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Comment by mark_l_watson | Hacker News Reader

The US financial system is interesting. Government and consumer debt is so very high, yet because of our military we so far have been able to preserve the dollar as the reserve currency. I have no idea when this house of cards will fall, but I would bet we still have many years of financial privilege. I think it is ironic though that the more we throw our weight around the more other countries are motivated to use the US dollar but also want alternatives. I am really curious how this will all play out.

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Our military is not the primary driver of the US dollar being the world reserve currency. It is our stability and predictability. A strong military helps in maintaining those things. But our court system and political system following our laws and executing them faithfully is a very important part of that stability. Which is one of the reasons that our recent less-than-peaceful transfer of presidential power and current serious accusations of a stolen election are so very dangerous and damaging to the US on the world stage.

For what it's worth, the election-stealing accusations started at least as early as 2000 when Gore lost to GWB.

The current state of affairs is just a escalation beyond the status quo. Who knows, the next election might be another step above what has already happened.

Nah, I don't think that is fair. Gore conceded the election promptly once all his legal options were exhausted. He said in his speech that although he may not agree with the decision by the courts, he respects the constitutional process and accepts their decision. (even though quite a bit of research has indicated that Gore likely did win Florida)

Hillary conceded late that very night of her election. (Even though there was Russian interference in the election and a Republican head of the FBI spoke out against policy that they were reopening the emails investigation.)

Trump never conceded and continues to openly state that the election was totally rigged and stolen and illegitimate.

There is no comparison. Everyone has the right to claim it wasn't fair or that the other side cheated. But when the courts have decided, you accept the decision and you concede and you say you support the candidate that beat you and you wish for their success.

I agree, that Gore did the right thing. But talking about how Bush stole the election didn't go out of style until Bush left the White House.

Then came Obama vs Romney. Obama won by a landslide, so people who opposed him said, "not my president".

When Trump won, his opposers did the same. People acted like foreign interference in elections was something new.

I'm not comparing as mucha as pointing out the logical escalation in rhetoric. How people communicate and act sets a precedent for future communications and action.

It would be good if the next election was as clean as Bush vs Clinton.

The new thing was Trump pretty successfully fighting off efforts to examine his finances for his entire term.

Ya, that was one of the many broken norms. Now that we have more information we find he has undeclared foreign bank accounts (china) where he was receiving millions from a Chinese bank for rent in a building they never actually moved into. And coincidentally, they didn't renew their lease after he lost the election.

You could call it an escalation, but it wasn't a linear escalation. It took an exponential jump with Trump and I suspect it would not continue that trajectory if Biden had lost. There will always be a crowd of people saying something was stolen, but we have never had the losing candidate just make up complete and total lies about how the election was stolen and continue to spout those lies for years after his failed insurrection. Hopefully the legal system can withstand the pressure and put that criminal threat to democracy in prison where he belongs.

For what it's worth, Trump's political opponents still deny that the election of 2016 was legitimate.

It's not worth much. Because they don't actually claim that. They may claim interference or cheating, but they don't claim it was totally rigged. And they don't refuse to concede the election. Sorry, it's just not even close to the same thing and people should stop even making the comparison. It's like bringing up how some Irish people were treated badly everytime the enslavement of Black people is brought up.

Clinton's outgoing staff removed all the W keys from White House keyboards. Bush gave his staff strict orders against any kind of pranks or trouble for incoming Obama.

> ( ... ) because of our military we so far have been able to preserve the dollar as the reserve currency.

Would you care to spell out the connection between our military and preserving the dollar as reserve currency? It's not like foreign governments decide not to pay and we threaten them with our military - in fact, we're the borrowers and we're not threatening not to pay. So I don't see the connection.

e.g. https://thenewamerican.com/us/economy/markets/gadhafi-s-gold...

Gahdafi was suicidal then ?

Doesn't make any sense.

> Would you care to spell out the connection between our military and preserving the dollar as reserve currency?

I don't know much about it but quick introspection leads me to the conclusion that it is partially because the US military does a lot to ensure free trade continues smoothly around the world. Without military might, any transport ship would be at risk of piracy.

But there are other factors. Most notably, the US dollar was once pegged to gold such that you could redeem a fixed amount of gold for a dollar. The US used this to sell the world on exchanging in dollars instead of gold because it was just as stable while being more efficient to exchange. Once the world switched to it, primarily to trade oil, FDR (decidely the worst president of all time) then pulled the rug out from everyone and decoupled the US dollar from gold. But everyone already traded in dollars and basically gave up their gold since they had the dollar guarantee, so it was not so easy going back.

The US is living way above its means. Most counties have to export goods in exchange for imports. The US only has to export printed dollars for tangible goods, and they can do so while ignoring that those printed dollars decrease the value of all existing dollars precisely because there is still demand for dollars driven by petroleum trade (hence the common term, petrodollar).

The adjacent sibling's comment is correct. Gadafi tried to take Libya out of the dollar market and into a gold based market, seeking to trade internationally with gold. The US knows that if this happens, the country will implode. The US has no goods to export and doesn't make hardly anything. If other countries switch to the gold standard, the US will almost instantly run out of goods, and will go straight into hyperinflation and die. I'm of the firm belief that the US will start WW3 if that ever happens so that they can throw up their hands when the dust settles and "reset" global debt if BRICS manages to achieve enough momentum or if any other countries try to start a gold trade standard.

The US is way beyond default. Our politicans say that the US always pays it's debts, but then they openly don't! For example, our politicans say we need to keep increasing the debt limit because otherwise we would default on our debt obligations. That doesn't make any sense! By increasing the debt limit, we are definitionally defaulting. We are choosing not to pay. We could pay, but then how could we give away more unconstitutional welfare? Show me one credit card company that will let you borrow more to pay them back. Tell them it's fine, you'll pay last month's bill so long as they let you borrow another $5k.

Peter Shiff's most recent podcast did a great job of describing how our past politicans described how we would fund social security in the future: we would never not pay, we would instead print and deliver, even if the money was worthless.

Borrowing to pay off debt is extremely common. So common, it has a nice sounding name, "refinancing". You can sign up for a new credit card and as part of the process, "transfer" i.e. pay off the balance of any other card.

And the US extending its self imposed credit limit is completely reasonable. In that the alternative, which would be actually defaulting on debt obligations, salaries, and other ways that we have already promised, which be absolutely catastrophic. The US has never defaulted on its debt. There was a politically motivated shutdown that caused a few debt payments to be a few days late, but that's the worst of it. and even that was very damaging to the financial reputation of the US.

People are talking in this thread about how the military is why we are the world reserve currency. But the military is only a part of that. Our stability, predictability, and safety is what makes us a world reserve currency. Our court system is one of the most important parts of that as well.

> And the US extending its self imposed credit limit is completely reasonable. In that the alternative, which would be actually defaulting on debt obligations, salaries, and other ways that we have already promised, which be absolutely catastrophic. The US has never defaulted on its debt.

There is another option: the US could cut spending.

In a refinance, you either (1) keep the same principal and adjust the rate or (2) take out a new loan for a greater amount than the former, using the new loan to pay off the former.

The US is not doing (1). Maybe you could argue that it's doing (2). But there is a key difference: the US is the only debter that can print its own cash. Hence why I think it's more appropriate to compare it to a credit card borrower that just keeps increasing the limit, using the new money to pay the interest.

The gov doesn't produce anything. It can only tax. The more it taxes, the less capital the private sector retains to produce. The less money the private sector has to produce, the lower the gdp. The US is not only devaluing it's currency by increasing the debt and then not taxing to pay it off (though here the devaluation acts as an indirect tax), but it's actively dampening the value of the underlying collateral. These things typically don't happen with refinances. I do not understand why anyone is still buying US treasuries.

Speaking of refinances, it would have been wise of the US to actually refinance its existing debt while rates were at historic lows and the existing debt had short maturity timelines, but Yellen didn't do that. Instead she ignored refinancing it to 30 years and kept it on deck to mature, forcing it to be refinanced at rates more than double what it was.

I argue that the US has defacto defaulted on its debt by devaluing the underlying collateral. No other entity gets to decide to pay back its loan by willfully deciding to pay less. Though there is some benefit to private borrowers, as the devaluation also means that private principal balances are worth less in real terms.

> Our stability, predictability, and safety is what makes us a world reserve currency. Our court system is one of the most important parts of that as well.

I'm interested in a source or your reasoning here. We aren't the only country with a western court system, and our Supreme Court routinely refuses to strike down unconstitutional laws (Medicare, social security, etc.).

You need a consistent, non-corrupt court system, but also lots of wealth. The British pound lost it's status as the world reserve currency simply because the British economy collapsed and they didn't have enough resources to back up a currency not backed by gold.

As for social security and such not being constitutional, that strikes me as sovereign citizen, "taxes are voluntary" nonsense.

> As for social security and such not being constitutional, that strikes me as sovereign citizen, "taxes are voluntary" nonsense.

Article 1 Section 8 clearly enumerates the powers of the federal government. Nowhere is it granted the power to provide welfare of any kind. Nowhere is it granted the power to provide medical goods and services. Nowhere is it enumerated the power to provide educational funding. Nowhere is it enumerated the power to set federal minimum wages.

Our system is corrupt to the core.

The very first sentence of section 8: "The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States"

If education and welfare programs aren't "general welfare", I don't know what is.

Your comment reads like a trump legal filing. Literally citing cases that disprove your point.

You stopped short. You quoted the first paragraph but not the the supporting clauses. In fact, that preamble then goes into enumerating the specific federal powers.

If it was enough to say that taxes, duties, and excises could be levied and collected to pay for "common defense and general welfare", Section 8 would conclude with that sentence. There would be no need to follow that with explicit ennumerations.

Furthermore, we have a federalist government wherein we have a federal government with limited power. 10A wouldn't exist if this wasn't the case. Allowing the federal gov to tax for "general welfare" gives it unlimited power, which contradicts the very structure of the government.

Proper intro to S1A8:

"""

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

...

"""

One example: in 2000-2001, Russia, Iran, and Venezuela all publicly stated that they would also sell oil in non-US currency (in addition to, of course, selling in dollars).

Instantly all three countries were labeled “axis of evil” status, and our government became very threatening to all three countries (most obviously Venezuela where we did what we could to destabilize their government and parked our navy right off their shore).

I used to think that it was worth our tax payers’ money to enforce US hegemony, but now I don’t think it makes sense anymore for the benefit of the US tax payer. It does benefit the pro-war industries, and if you work in the “defense” industry then I don’t blame you at all if you support our current system.

Anyway, my perspective is that times change, and we should now push back against the continuous war lobby in Washington, and come up for a new plan going into the future that optimizes for prosperity and security. I believe we achieve security by have the best trained and supplied military on the planet, but keep them at home unless Congress agrees to formally declare war, and going to war has some form of public consensus. I want to go back to being a representative democracy.

Pretty sure the axis of evil back then was declared as iran, North Korea, and Iraq. See https://www.armscontrol.org/act/2002-03/press-releases/bush-....

Russia was just beginning to be run by PutIn, but he wasn’t seen as antagonist to the USA yet. Ortega didn’t take power in Venezuela until 2007.

I think the OC was speaking more figuratively.

Another more recent example might be the US throwing its weight around in the South China Sea - thus trying to protect it interests (and the dollar).

I’m pretty sure the only reason the USA is in the SCS at all is because of the amount of weight being thrown around by the PRC (to the detriment of USA allies Vietnam and Philippines).

Rome managed to keep it together for centuries. Change 1 thing (like hiding it) and release a media blitz that it will all turn around. There are plenty of tricks to play and the US has had the advantage of seeing what hasn't worked in other countries.

It’s more like there’s not an alternative.

Only an insane country would use China as their reserve country. And Euros have their own problems.

So it’s kind of like countries can use dollars or nothing.

I remember taking economics classes in the 90s and the professor said the same think you did. About how not sure how much longer the US will be able to have such a privileged position. But still 25 years later we’re in the same boat.

Pretty sure China won’t let anyone use its currency for reserve building, given that it isn’t fully convertible.

The US is by far the largest consumer market. That is the real power we hold.

The US is the deepest investment market. That's the bigger power.

Damn right. Japan sank in the early 90s when the US imposed duties on their goods. Cue neutering their industrial power. I expect the same to happen to China and I believe we are already seeing that happening. If the Americans say they won’t buy then your economy will die. Indeed, the largest consumer market is the real power.

You bring up a good point. From my perspective, I am amazed that Japan went along with the Plaza Accords (worth researching and reading about, intersecting stuff!)

Exports were essential to their economy. The alternative to the Plaza Accords was therefore worse.

sure only 1/3 of the world's transactions happen in yuan. 2/3 in dollars. but an embargo on chinese (and taiwanese goods) is not going to sink them. They have the largest world population and along with the BRICs could freeze out the US. Japan was a drop in the bucket compared to the BRICs

Agreed. Such an action would most likely hurt the US significantly, as where else would we get our goods? Tariffs were added to imports during the start of the great depression to try and make American goods more attractive (stamp out competition), and it is one of the significant reasons the depression went on so long. How did Trump's tarrifs against China do?

https://www.forbes.com/sites/stuartanderson/2021/05/20/trump...

https://taxfoundation.org/research/all/federal/tariffs-trump...

> They have the largest world population and along with the BRICs could freeze out the US.

This is a very real possibility and what I believe is the most likely catalyst for ww3.

The large government debt is a cause and effect of the dollar being the reserve currency. Other countries want American debt to peg their own currencies to.

It's a curse of resources situation, we're the government ignores the actual economy for a exportproduct(empire security) that can be produced in a relatively small parallel economic world. Quiet similar to Saudi Arabia..

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