the treasury at an arbitrary rate.
I think you’ve destroyed his whole argument.
It’s ridiculous enough that I’m curious for the source.
Like, we’re in a potential AI investment bubble. Bubbles don’t happen when you can’t sell your paper, they’re an indication of the opposite problem.
A checking account that pays around inflation in interest doesn't net out to that unless you don't pay any tax on the interest.
Try that same argument with a zero coupon bond. It works fine because you don't have any coupon payments, thus no income tax until the principal is repaid at maturity.
> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro, but even that has serious issues for Europe's export oriented economies [1].
> Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro...
I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead. Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Instead think about:
1. The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held. It should have a positive real yield, but right now it doesn't.
2. How much your personal basket of monthly expenses costs in terms of dollars. Ignore a basket that someone on the news told you to care about, like CPI. I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
If you stored value in business or a precious metals in the last year and then converted back, you would probably have more dollars, or be able to buy more stuff, that's all there is to it.
> I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead. Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Forex rates, balance of trade, and relative strengthening are great ways of understanding international fluctuations. They are exactly the way to understand reserve currency movements
> 2. How much your personal basket of monthly expenses costs in terms of dollars. Ignore a basket that someone on the news told you to care about, like CPI. I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
This hits at a major part of the issue: goods that have no importable replacement good (housing and healthcare, namely) are a huge part of what lead to the huge bout of inflation. But those are domestic economics, not international economics.
>The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held. It should go up, but right now it goes down.
You’re saying there should be deflation?
It depends. Positive real interest rates do not necessarily mean deflation, and deflation isn't necessarily a bad thing.
As an example, you could give a loan for $1 to someone for 5% interest. In a year they pay you back, so now you have $1.05. That dollar could get you exactly the same amount (of real goods or services that you personally want) as last year, or it could get you more, or it could get you less. Inflation and deflation typically refer to the price of a basket of intrinsically valuable goods and services. That is separate from the interest rate which is just what you, the creditor, and the debtor shake hands over. If the dollar gets you the same basket as last year, then you are net better off because now you can buy the basket and you have $0.05 for lending to someone who was able to pay you back.
The missing variable here is the productivity of the rest of the economy, if the economy is growing, then you can see a decrease in dollars per basket (deflation), but that's not necessarily a bad thing. The interest rate is sort of like a best guess for the productivity of the debtor.
> but even that has serious issues for Europe's export oriented economies
Hum... There are no reliable numbers out there, but I don't think the dollar devaluation has been keeping up with the US inflation.
And if so, no, Europe's exports are becoming more competitive, not less.
> Hum... There are no reliable numbers out there, but I don't think the dollar devaluation has been keeping up with the US inflation.
There isn't anything like "dollar devaluation has been keeping up with the US inflation". You are interested in what is called the import/export price index [1] and for imports that has been relatively flat for the past ~24 months(import +.3%, export +3.8% for TTM). So in a sense, imports for a fixed good are relatively unchanged in constant-currency terms.
It's more along the lines of "if the EUR goes to 1.5, what does this do to eurozone economies?" and the answer to that isn't pretty for europe. This would greatly impair the economy of Germany and other large eurozone economies pretty substantially(see this article for why [2]).
And finally, remember: the US actually exports inflation [3]. Most economies cannot simply say no to this effect.
[1]https://www.bls.gov/mxp/ [2]https://www.bloomberg.com/opinion/articles/2025-10-06/europe... [3] https://www.bloomberg.com/news/articles/2022-07-18/strong-us...
> It's more along the lines of "if the EUR goes to 1.5, what does this do to eurozone economies?" and the answer to that isn't pretty for europe.
If all the prices rise in the US to compensate, Europe stays exactly as competitive as before.
> And finally, remember: the US actually exports inflation
You are blowing the horn yelling that this just stopped. Or what do you think a dollar devaluation is?
> If all the prices rise in the US to compensate, Europe stays exactly as competitive as before.
Yes, but my point is exactly the opposite has occurred for imports: the US is still roughly flat in terms of import inflation. Since Nov '22, import inflation has been sub-3% without exception and sub-2% since 2023 without exception. The US is still exporting inflation effectively, and US inflation is due to factors other than currency fluctuations.
That's the real issue: the USD weakened 8% against the EUR, and prices remain the same. For eurozone exporters to the US that's an absolute disaster.
Assets, not other currencies. Equities, commodities, consumer goods.
> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Talk is cheap. Show me the stats.
Why not just google inflation on your own? Or money supply?
No, this is an artifact of Russian reserves getting frozen in 2022 and autocracies the world round getting more careful about having all their eggs in that basket.
The PRC’s SAFE is selling dollars and buying gold in a very covert but absolutely massive fashion, and most likely, so are many other countries in a smaller way.
India has also been quietly bringing back its gold reserves stored abroad. NATO west made a very bad call by freezing, and then publicising their threat to also seize, Russia's foreign reserves in their country.
Gold price is double, not sure it’s that quiet.
The US is now openly threatening countries not to create an alternative to the dollar.
Ofcourse this does not work with PRC they are perfectly capable and willing to sink carrier groups if it comes down to it.
2 Star Trek tv shows airing and one in development and a movie came out. West coast grunge scene in full effect. Kurt cobain died. MLB baseball strike after a killer Montreal expos team and then no World Series. OJ trial. Friends debuted. Channel tunnel opened. Mandela elected. PlayStation debut. Amazon founded. Yahoo founded. Netscape founded. USA World Cup. NAFTA. QR code invented. The Downward Spiral. Justin Bieber born. Shohei ohtani. Born. Nixon died. Jackie Kennedy died. Senna died. Ukraine gave up its nukes. Guantanamo reopened. Kim Il-sung Died. Forrest Gump.
1994 was wild
No, each pushed alternative is just worser. The euro could take over, but europe just revealed itself as a "lawful" player with no plan and no pants (security-wise) - so the euro is just defacto tied to the dollar value wise. For without the us guarding europe, the euro is just loaded with invisible gigantic security and pension debts.
BRICs is dealing in store credits and raw-materials. Every other empire and kingdom is not to be trusted or only to be trusted as long as the town power-drunk world-police-man does his job. He may be the towns drunk, mumbling "Screw you guys, im going home!" but he is also the only one so far doing a decent job as sheriff.
You can grasp how unreliable the other actors are, by how one of the hostile actors (russia) recently complained about the (world-police) doing what its proxies in yemen and ukraine are constantly doing (piracy) to venezuella. They complained about the break-down of maritime safety- to the us. Yep, its that bad.
Everyone knows what’s going on. Europe is slowly reacquiring pants (too slowly for my taste).
The US has this ridiculous belief that Europe has no military ability. The truth is that Europe is far too skilled at war, and collectively disarmed after the Second World War and let the US make the decisions and pay for it all because that was the only way to achieve a lasting peace. European armed forces aren’t ready for war, but they are skeletons on which wartime forces can be reconstituted.
Now that the US is dropping its responsibilities it’s also losing its privileges, but everyone is moving quietly so that the amateurs in the White House don’t cotton on. The world doesn’t need a sheriff; it’s just going to have a bunch of players looking after their own interests. The historical attitude to war already prevails: ‘it’s fine as long as it doesn’t affect us.’
Unfortunately the skeleton analogy is not correct, because it assumes that the foundation is fine, and you just need more beef/muscle/money to scale it up.
With the exception of few European countries that did maintain a functional army (Finland, France), other countries' military skeletons suffer from terminally low levels of bone density due to decades of under- and malnutrition. The whole bodies (incl. skeletons) have to quickly be build anew.
Luckily Russia wasted all their Soviet era stockpiles in Ukraine, and those are never coming back.
Russia is still dangerous and annoying, but not the threat it was before the full scale invasion of Ukraine.
It still has enough equipment and manpower to easily get through Baltics and defeat Germany and others. Fortunately for the latter, Poland is in the way and can perhaps put enough of a fight.
The thing that you are missing is the huge development in drone technology. Ukraine and Russia are the top2 countries that know how to use this technology as part of the military action, and Western countries would have a rude awakening as nails. More technologically advanced "tanks" would not matter much.
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> For without the us [sic] guarding europe
Those words hit harder when you've an executive that isn't beholden to Russia or threatening to fucking annex part of an ally, and a Europe that isn't investing heavily into rearmament.
But please, continue in your delusion.
That’s great, I’d love a strong European military. Can you help Ukraine enough so it can win? If not you can’t defend your own countries alone.
Ah yes, because the US has been sooooo fucking supportive recently. Give me a fucking break. Your GDP is bigger than ours, and you claim to give more aid to Ukraine, but you haven't even remotely matched it. The sheer fucking arrogance of you.
> Can you help Ukraine enough so it can win?
Can you (the American executive) stop collaborating with Russia[1]?
> If not you can’t defend your own countries alone.
Are we talking about the EU or Europe here? Because only one is relevant to the Euro here. It's important to get this right, because it does tend to get confused by bystanders from the far side of the Atlantic.
[1]: https://www.theguardian.com/us-news/2025/nov/25/trump-envoy-...
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> only one is relevant to the Euro
The Baltics are in the Eurozone. If Russia invaded the Baltics tomorrow, Europe would be dependent on America to stay intact. That isn’t really a risk one wants to take with a reserve asset.
Do central banks really asses the risk of total collapse of the Euro (only) in response to Russia's currently frazzled military launching an invasion against NATO borderlands which NATO fails to mount any effective defence as higher than than the risk the current US administration freezes assets for arbitrary and capricious[1] reasons?
In practice, of course, most countries are willing to accept both risks.
[1]a lot of states that can be reasonably confident that they won't provoke the US in the manner Saddam Hussein or Putin did whether they're friendly or not can be rather less confident the current president won't take extreme measures in response to something completely innocuous like jailing someone for domestic corruption, being a source of emigrants to the United States or maintaining a trade surplus...
It's worth emphasizing this: without the US Navy, the remaining European powers don't have the naval force to stop Russia from blockading the Baltics. And without the ability to break such a blockade, there's little hope in aiding the Baltics against a land invasion from Russia and Belarus. Russia wants a land route to Kaliningrad, and they'll take it at this rate.
My understanding is that European Air and Ground forces have been able to deter or destroy Soviet/Russian Naval operations in the North and Baltic Seas since the start of the cold war. Land based anti-ship missiles have more than enough range to cover the entire water way on their own.
This was a major reason the Soviet Union and now Russia never invested in a large navy outside of Submarines.
Where would this blockade be? In the NATO sea (baltic sea)? Covered by European Nato countries at every direction, and then whole entry passes through Denmark.
> reserve share is falling as countries hedge sanctions and geopolitics
We’re importing a bit less [1]. That means fewer dollars being pushed (versus pulled) abroad.
[1] https://tradingeconomics.com/united-states/imports
Something like the brics can challenge that. Having a safe currency vehicle that can sustain itself much like the dollar that the world will trust is all the momentum you need. Much like why the dollar is. You have a big player now like China backed by other large populated countries etc brazil.
Brics is nothing but a meeting, conversation and PR arena. It is not an Union of any kind, not military, not scientific, not political, not trade, not cultural.
BRICS having it own separate currency and a central bank is as far from reality as the samw thing happening to the qualifying countries in Mundial.
no society is going to just bow down for eternity and accept things as they are for long. if an opportunity presents itself. I'm not understanding what "reality" means as if the BRIC nations aren't in that "reality" as we speak. weaponizing sanctions and intimidating macro foreign economies isn't something that other peoples take lightly. the circumstances from the 90's and now are very much different with very much different rulers taking charge today. less dictators in third world countries and more dictator impersonators of developed countries. There was a less will to do more harm that can be public before vs now everything is public and you become immune to the affects of what could be until it becomes the norm for you. Things change my friend, its frugal thinking otherwise.
Russia and China rely heavily on their manipulated currencies to stay functional.
There could never be a common currency between them that they can't directly control.
This article is literally about the decline of american dollar dominance. i'm not sure with in denial is still at play here. There is a clear panic alarm in the US, look at the policies and attitude of the US. things are changing.
You have to put stuff in perspective. Despite the recent decline (which is still way above the 50% and much higher than the lowest it has ever historically been), the percentage USD has is still several times larger than the EUR in second place.
So yes this can change this time. Nothing stays the same. That's all of humanities experience so far if we haven't learned anything from it.
Early 90’s during the Clinton administration (and the dot com boom) appeared to be the best run US budgeting process I have ever seen.
Yes, but global reserves are the domestic total foreign debit, and the government does not control that one. (I mean, it can weight in how it grows, but it's not the one that makes it.)
I think what you are saying is the sum total of global economic activity from the US point of view is foreign debt. The US has no direct control over this debt other than control of printing treasuries.
Is that fair interpretation.
The world's dollar reserves are the US foreign debit.
The US government didn't create that debit. It's not the government's debit. They can influence people, but they don't control that one.
another POV is he was extremely lucky
Pfizer decided to NOT commercialize its GLP-1 drug (https://www.statnews.com/2024/09/09/glp-1-history-pfizer-joh...) in 1992.
What if it had commercialized GLP1s?
The law that prevented Medicare from paying for weight loss drugs like GLP1s, the MMA, was passed in 2003. So Medicare would have to pay.
YEAR NOM. ADJ 23 NET NET ($B) ($B) 10% 100%
Okay, only 4 surplus years. 10% uptake of GLP1s, okay, they'd be in surplus. 100% uptake, it would be a deficit.Any number of things could have happened. This was just one thing that definitely was completely in control of people - it was in the control of Pfizer's commercialization team - it wasn't some unforeseeable crisis.
My point is, the little HN takes here and there like yours, better to not make them, because frankly you don't know anything about the budgeting process or governance, so why say anything at all?
I don't doubt he was lucky which is why I parenthetical referred to the dot com boom. I don't quite understand the relevancy of GLP1s to his luck. I think obesity wasn't what it is today back in the 90's.
I think the saying is Luck rewards the prepared.
I mean, luck is always a part of it, but you need responsible policy too. The US was lucky from 2010 to 2020, with the the economy growing basically that whole stretch, and we still ran a massively growing deficit the entire time because we decided to try and reform the middle east while lowering taxes.
A really important detail that I don't think gets enough mention is that the second gulf war was paid for off the books. The war was not part of the federal budget.
would his policy have been to pay for GLP1s? Yes. And is that a little more than a hypothetical? yes. People who don't know US budgets don't know what drives faster-than-GDP growth in expenses (it's real estate, biotech and college).
I'm unable to follow the point of the significance of GLP1s. I also wouldn't describe the expense as biotech I think healthcare is a better description.
Finally the US's current healthcare system is truly broken. Our elected officials choose to ignore the issue and act as if we are fortunate to have this system. Which must be the least efficent way to deliver healthcare.
> People who don't know US budgets don't know what drives faster-than-GDP growth in expenses (it's real estate, biotech and college).
That's just wrong. Social Security, Medicare, debt interest, and the military eclipse everything else. Discretionary spending outside the military is only like 15% of the budget.
Also, why are you even connecting GLP1 drugs and the 90s federal budget surplus? The drugs didn't exist back then, and the government isn't paying for everyone to take them now, so I have no idea why you'd even draw a connection there.
Because new drugs are what make the federal spending pie larger. Slower growth also does. Wars can also make budgets balloon, but then you’d be like “well Clinton wouldn’t want wars.” Okay, so would he want faster medical progress? Of course, and that turns out to be budget busting!
The drugs could have existed back then. You’d have to read the link. And today they do, and under Clinton, would he pay? All great things to talk about.
I am trying to have an interesting conversation and instead it’s just, downvote this downvote that.
You made a claim (budgeting wasn't good, they were just lucky) and backed it up with a strange hypothetical (if GLP1 drugs were released it would have driven the deficit higher).
Your connection between the two is that new drugs are a primary driver of the federal deficit, which just isn't supported by the the reality of where the US government spends money.
I don't know what interesting conversation you expect from any of that. If you can show why you think drugs are driving the deficit, that'd be interesting.
Sure, here is a great and very influential article about technological innovation explaining faster than GDP growth of govt health spending: https://www.aeaweb.org/articles?id=10.1257/jep.6.3.3
It was written contemporaneous to Clinton. You are welcome to read about the budgetary process of the Clinton years, healthcare was THE primary issue. Like why am I talking about this stuff, and why was everyone talking about it under Clinton? Because we’re all stupid? Military spending is PERCEIVED to be something about the budget, but it is ALL ABOUT HEALTHCARE, it has been since 1965 in this country, and it is all about healthcare everyone else in the developed world, acutely so in Europe and Japan.
You're glossing over the leap between "is a driver of spending increases" and "is a primary driver of spending increases". IIRC healthcare costs rising has far more to do with an aging population than new drugs, so, again, I'm not seeing a strong link between new drugs and the government deficit.
The dollar's share hit a historical bottom around 45-46% in the early 1990s (specifically hitting roughly 45.8% in 1991 and remaining in the high 40s/low 50s through 1994). By the end of 1994 and into 1995, the share began to rise again, eventually peaking at over 70% in 2001.
Another factor was that the 1990's was the Pre-Euro Era, the peak of the "multi-polar" reserve system. Before the Euro was launched in 1999, global reserves were split among many more national currencies (the French franc, the Dutch guilder, etc.), which naturally diluted the dollar's total share more than the current "USD vs. Euro" system.
The article answers your question:
> The dollar’s share had already been below 50% before, in 1990 and 1991, after a long plunge from the peak in 1977 (share of 85.5%). This plunge accompanied a deep crisis in the US with sky-high inflation and interest rates, and four recessions over those years, including the nasty double-dip recession.
Or, in other words, at 1991 the US started recovering from the Oil Crisis and the subsequent fuckery. There's a dip in that number around the time the USSR felt, but it's just a small acceleration to the trend.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
Do you think the world is relatively "stable" right now?
Oh, and I'd check the data before believing usage in trade debt and crisis funding are going strong. Two of those are constantly making headlines for how they are decreasing, and "crisis funding" is basically another name for "reserve currency".
"Stable". If any time in history where planets align so perfectly for wars it is right now.
It could play out nicely for USD, if the US stays out of direct conflicts but keeps selling weapons.
We are at constant peripheral micro-wars in the last 33 years. The US are behind these, selling weapons to both sides. Nothing will change. Ukraine saga will continue as it is for many years, before the next one. God bless nuclear weapons that we don't see any direct US-Russia-China conflict.
> It was post-Cold War and central banks were trimming USD reserves to test alternatives.
This is the problem though. In 1994 central banks were trimming USD to test alternatives. Not because something was wrong with the USD itself.
Today, central banks are trimming USD To test alternatives because the USD itself has lost value.
Any flight to stability will necessarily not use as much USD given that it’s far less stable than it was 3 decades ago or even 3 quarters ago.
> Makes me wonder: is this just an artifact of the world being relatively "stable" right now?
No. Its the result of the US, UK and the EU stealing Venezuelan and Russian state and private dollar funds and every country on the planet realizing that they could get the same treatment if they are at odds with any of them at any point.
Good observations.
Not only that, I find it funny when title of “global reserve currency” is based on a static measure of what countries are holding.
This ignores transactions entirely.
Seems interesting that cryptocurrency has suddenly been bolstered with legislation. A secondary market might become important were the dollar not to recover.
I'm not sure I'd call our current geopolitical status stable in any way. Multiple major wars, historic superpowers losing their absolute minds, fascism rising, even discontent in the EU.
This is an artifact of the instability of our current times. USD reserves are falling because the US is no longer a stable country offering a stable currency. Plus we keep demanding more tarriffs in effect reducing the real value of a US dollar.
Stability would appear as more confidence in USD, not less.
I'm not an economist so someone please correct me / expand on this;
I'm guessing this is kind of a "It's not a problem until it's a crisis" situation? So far other central banks haven't begun selling treasuries, they've just stopped buying them. But once one starts selling it could become self reinforcing?
What could replace it? There doesn't seem to be any new hegemonic power on the same level. Could we enter a world where all central banks hold a mix of currencies and nobody benefits from being the reserve?
Its only really a crisis for people who are dependent on the US for protection. The whole compact is that you use the dollar, and the US will look after you (ie House of Saud, Europe, taiwan, south korea, etc) But that isn't really certain anymore.
You need to make tributes to the suntan king, and he is most capricious and likley to tariff the fuck out of you. So alternative destination for your goods is a necessity
Also the markets are not convinced that the fed is in good hands. The whole point of the fed is that they are far enough away from the meddling in Washington so that you can rely on the dollar. The fed is being steadily erroded, with the new chair being selected soon. The problem is that present administration is hell bent on loyalty over competence.
Printing dollars to get out of domestic budgetary problems was never a thing (excluding QE, but thats different, nominally) was never an option in the US. but that doesn't seem so far fetched now.
The printing of dollars by the Fed comes with a secondary effect - the dollars are not evenly distributed amongst the population. They are printed via market action, and the ones who are closest to the market action are free to capture as large of a share as markets allow.
Over time, it's natural that actors will optimize the above system to capture as many dollars from the printer as they can.
Putting trade tariffs on countries like Vietnam should have gotten Trump deposed. He is literally the Manchurian candidate.
This is more of a go out with a whimper rather than a bang type thing. Being the world reserve currency (as well as the largest consumer market in the world) previously enabled the US to do things like relatively easily export inflation in spite of relatively reckless monetary policy. Now that inflation is sticking around far more persistently, even long term bonds have gone from 1-2% to 4%+, and so on. Stagflation is a conceivable longer term outcome.
The replacement will probably be a multinational currency with strictly controlled quantity tied to some sort of physical asset(s). Basically Bretton Woods 2.0, except with the learned experience of not just granting a single country immense power and having them pinky swear not to default on their obligations and then abuse that granted power. China's probably betting that that asset will be gold.
No, physically backed currencies will not return because physical goods do not correlate with the size of an economy, especially the amount of gold
Gold-backed currencies, and even Bitcoin, are really good if you want your economy to be only this big, and never grow bigger. Eventually, a crisis will happen, and you'll say "actually, its now 1.3 yuan to the gram, because we need to build tanks", or "actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines", or "its now illegal for citizens to own gold, turn it in at your nearest party headquarters" (even the US participated in that one!)
"actually, did we say we had 8,000 tons of gold in reserve? we meant 9,000. Yeah we just counted, no you can't look at it, we have 9,000, here take the yuan and go build vaccines"
You cant do that with bitcoin
Sure you can. "No you can't look" is the key. All those blocks which hasn't moved in many years? They're all ours. Pinky promise.
I know you mean it as in governments won't return to a system that doesn't let them inflate the money supply, but that doesn't mean it's a bad thing...
Being able to conduct monetary policy is valuable, even if it can be misused. Otherwise all other countries would just be using USD.
Useful to facilitate a massive transfer of wealth from the working class to the asset class perhaps.
Conduct monetary policy? I prefer the phrase “tax without consent” instead of that euphemism.
Yes, inflationary policy is a tax. But its better than the alternative, where the commodity cant keep up with the economy, and that money goes to the holders of the commodity instead with nobody in control
Can you rephrase that? Because I think you have it exactly backwards here unless I'm misunderstanding you.
In inflationary systems money becomes worth less, but 'things' tend to hold their value. This is precisely why the very wealthy are accumulating massive amounts of 'things' - it creates profit out of nothing thanks to inflation. So you're most incentivized to buy up as much as you possibly can, and then rent access to it. This is precisely how you get the WEF saying things like, 'You will own nothing, and be happy.'
By contrast in a deflationary system the value of things tends to decrease over time, all other things being equal. That is to say that obviously things like land can still increase in value over time if demand, in an area, significantly outpaces supply, but relative to inflationary systems - the 'natural' direction for prices is down. And so in this system there's much less motivation to hoard things. Of course in exchange there's a far greater motivation to hoard money, but at least that's fairly equitable. Right now lower classes simply can't avoid paying the inflation tax, whereas the wealthy not only avoid paying it, but directly profit off of it.
I consent to zero taxes, and also not to property rights except my own. Your move, libertarians. How are you gonna have a society?
They correlate with the size of production, which is a much better measurement than the amount of trading back-and-forth.
The amount of currency does not have to correlate with the size of an economy. When the economy grows while the amount of currency stays the same then your money simply becomes worth more. For the overwhelming majority of history this was taken to be a good thing. The argument for inflation is that if money become worth more over time then it would discourage investment and encourage money hoarding.
That's probably not untrue, but that critique doesn't simply make the alternative better. Money becoming worth less, inflation, creates an arguably worse scenario where now wealthy individuals are motivated to hoard things instead of currency. For instance Bill Gates is currently the largest private landowner of farmland in the US. This issue is where you get the WEF also publishing their 'You will own nothing, and be happy.' goal. I find this more unpleasant, and even dystopic, than Scrooge nosediving into his stash of ever more valuable dollars.
Another major issue here is that lower classes are the most unable to deal with inflation. They can squirrel away some money, but in an inflationary system that's the last thing you want to do. For instance stuff like bank CDs are basically just exploiting economically illiterate individuals. Nobody wants money in an inflationary system, but lower classes need immediate access to their money for the next time e.g. their car breaks down, and they are extremely risk averse. The net result of this is a system that not only perpetuates but directly drives ever greater extremes of wealth inequality.
If you want to see how much a deflationary currency fails as a currency, just look at bitcoin. The wild value swings are caused by more people hoarding it than using it as a currency, which is caused by it being deflationary. Now look at monero, which is inflationary, is largely used for day to day purchases (of mostly illegal items) and has a much more stable value, which is one of the key attributes of a good currency.
The USD was metal based, in one way or another, from 1792-1971, with two brief interludes after the Civil War and Great Depression. That's a really good pedigree.
So our current inflationary system only really kicked off in 1971 and is already looking somewhat clearly unsustainable. But what makes this particularly relevant is that 1971 was also right when major breakthroughs in computing were about to unlock a huge economic leap. That helped briefly enable the infinite exponential growth that this inflationary system requires. Without that, I doubt this system would have seen its 50th birthday.
On the topic of stability, the Fed worked to calculate inflation levels from 1800 onward here. [1] You'll notice that from 1800 to 1950 prices never shifted by more than 50% relative to the initial baseline of 51. That's pretty wild if you think about it because it includes the Civil War, both world wars, Great Depression, Spanish Flu, and all of these sort of things. Then in just the relatively calm ~50 years from 1971 to to today, prices increased around 800%.
[1] - https://www.minneapolisfed.org/about-us/monetary-policy/infl...
for much of that time you could not actually receive any metal from the US, notably after the great depression domestically. The entire issue is that the US economy grew far faster than the supply of gold so could not physically purchase the required amount of gold as it did not exist.
There were ~10 years after the great depression where convertibility was suspended. One decade out of nearly two centuries is not "much."
The amount of currency need not, and arguably should not, scale with the size of the economy. Everything is relative in an economy. When the amount of 'stuff' in an economy grows faster than the amount of currency, then prices decrease - your money becomes worth more - deflation. Vice versa, if the amount of currency in an economy grows faster than the amount of stuff in that economy, then prices increase - inflation.
Inflation is undesirable, but it's in a constant tug-of-war with governments and fiat currency. When governments give themselves the power to print infinite money, they end up doing exactly that, often to the point of destroying their own economy. This is precisely why the Founding Fathers chose the US currency to be coins made of precious metals. It limits the government's ability to damage the country through reckless monetary policy.
Think about how fragile everything is already seeming being glued together by massive fed involvement, quantitative easing, and ever more archaic economic ideas like zero or even negative interest rates. And we're only 50 years into this experiment which, on the scale of something like a broad monetary concept, is barely a blink, and it's starting to come apart at the seams. And this is all during extremely stable years compared to the World Wars and other such events that we overcame in the past.
We almost got that with Bretton Woods 1.0:
https://en.wikipedia.org/wiki/Bancor
> The replacement will probably be a multinational currency with strictly controlled quantity tied to [...] probably [...] gold.
This is econolibertarian fan fiction. Literally no one wants that except people already involved in speculating[1] on gold. Are there bad externalities to relying on a unlitaterally controlled reserve currency? Yes. Are they made better by handing financial control over to a bunch of fucking mine and vault operators? Let's be real, here.
Basically this idea appeals to people who've convinced themselves they can get rich betting on financial policy and stay rich by burying their loot in their metaphorical backyard.
[1] The very fact that such speculation even exists should be a triple exclamation point red flag on any argument about hard currency, but alas no.
Yes, thank you. My puny mind can't even understand how people come to be convinced that gold should be the end all be all of international trade.
> This is econolibertarian fan fiction.
I guess you never heard of the XDR? it was tied to gold
https://en.wikipedia.org/wiki/Special_drawing_rights#Alterna...
... and could be again, if the US regime continues its incontinence
SDR valuations were tied to gold when the USD was still gold-based. Needless to say Bretton Woods didn't survive that transition at all. Again, it was a failed (!) experiment, not a recipe to try again. Believing otherwise is fan fiction.
With highly liquid capital markets, why wouldn't the dynamics be more like a bank run?
Because dumping all of your US treasuries is a political statement. You can only sell to a willing buyer and announcing that you’re going to do that is tantamount to lighting wealth on fire. Treasuries are assets so there’s no counterparty that will “run out”.
Imagine how red 100 years of economists faces will be when the world ends up back on a gold backed currency.
Probably only takes 2 years before they start inventing abstractions on top of it and this kicking off the eventually next economic disaster.
There were, of course, no economic disasters back when the world operated on gold-backed currencies.
The goldbugs won't be red in the face, though, because they are never wrong and are constitutionally incapable of feeling any shame.
I’m pretty sure no-one has argued that a gold standard would prevent economic disasters. That sounds like a straw man. My understanding is that there would be more of them but the individual and cumulative impact would be far less. You can still have fractional reserve banking with the gold standard so the gold standard alone is not sufficient to prevent that.
> I’m pretty sure no-one has argued that a gold standard would prevent economic disasters. That sounds like a straw man. My understanding is that there would be more of them but the individual and cumulative impact would be far less.
Contrary to popular opinion, the historical record shows that gold does not actually bring price stability; see "Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts":
* http://archive.is/https://www.theatlantic.com/business/archi...
Most of the claimed benefits of gold-backed currencies are myths:
* https://archive.is/https://www.vox.com/2014/7/16/5900297/cas...
Before what we call "The Great Depression" (of the 1930s), that label was applied to another years-long economic malaise, which was in part caused by using gold-backed currency (as was the 1930s Great Depression):
* https://en.wikipedia.org/wiki/Long_Depression
You'll find that US economic downturns became less frequent as the US went off the gold standard, and the Fed gained more and more independence:
* https://en.wikipedia.org/wiki/File:GDP_growth_1923-2009.jpg
* https://en.wikipedia.org/wiki/List_of_recessions_in_the_Unit...
Many things work just fine right until they stop working, our current strategy of blowing ever bigger economic bubbles has worked for a long time and I expect it will continue for long time. It has the very stable property of enriching the already wealthy.
But it will not last forever and I do expect to see the end of it within my lifetime. It is this calamity that I'm interested in diminishing and it is on this basis that I think a weaker federal reserve would be less damaging. Since the federal reserve obscures the true state of the economy uncovering the true state will coincide with a weakling of the federal reserve and will appear causal.
I'm not a gold bug, I don't own any of it, I do own some bitcoin but my main asset is my software company.
> Many things work just fine right until they stop working, our current strategy of blowing ever bigger economic bubbles has worked for a long time and I expect it will continue for long time. It has the very stable property of enriching the already wealthy.
The enriching of the already-wealthy is happening because of non-progressive policies (taxes, and others). Plenty of countries have fiat currencies and independent central banks, and yet don't have inequality rates like that of US currently has.
In fact, the US used to not have inequality rates that the US currently has. This is a phenomenon that has a fairly definitive starting point, with particular policies that (US) society has "accepted" and can 'simply' choose to start rejecting:
* https://en.wikipedia.org/wiki/Friedman_doctrine
The current US rates are the same as during the Gilded Age, and just like they were reversed post-GA, they could also be reversed now.
The US is a completely different country compared to what it was 100 years ago, or even 50 years ago, and economic policy is not the only thing that has changed.
It appears that you see ‘progressive solutions’ as an answer which I would expect to arrive in the form of tax normalization which alongside monetary inflation constitutes the much coveted wealth tax. I am in disagreement with progressives that this would result in a decrease of inequality, for one the state will be completely reliant on the wealth of the wealthy increasing, as opposed to the income of the middle class increasing. I see inflation as a regressive tax, the poor will pay a higher percentage in tax but a lower in relative terms due to the increase in inequality caused.
> I am in disagreement with progressives that this would result in a decrease of inequality, for one the state will be completely reliant on the wealth of the wealthy increasing, as opposed to the income of the middle class increasing.
Funnelling more money from the top tax brackets to social programs like childcare, better teacher salaries (to attract better talent), lower tuition for (community) colleges and (public/state) universities would be helpful to the lower deciles of the population IMHO.
> I see inflation as a regressive tax, the poor will pay a higher percentage in tax but a lower in relative terms due to the increase in inequality caused.
Look at the history of the gold standard and deflation (which often happens under gold regimes): it was poorer folks that were mostly against it. Inflation helps those with debt (like mortgages, student/car loans), which I would think is more helpful to lower income folks. Deflation helps creditors.
It hurts those with debts more, they have to pay a higher interest rate than the wealthy and with things being more expensive they have to borrow more. Wages don’t keep up with inflation.
The problem with large redistribution initiatives is that they invite corruption. When such initiatives can be reliably delivered without corruption then maybe I could have some faith in it. I’m to see how all these Somali ‘learning’ daycare centers shake out. Prima facie it looks rather fraudulent. I fail to see how giving more money to fraudsters will help matters.
Price stability is overrated. Prices must change according to scarcity. Letting the government print money any time prices start to fall is literally letting the government profit off your back. It makes accounting easier, but it destroys market information like "Supply of goods is catching up to demand, find something better to produce".
> Price stability is overrated.
Tell that to Biden/Harris. Dissatisfaction about prices helped get Trump elected (and now is causing him troubles with popularity as well).
> Letting the government print money any time prices start to fall is literally letting the government profit off your back.
The vast, vast majority of money that is "printed" is created by private banks through credit creation:
* https://www.bankofengland.co.uk/explainers/how-is-money-crea...
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
And the money supply that is created by government(-ish) institutions is by central banks, which—in modern times—are generally operated independently from the government (except in, e.g., Turkey; and some folks want less independence). Central banks often work in opposition to what politicians want: just ask Powell.
You are preaching to the choir, for the most part. People just got brainwashed into expecting prices to be "stable" but what is really happening is the price of money is being manipulated for various reasons.
Credit is a very thorny issue. Politicians and banks have promised people impossibly good and contradictory outcomes.
>And the money supply that is created by government(-ish) institutions is by central banks, which—in modern times—are generally operated independently from the government
In all cases the independence is an illusion. Conflicts over policy are manufactured to make the government appear more frugal than it is. Every fiat currency ever has gone to zero.
Works until we have someone mining asteroids for gold. Then the gold backed currency collapses overnight.
No that's a good thing actually, because then we get asteroid mining spaceships
Beltalowda unite!
I'd rather go back to crypto than be chained to a piece of stupid metal.
You take that back now. Gold is the best thing which has ever existed. Name one thing in the world which can even compete.
The literal idea of value.
Gold have existed and thrived long before there were any ideas, and will continue to do so long after the last idea is dead.
Hah. This is merely your lack of imagination speaking. It could be that reality plays out that you are right, but what a sad, constrained world of ideas that would be.
US Treasuries have terms, if you aren’t refreshing your treasury buys, it is the same as selling them. US treasuries and by extension USD was useful because it could soak up billions of dollars of savings (debt for America) without taking a huge inflation hit (treasury rates were often less than inflation, so you still take some hit).
As for where that money is going now? Other currencies and saving instruments probably..
In some ways, this effect can have a positive impact on US citizens; demand for the US dollar requires supply to satisfy the demand. Where does that supply come from? Oftentimes: Printing. The US generally does not make a habit of telling US dollar buyers "no, we don't have any US dollars to sell you", so less demand on the dollar for reserve holdings can have a deflationary impact on its value. This can be combined with lowering interest rates, which creates more domestic demand for dollars, to help balance out the inflationary impacts from that.
Many economists take the stance that being the world's reserve currency is something of a two-edged sword; a curse that does come with geopolitical advantages, but bundles those advantages with significantly more difficult global financial responsibilities.
It’s either printing or increasing taxation for constant benefits. We all know what happens when the government tries to increase taxes at all, now try doing it for zero increased benefits. This is a populace that’s had candy for dinner since WW2, and forcing them to eat their vegetables will result in a never before seen level of civil unrest from people of all political inclinations.
The Fed most commonly uses Open Market Operations to modify the money supply, with "money printing" or Quantitative Easing used in more emergency situations.
But more broadly your comment doesn't really represent reality, whatever happens in the markets and economy the Fed manages inflation (or deflation) and it's much more complicated than a single relationship like you describe.
More interesting is trade, where the US consumes so much and pays out so many dollars for goods that places like China which run huge surpluses have few choices other than lend it back to the US.
Sure; and I'm referring directly to those "emergency situations", which aren't much of an "emergency" as most people would understand the word given that they've engaged in QE for ~7 of the past twenty years.
4 of the last 10 were quantitative tightening.
> 7 of the past twenty years
A lot of shit went down over that period.
But you seem upset by QE in general. It seems to upset a lot of people, possibly because the Fed created a lot of money, but that's what central banks do, they create and destroy money. It's really not that much of a big deal. People lose sight of the fact that money is an abstraction and not something concrete.
> money is an abstraction and not something concrete
That is a choice we have made. Historically it hasn’t been that way.
It's always been that way. The notion that currency is backed by something concrete like gold is an illusion, one that some people cling to these days.
Even if it were true, inflation makes the whole issue moot. Money is only worth what it will buy, so it is at the mercy of prices.
Finally money depends on people's collective acceptance of it. No point in holding gold if people lose confidence in gold, for instance if people start producing convincing fakes. How does the average person verify gold? It almost always goes back to trusting some central authority.
What about US debt? If nobody buys USD anymore, suddenly there will be a lot of excess USD.
https://en.wikipedia.org/wiki/Quantitative_tightening
https://en.wikipedia.org/wiki/Hyperinflation
> What could replace it?
It doesn't necessarily have to be one thing. We've had multi-currency regimes in the past (before one generally took over). See How global currencies work past, present, and future by Barry Eichengreen, Arnaud Mehl, and Livia Chitu:
* https://press.princeton.edu/books/hardcover/9780691177007/ho...
The British pound was displaced by the US dollar. Currently, the US dollar just doesn't have a proper rival. The euro, yuan and rupee are considered politically suspect (each for its own unique reasons); the pound and yen have too small a base. Without further transformation of the global financial system, the only alternative is for banks to hold a basket of currencies, and in such a basket the dollar would likely still play a significant, if reduced, role. This is a slow process because it means changing the nature of currency reserves from a single safe haven to a "nest". What this means for USG spending power is not immediately clear.
Ok, let's see - yuan isn't a freely traded currency, it's heavily regulated by China. From that alone it can not be used a reserve currency by anyone - unless they want to hand over all control over their assets to CCP.
The rupee is better, but there's not a lot of trust in Indian institutions globally, so black swan events are more likely. I can see it becoming a better proposition as India further matures and taps into its population more.
No, euro - that's a solid contender. Not only it's already used in a lot of countries, and therefore backed by more than one economy, the EU institutions are legit to a fault - they continuously refuse to seize Russian assets, because there's no solid legal grounds for it, despite all political will towards doing so.
That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
The main issue with the euro has been the stinginess of the ECB. The Fed always makes plenty of dollars available but during the Great Recession this was not the case in Europe. This is a problem for euro-denominated debt. (It is also a problem for the yuan.) The unusual political structure of the EU — not a single country — is also potentially concerning, as is its apparent dependence on the United States for defense.
> That alone makes it far removed from being politically suspect in my book, unless there's some blatant case against the euro that I'm missing.
Lack of integration/solidarity. A common currency is a pretty bad idea if economies are allowed to diverge (see previous sovereign debt crisis, there's no reason why eg France can't be the next trigger).
You need a common tax base, and solidarity across member (much more than the current state) to have an effective monetary policy.
The in-between status quo for EU really isn't great (either you need to keep building EU institutions/start having proper eu taxes and budget -- something that is not really popular at the moment--, or euro should be reconsidered). (From what I understand it's not really a controversial opinion in economic circles).
Who considers them politically suspect? I’m guessing the people who live in the countries that use them don’t, and on the contrary would increasingly be seeing the USD as politically suspect.
The people who live in the countries that use them aren't relevant, because we are talking about them as reserve currencies. What matters is whether other countries see them as politically suspect.
Treasuries are not some kind of artifacts that can be stored indefinitely, they are bonds with maturity dates. As they mature they turn into cash automatically and that cash used to come from selling new treasuries. As the demand dwindles the US has to sell its bonds cheaper thus borrowing at higher interest and that interest will have to be paid by selling even more treasuries at even higher interest so it's already a feedback loop.
> As the demand dwindles the US has to sell its bonds cheaper
To be clear, we see no indication of this. (The Fed reduced its balance sheet in the last 3 years on the order of the GDP of Spain or Brazil [1][2].)
[1] https://www.federalreserve.gov/monetarypolicy/policy-normali...
[2] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nomi...
Not sure what your links are supposed to prove but here is the link[1] to the actual yield on the 10 year bond, higher yield means the bond is sold at higher discount i.e. cheaper.
1. https://fred.stlouisfed.org/series/DGS10/
> higher yield means the bond is sold at higher discount i.e. cheaper
Yes. The Fed set a policy of higher rates. It did that by selling bonds and driving the price up.
Then it set a policy of reducing rates, and was able to do that by just selling fewer bonds. Not buying them. That implies strong demand for these assets. (You can’t use price as a proxy for demand in Treasuries since it’s an explicitly manipulated price by its issuer.)
Long bond rates have somewhat decoupled from short term rates set by the fed. For instance, they just slashed short term rates 25bps, but long bond rates (10+ years) have actually gone up a few basis points since the cut.
This is exactly what we'd expect if demand for treasuries wasn't keeping pace with US debt issuance. I mean, if you look at the debt, and the USD's current position, there really is no way out for the US government other than inflating the currency and cashing in that reserve status for a reset. The obviousness of that reality is why precious metals are going nuts.
> For instance, they just slashed short term rates 25bps, but long bond rates (10+ years) have actually gone up a few basis points since the cut
Could you point to the date range you’re referencing?
> if you look at the debt, and the USD's current position, there really is no way out for the US government other than inflating the currency and cashing in that reserve status for a reset
Of course there is. Loads of options.
Broadly speaking, the talk around rates and commodities tends to involve serious people totally divorced from the talk-show/Zero Hedge circuit.
> Could you point to the date range you’re referencing?
The last two months. There was a rate cut in October and again in December, but since late October long bond yields have been rising.
> Of course there is. Loads of options.
For instance?
The US debt is currently rolling over into higher rates bringing the average yield of our debt up. The only way around that, if long bond yields don't come down, is to roll the debt into short term treasuries where the rate is tied more to fed funds rate. That would be inflationary.
>It did that by selling bonds and driving the price up.
No, the yield went up and price went down. Prices usually don't go down if demand remains unchanged.
If they stop buying treasuries, that's still a big problem, because the US continues to run a deficit, and therefore continues to need to sell treasuries.
There’s nothing fundamentally stopping all currencies from floating against gold and gold being the base asset
If your economy grows by 100 percent, and the supply of gold grows by 10 percent, its a massive problem
Why is that a problem?
If it's more profitable to keep your money under a mattress than to make things, provide services, or provide loans, the economy will tilt toward hoarding cash instead of more productive activities.
Look at Bitcoin to see an example. It's a gambling game that is relatively useless to do transactions with.
Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.
Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).
Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.
Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).
Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.
I'm out of my depth, so apologies.
There is a fixed supply of gold that does not correlate with economic output. It makes zero sense to tie the value of paper money to gold.
Read ‘float’
That argument comes from an ancient list of arguments against gold. But nobody seems to be able to explain why that would matter at all. There doesn't need to be any correlation with the amount of currency and the economic output. And there has never been any such correlation, including right now with the dollar or any other currency.
If you want an economy to prosper the currency value has to remain stable. That means it has to scale with economic output. You can, of course, not do that, if you want to kneecap yourself.
Both the dollar and the euro have lost 70% of their value in the last 20 years. Most other currencies more than that.
OK, now do dollar-denominated assets. Stocks, bonds, commodities, real estate. How have those fared over the same time period? Those types of assets are where I put my money for long-term savings.
Only idiots that don’t understand inflation hold lots of cash, bringing that up is a strawman. Cash is not a store of value, it’s a unit of exchange and unit of account. Again, cash is not for saving, it should be used to purchase assets if you want to create long-term wealth.
Inflation is a tool used to encourage people to spend or invest their money instead of hoarding it. By spending it or investing it in dollar denominated assets, economic activity and GDP increased. Hoarding cash doesn’t help anyone.
Have you ever considered that perhaps your ideas about the monetary system are wrong?
There is no reason for me to take you seriously, since you're resorting to just being aggressive, calling people idiots, and so on.
So you can take that as you're being right and me not having any arguments against your superior intelligence, which you certainly will think.
But I don't give any value to what you say or believe. There is no productive conversation to be had with you.
If you think 3% inflation is bad, wait until you see what happens when you don't have it. The value of money has to decrease or it won't circulate - see Bitcoin.
Only the fact that it would be an idiotic policy that would destroy the economy.
Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.
Conversely how is the Fed supposed to manage inflation if it runs out of gold?
Gold is an industrial metal, also used in jewelry, not a financial panacea.
Now you know why so many countries want to leave the dollar system. There are no meaningful constraints on the supply of dollars.
Gold at least places real constraints on the growth of the money supply. Imperfect as it is, it’s better than a financial cabal in one country creating money to suit their needs irrespective of any other objective.
Right, that's why exactly one country, Zimbabwe, has a currency that is gold convertible.
Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).
This sounds amazing! Is it also protected from being lost forever by trivial mistakes that are very common?
Yes, when managed by someone competent, just like Gold.
All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.
As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.
Price of a commodity metal can do whatever they want without causing a big problem. It is just a resource allocation signal. However if you base your currency value on it suddenly you are forcing debtors into bankruptcies if the value shoots up. Credit relationships aka investments are what make an economy run and grow, not some arbitrary commodity price.
Debtors who roll their loans also go bankrupt when the fed raises interest rates. Rolling loans is par for the course for many capital intensive businesses. This is because in a low interest rate environment if you act prudently you’ll get outcompeted.
Fed interest rates don't fluctuate anywhere close to gold prices.
You're just so used to a debt fueled economy that you can't think of it being any other way. That is the problem though in that 99 times out of 100, debt goes rogue in a runaway sense and blows up the system. It is a time bom.
In essence, debt doesn't need saving from the system; it's the system that needs saving from debt.
An economy that can be debt based is going to out perform yours nine years out of 10
Sure, but it will be gone after a hundred years of compounded debt.
A system that lasts a hundred years before failing is a successful system. This reminds me of comments about bankrupt companies that made massive profits for 10 years, calling them failures. That's a success and the comment is sour grapes.
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Not buying is same as selling with debt. On long enough time horizon. If the debt is not rolled over anymore eventually you run out of lenders.
Insane this administration wants pimp the US out to the highest bidder and let the crypto weirdos run the world. If we ever lost the reserve currency peg treasury bills will spike and it’ll be impossible to fund the government. We spend 7T every year and take in 5T in taxes. This admin is gutting the IRS and banking on tarrifs which are just taxes. So … without the ability to keep interest rates very low because everyone wants our debt …
My understanding is that it has happened. The oil market was tied to the USD. The BRICS have now implemented a payment system as robust as SWIFT system. Oil is now being paid for using that system.
Panics about how oil is being traded in non-USD terms are as old as the internet and, in all likelihood, even older than that. You can find usenet slop from 20-30 years ago about the petro-euro and the "tehran oil bourse". Here's an old site that is/was daily panics about the fall of the dollar, from 15-25 years ago. http://www.engdahl.oilgeopolitics.net/
Nobody is panicking. BRICS has gotten steadily larger and is gaining as an alternative banking system. This is competition. This just requires more thoughtful strategies.
The steady building up of alternatives will happen until one day the reserve currency status will change hands all of a sudden.
I think the Fed could stem the whole thing by just issuing a stable coin itself pegged to the dollar and re-assert itself as the dominant currency/arbiter... but who knows. Maybe then it'd have insight into every transaction and be able to stem things with even more power than it can now.
Nobody stays king forever. Maybe it's time the US is forced to balance its books and stop riding on cheap credit. Losing the power of the reserve currency and the power that that gives to SWIFT and things will take a lot of soft power away from the US. Without allies the US couldn't stop a united China, Russia, insert-other-would-be-ally-of-theirs in a world conflict.
As another commenter said there's no leadership at teh top just chaos. People, countries, banks don't invest in chaos.
> steady building up of alternatives will happen until one day the reserve currency status will change hands all of a sudden
This is not how it has ever happened. Instead, we’ll see a gradual erosion as the world switches to multi-polarity and spheres of influence. (And, with decreasing international trade, every country’s reserve mix will vary.)
I agree that the next wave may not be dominated by a single currency. I also think that is a superior system. I think the BRICS system is based on honoring multiple currencies rather than using a single currency for settlement.
> that is a superior system
It’s more robust and less efficient. Transaction costs—and opportunities for middlemen—will increase. But the chances that your country’s economy is entirely shut down on the whim of one man in Washington is reduced.
> the BRICS system is based on honoring multiple currencies
The BRICS system is nonsense, as evidenced by basically nobody using it beyond a totem amount. Both the PBoC and RBI have superior settlement systems they could open up if they wanted to. Neither does because neither wants an unrestricted capital account.
I agree that it has been unused but disagree that it will always go unused. I think that China is using the US current global antagonism to encourage others to participate.
https://www.gisreportsonline.com/r/brics-payment-system/
> disagree that it will always go unused. I think that China is using the US current global antagonism to encourage others to participate
China is in a border dispute with another founding member of the BRICS. Another is in the Western Hemisphere and will become a proxy-financial frontline.
There will be yuan, Euro and dollar payment rails. (If the EU had failed to unify, they’d be getting divided up between Washington and Moscow again.)
I think the Fed is under powered without consistent planning from our executive office. Erratic behavior does not instill confidence for people trying to rationally plan.
I also think the US used the banking system to punish enough nations that an alternative became viable.
> This just requires more thoughtful strategies.
US not in a good place then?
I would say it's a mystery. The US has corporations that are better funded than many nations. These corporations are also rationally managed and operate globally. As a patriot I hope that the US starts to utilize rational thought.
> Oil is now being paid for using that system
The petrodollar hypothesis has been a myth since the 1990s. With America a net oil exporter, it’s an entirely stupid model to keep running.
I wish you would elaborate how being a net exporter relates to it being a myth. I don't see the connection. My point is that global trade of which oil is a major component needs to settle the books nightly. If the books aren't reconciled in an efficient manner trade has to slow down.
> how being a net exporter relates to it being a myth. I don't see the connection
Petrodollar a U.S. policy comes from the 1970s, when the U.S. guaranteed the House of Saud’s security in exchange for them selling their oil in dollars. The reason wasn’t to do some currency scheme, but to ensure the U.S. could always buy Saudi oil in a currency we controlled. Saudi Arabia then invested its profits in Treasuries, which closed the loop on Wall Street [1].
When America imported oil, keeping oil exporters close was strategically vital. Petrodollar recycling helped with that. Now that we don’t, it doesn’t.
> global trade of which oil is a major component
Like 4% [2][3].
[1] https://en.wikipedia.org/wiki/Petrodollar_recycling
[2] https://oilprice.com/Energy/Crude-Oil/Oil-Dominates-the-5-Tr... ~$1.5tn in 2021
[3] https://unctad.org/publication/global-trade-update-december-... 35tn in 2025
I see that as a side show to the overall banking system. I trying to express that this was a reactionary response to an immediate problem rather than a key part of banking.
> see that as a side show to the overall banking system
See what? The geopolitics? The petrodollar was entirely a geopolitical affair. If anything, one could argue petrodollar recycling—together with the fall of the USSR-created the modern American banking system. (The timeline is compelling for e.g. LBO debt.)
The reaction to 70's era oil embargo as opposed to the overall global monetary system. The oil embargo was a use of the monetary system not an intrinsic part of it's development.
> oil embargo was a use of the monetary system not an intrinsic part of it's development
Oil embargo was about embargoing oil. It wasn’t monetary. It was about denying essential commodities.
Yes, we reacted with a financial tool. Everyone uses the influence they have.
> we reacted with a financial tool
Oil embargo was about America not having oil. We didn’t react with a financial tool to that, but with security guarantees via our military. Putting the financial piece first reverses causation on the order of a decade.
I don't think so I think the US had many levers one might have been security guarantees. To try to separate the US influence into specific categories is the same as trying to dissect a joke or a frog.
https://quoteinvestigator.com/2014/10/14/frog/
By forcing oil to be bought with dollars, the USD was pegged to oil demand, especially from developing nations whose consumption was growing.
Also SWIFT being a means of control of movement of funds.
> forcing oil to be bought with dollars, the USD was pegged to oil demand, especially from developing nations whose consumption was growing
If you give me one source, I'll break down why this is wrong.
(In case there isn't one, the U.S. dollar was never pegged to oil demand [whatever that means]. And nothing about petrodollar recycling thought about developing nations for one second.)
Hasn’t all recent oil purchases been settled using USD. My understanding is that most countries buy US treasuries to maintain US credit ratings and to settle global trade debts.
> Hasn’t all recent oil purchases been settled using USD
No. I’ve traded and settled oil in British pounds from a desk at a bank in New York.
> most countries buy US treasuries to maintain US credit ratings and to settle global trade debts
No to the first, partly to the second. Holding Treasuries doesn’t affect creditworthiness. That said, Treasuries are a universal collateral, so some lenders may require Treasuries be held in reserve for their safety (usually in a third-country bank).
The main reason countries buy Treasuries is for reserves. These are maintained so they can defend their currency. They need dollars to do this if their country trades in and/or finances with dollars. (If they trade in or finance with yuan, they should hold yuan bonds, which they can quickly turn into yuan to sell into the market to buy back their currency, thereby stabilizing it.)
Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?
I'm only the crypto weirdo guy asking.
So gutting public institutions and the tarifs do not work as trump intended because the fed opposed it? What did they do achieve that? (Sorry if i come across as trump deranged.)
Have you ever thought it doesn't matter what the fed does to try to minimize the damage.
Trust needs to come from the top, and there is none there right now.
> Are you trying to project this unto Trump when the Fed is doing everything it can to oppose his measures?
The Fed isn't opposing Trump's measures, on the contrary, the Fed is doing everything to accommodate as much of his policies as possible without wider damage to the economy.
It's Trump who doesn't understand the risks of unhinged tariffs and low interest rates which he demands because of his personal conflicts of interest.
The US worked hard for this outcome. After stupidly weaponizing the financial system, and stupidly outsourcing their industrial capacity and basing GDP progress on bubbles, there's no wondering why countries and global players wont trust their money to the dollar...
Some dude at Treasury even wrote a book about. Juan Zarate, author of Treasury's War: The Unleashing of a New Era of Financial Warfare.
Who would tell. Economy runs on 'trust' - not on 'by tomorrow we apply this random tax rate to this pinguin island and everone else'.
Trend has been negative since 1999 so as much as I like to poke the tango doll, this can not be the reason or only reason.
A 2% change, more likely this has something to do with the global rush for US tech stocks.
Some countries like South Korea are crazy on US stock trades.
Dollars' depreciation probably helped a bit too.
There is a global shift toward higher US equity allocations seeing how well they've performed in the last however-many years. Also it seems like President Trump's sole mandate is to keep the stock market from crashing, so that helps.
Highly unpopular opinion here and I'm going to get downvoted into the ground (who cares), but ... this has been a very long time coming and has very much been a self-inflicted change.
My bet is that it will end up being a very good thing for the world at large.
China has recently started to buy Arabian oil and paying with yuan.
Major countries (India, China) are starting to buy Russian raw materials and paying directly using rubles.
In both cases, trade is happening and completely bypassing the once unavoidable USD.
The US choosing to weaponize the USD for geopolitical purposes has finally made the world realize the immense loss of sovereignty they had allowed themselves to be subjected to by making the USD the global trading currency.
This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
The golden triangle of Russia (raw materials), India (highly educated workforce, strong demography), China (industrial powerhouse, stole the bulk of Western IP, is now producing more cutting-edge research than the west) finally free of the shackles of the USD and establishing direct overland trade routes that 100% avoid the seas (thereby 100% avoiding potential US embargoes, both financially and militarily enforced) ... the world is going to change in a rather profound way, finally relegating the US to being a simple country instead of the has-been empire it currently is.
Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines, not data. From a global payments share, dollar is still the single largest currency from a percentage standpoint, and is at historically highest share of global trade. Any changes to currency share are coming from lower volume from the Euro. On top of that, if you look at foreign reserves, yes there has been a recent selloff from the peak, but we are still at 60% of global reserves and its still kind of around the same historical average for the last 30+ years.
Edit: I also want to add, that while having the international trade entirely in dollar sounds very appealing, it can actually destroy US exports and damage the trade balance. This can have massive impact on domestic as well as global economies. What you want is a strong enough dollar.
https://www.federalreserve.gov/econres/notes/feds-notes/the-...
I think youre conflating 2 different things, share as a payment currency and share as reserve.
Share as a payment/trade currency is not going away though it will be greatly reduced especially with CIPS that bypasses SWIFT.Andmost data showing no change is usually from SWIFT - with zero visibility to the volumes in CIPS.
Share as reserve is more visibly viz central banks stacking gold and hedging on treasuries , with most tresurie bids coming in from offshore financial hubs likethe Caymans.So could be a whole shellgame there to inflate the volumes.
So yeah the $ isnt going away anytime soon (cross border trade still requires it in many places),the exorbitant privilege it enjoyed is.
> Every time I hear people claiming India and China now not using dollar and the end of dollar’s dominance, I feel it’s coming from mostly clickbait headlines
I would encourage you to actually take a gander at the history of reserve currencies, how long they last, how they lose their reserve status, and what the current state of thinking around where the dollar is headed.
Unless you would classify the IMF as a clickbait farm, of course.
Start with the brit. pound and what led its downfall to the niche financial instrument it is today.
But the pound is just the latest, and by no mean the only one.
Here are a few links to get you started:
https://marketcap.com.au/history-world-reserve-currencies/
https://www.economicprinciples.org/DalioChangingWorldOrderCh...
Barry Eichengreen – “Exorbitant Privilege”
https://www.imf.org/en/publications/departmental-papers-poli...
Your link has a trend graph. I recommend you look at it.
also, it ends in 2024.
> get the bloody USD printing machine under control
The amount the US government spends on debt service is already unreasonable. If the US dollar lost reserve status, the first thing that would happen is that the Fed would have to buy the debt with newly created money to prevent bond rates from causing interest payments to explode. Meanwhile the act of other countries unloading US dollar reserves would cause significant inflation in itself.
Basically, loss of reserve status = hyperinflation. At least at the outset.
On the plus side, that would pretty much wipe out the excessive amount of US consumer debt as long as wages stay consistent with the value of the dollar.
> as long as wages stay consistent with the value of the dollar.
Which the won't, so it will end in disaster for the average American.
> Basically, loss of reserve status = hyperinflation.
That's not exactly how hyperinflation works. You can't use this as a predictable claim, hyperinflation is never predictable.
That said, yes, that would cause a lot of inflation. Normal inflation. And there's a risk it causes hyperinflation.
Russia is a joke, India is somewhat irrelevant and doesn't seem like that will change soon, China is a different story, although they also have their share of demographic and economic issues.
And Putin and Xi are 73 & 72, and I doubt they will give up power as long as they're living which may result in significant turnmoil for both countries.
> US to being a simple country instead of the has-been empire it currently is.
The US isn't going anywhere for now, although it is trending in the wrong direction, but it's not yet a lost cause, not to mention that its still basically a fortress with endless natural resources and relatively good climate.
And then you also have the AI race which might be a dud or might be a winner takes all scenario. So gonna be an interesting next decade.
Agree it will land more stable for most parties but it will be turbulent getting there. Global free trade under the USD has created many structural fragilities. Principally that we have global overproduction outside the USA.
> My bet is that it will end up being a very good thing for the world at large.
I generally agree with pretty much all your points other than this one.
While it will be good for other countries to regain sovereignty - and the weaponization of the US dollar for trivial reasons will be the biggest self-own perhaps in history - I do not think the world is going to be a better more peaceful place in 50 years.
It might be more free in a certain sense though, which may or may not end up long-term (over multiple generations) being better overall for humanity. Time will tell.
Certainly though, the average quality of life in the US is about to plummet.
<https://news.ycombinator.com/item?id=9160121>
Just so you know India buys USD equivalent middle eastern currency to pay for Russian oil.
Which one?
AED is pegged to the USD
Frankly, this will be good for the world if it happens. The U.S. War Industry will for the first time after Bretton-Woods be deprived of a bottomless piggy-bank.
Lot of emotion in this comment; not a lot of substance. I think you're misunderstanding how some of these systems work.
> This change will also force the US to finally get fiscally responsible and get the bloody USD printing machine under control, something they never had to do because of the USD reserve currency status.
It is not the case that the US didn't "need" to get the USD printing machine under control because of the reserve status; it is the case that the US "could not" get the USD printing machine under control, because of the reserve status. When there is demand for US dollars, domestic or foreign, US dollars sometimes needed to be printed to satisfy that demand. If the US decides to not print those dollars; this is literally "defaulting on the debt", and would be bad-bad.
This gets at where you're misunderstanding how these systems work, because I think you're imagining that US debt is, like, an account in your Chase app that goes up, then you pay it down. US debt are, obviously, bonds. The USG says "we've got bonds to sell, they're at N year M% interest". Buyers say "we want those bonds we'll buy them". The USG is now in debt, and is obligated to repay those bonds; and sometimes has to print money to do so. This gets at the previous paragraph; money, broadly, is printed to satisfy debt obligations, not directly to service the deficit (proceeds from the initial bond sale are what could be said to directly service the deficit, but that's pennies compared to the size of the overall market).
Extending the Chase app analogy, you have it internalized that if we just get the deficit under control, then we could start "paying down the debt". In fact, probably, even our President understands it like this. But this isn't how it works. To "pay down the debt" would require two things to happen: We stop issuing new treasury bonds, and we pay off the already issued ones over 20/30/etc years as they mature.
The general professional sentiment on what would happen if the US even communicated it wanted to, in totally good faith, begin doing this at some point in the future, is basically armageddon. You have it in your head that, because Dave Ramsey says debt bad, the US should have no debt; but the world wants our debt; it has an insatiable (though, decreasing) appetite for it. Depriving the world of this debt would leave trillions of dollar-equivalents without anywhere to park safe from inflation, which would descend global financial markets into chaos. Tens of millions of people would starve in the first three months, among other undesirable outcomes. Some actively make the argument that the USG refusing to take on new debt would be net-worse for the world than the US defaulting on their existing debt, though its an interesting space to game out; a little game of global-cataclysm worst-thing-to-ever-happen-to-humanity olympics you can play.
But, debt servicing is becoming unmanageable for the US budget; so the best case for the United States is that USG debt demand from the rest of the world drops slowly and naturally, so we can naturally slow the issuance of new debt; and over 100 or so more years let managed inflation catch us up to recover from the utter shitshows that was 2001, 2008, and 2020. Everything I've seen, and I do mean everything, suggests that this is what is happening; but we'll know for sure in 90 more years.
Your entire wall of text has conveniently and completely omitted the hard fact that the U.S. Treasury has borrowed to pay for its defense (oops, sorry, I meant "war") budget for many, many years now. The war budget (~$850B) has been larger than the deficit in many years.
No other nation except the U.S. can sustain this without running into hyperinflation and consequent national rioting.
This might be the most unhinged defense of money printing and inflation I've ever read haha. "We can't stop the printers, or millions will die!!!"
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Ooooh that must've struck a nerve. Seems we can't post that here without massive loss of reputation. Progressivism != liberalism. That stuff just doesn't fare well, even as sarcasm.
Dude is giving what many have wanted for years, the largest of which is a massive reduction in US hegemony. Restarted militarization of Europe, accelerated the expansion of China into Africa. Causing Five Eyes to curtail the flow of intel.
But at the same time, utterly burning US soft power with the shuttering of USAID and most likely causing 14M excess child deaths world wide. Shutting down USAID was a bigger "mistake" than the invasion of Iraq and the blowback will be even larger.
Bro just drove the US empire off a cliff. Manufacturing will have to come back if they succeed in burning US currency. Good thing the rich have so much of it, Elon at 1/10th is still 40-70B.
He is neither progressive nor liberal. It’s not sarcasm, it’s bullshit.
In the process of burning down democracy, Trump has brought about changes that progressives have wanted for decades, namely a vast reduction in US hegemony. He has also caused massive suffering, inflation and will lead to the deaths of millions of people.
Dollar dominance erosion shifting towards dollar inertia. Post RU sanctions dollar lost much of it's leverage (as geopolitical weapon), i.e. actual useful dominance function (transaction panopticon, sanctions)while still retaining most of the liability (Triffin etc). Dollar going to remain popular by volume because plumbing in place, but parallel payment systems last few years = systematic blindspots where US treasury can't monitor what others buy outside of dollar system, and generally weaker ability coerce countries. What's left of dollar system is US enjoying exorbitant privilege of going into ~35T and rapidly increasing debt to serve as asset for everyone else, while dragging down export via uncompetitive FX.
One interesting attack vector vs USD is PRC recycling it's dollar surplus / shadow lending it's USD reserves at more favorable rates than US gov can, i.e. countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand and drive up US interest -> further increase US debt. PRC basically hijacked and weaponize USD liquidity to make increasingly ineffective dollar system (as geopolitical tool) even more expensive to maintain while PRC can enjoy dollar liquidity without the maintenance costs. And that's probably the ultimately the goal, smart play is not to inherit reserve obligations, but to turn reserve holder's exorbitant privilege to exorbitant curse.
> countries (emerging markets / BRI recipients) who would have borrowed USD from FED (or US influenced IMF/WB) now borrow from USD from PRC -> reduce US treasuries demand
This makes no sense. If the PRC is lending U.S. dollars, that doesn’t reduce Treasury demand. It increases demand for dollar-denominated assets, goods and service providers. The borrowing country has to spend those lent dollars after all.
PRC lending their USD surplus to countries to buy more PRC shit. "Increases demand for dollar-denominated assets, goods and service" =/= increase demand for US treasury, aka it doesn't fund US deficits. The attack is not on dollar circulation / liquidity but cost of treasury
Old: PRC recycle surplus USD into US bonds, increase US treasury demand, subsidizes cheap US debt.
New: PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds, decrease US treasury demand, treasury increase interest to fill hole, makes exorbitant privilege more exorbitant.
PRC parallel dollar bond lending COMPETES with US treasury bond lending. PRC dollars gets recycled towards PRC goods / BRI projects, not US treasury. PRC leveraging dollar liquidity for PRC geopolitical interests, meanwhile taking demand away from treasury bond sales, so US drive rates up to compete. US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers (vs PRC who previously default recycled into treasury), so raise interest, increase debt servicing. US 10 year going from 0% (countries basically paying to hold USD) to ~0.8% cost US ~300B+ annually. Now that's not all PRC doing, but 100 billion here and there and soon we are talking about real money.
> attack is not on dollar circulation / liquidity but cost of treasury
No real way this can work between similarly-sized trading economies. Worst case, a couple central bankers' weekends would be ruined.
> PRC recycle surplus USD into BRI finance, said USD doesn't return to US treasury to buy bonds
How? PRC sends dollars into BRICS. What do they do with the dollars? If they aren't sitting on them, they're contributing to the dollar economy.
The PRC financing using dollars would be nuts because it puts their sovereign financing into American hands.
> PRC parallel dollar bond lending COMPETES with US treasury bond lending
Not in any meaningful way. (There aren't that many indisctiminate buyers of international debt anymore. Put another way, most Treasury buyers have and will never buy any Chinese paper and vice versa.)
> US treasury had to find other buyers to fill ~600 billions (and raising) of USD bonds that PRC no longer holds. Filling hole that size = finding more price sensitive buyers
Not really. You fire up the Fed. If it's China that's doing it, that's national security. Hell, sanction the accounts the dollars are going into.
> but 100 billion here and there and soon we are talking about real money
Have you traded Treasuries in an instituional setting? You're talking about the size of a single desk's intraday exposure.
>Worst case
Or you know, a few basis points increase in interest rate that adds up to 100s of billions of new debt obligations a year (now more than defense), but it's America, no one loses sleep over that.
>they do with the dollars
Sign PRC development contracts, which = PRC products. Not US treasury. Dollars circulating =/= dollars going into treasury to finance US solvency.
>meaningful way...
>aren't that many indiscriminate...
>single desk's intraday exposure
Churn =/= net absorption, liquidity =/= funding, which is 2T new issuance per year to cover deficit right now (speed =/= volume of plumbing). The exact vulnerability is not many indiscriminate buyers... and losing a whale like PBOC that was one of them, and their 100s of billions has outsized effect as marginal buyer that closed auction regardless of price. Now they've been replaced by price sensitive buyers which means FEDS raise rates to attract non indiscriminate buyers who buy for yield/valuation not storage to close auctions. Meanwhile PRC lending out their USD which further decrease demand for treasury. Instead of exorbitant privilege of cheap debt, treasury payouts closer and closer to market rate because indiscriminate price takers like PRC out. Structural cost of capital increases when debt velocity and refinancing reach fiscal trap levels.
>using dollars would be nuts
>national security
I mean it's happening, lots of PRC loans / shadow lending / swaplines backed up by their dollars, because it's better for PRC use them to further PRC interests than subsidize US debt. What's national security crisis? PRC not using dollars to buy treasury? AKA US going to announce to world surplus USD now must be mandatory recycled/loaned to US gov or be sanctioned? Are they going to sanction countries for buying PRC tractors and end up increasing USD risk premium even more? The virtue of mechanism is PRC is sustaining US dollar system (which Trumps seems to like, i.e. threaten to sanction countries who goes off), but incrementally stripping dollar strength into liability. There's shit all US can do about it without looking even more delulu and making system worse (granted for everyone). US/Trump still gets to see the privilege of dollar liquidity/churn/circulation, but now they have to pay through the nose for it because PRC marginal buyer not there to keep interest floor down.
Could you explain what do BRICS do with dollars they borrowed from PRC? Buy oil and so the dollars flow to SA. Then what do BRICS do when the dollars loan to PRC is due?
It's not limited to BRICs but many emerging economies or distressed countries PRC wants to gain influence. Dollars attached to specific PRC projects, i.e. BRI, so they buy PRC industrial inputs, goods, equipment, contracts PRC SEOs to build XYZ. It goes from a Chinese bank to a Chinese contractor who buys other shit. But the shit they are not buying is US treasuries, and even if they did, not at PBoC/central bank for storage low yield rates that subsidizes US debt. Sometimes there's more generalized debt servicing swaplines, but regardless When dollars come due, PRC can take rmb/commodities/assets (rarely aka debt trap). If borrowing countries payback in USD, then cycle repeats. PRC is basically exploiting UDS network / liquidity effects without paying exorbitant privilege. Well they do pay, as in they take on lending risks, but their USD reserve is inherently not safe anymore post RU sanctions, so might as well as use it now.
USD position as global reserve is very much based on trust.
Between the weaponizing that for sanctions via SWIFT, US becoming unreliable as a partner (militarily, politically and economically) and Trump rambling about replacing pieces of the financial system with crypto [0] that trust was bound to waiver
Think we'll have a parallel system in record time. Question is who/how. Russia wants it but they're well Russia. China's yuan isn't open enough. Euro is a bit to regional and dependent on the US lead system anyway. So there isn't an obvious candidate.
Something is going to have to give though given US shenanigans.
[0] https://www.reddit.com/r/economy/comments/1otdio8/trump_says...
We do have a trojan horse with social security. Overnight we can become the largest single owner of global corporate stocks and bonds.
Judging by the comments Americans still don’t intuitively understand what the rest of the world does. Everyone is trying to create distance from the United States. The US no longer represents the smart deal, it represents risk, risk that countries can’t afford. The US has spent the last year creating chaos and punishing its closest allies and trading partners. The instability goes beyond Trumps term too, they’re rightfully afraid of the system that elected Trump twice. When they have a choice between euro’s, dollar’s or yuan they’re going to choose dollars less frequently to avoid exposure to the US.
Can confirm, one example: the company that I am currently working for put all its plans for investing in the US in the fridge and is exploring other markets now.
That’s entirely the point. Leave the USA financial system or contribute more. If you pick an single alternative currency I’ll run through the reasons why most would choose the US Dollar.
There’s more to international trade than what central banks do. The US is still a good place to invest overall, which is why we can run trade deficits. The money earned by foreigners, whether it’s from selling oil, cars, or anything else, goes into US investment of all kinds. Foreigners can buy the S&P 500 just as easily as bonds.
US interest rates have been declining lately, so perhaps other investments are more attractive.
So is "non-traditional reserve currencies" cryptocurrency or not?
Not. Cryptocurrency is just nonsense.
tl;dr dollars are coming home. expect weimar republic levels of inflation in next decades.