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Comment by immibis | Hacker News Reader

The US appears to be trying to end the reserve dollars. Something that surprisingly few people have mentioned recently is that having the biggest trade deficit is the same thing as being the global reserve currency. Because they're the same thing, ending one of them also ends the other.

There does seem to be some sort of cycle in play: first a slave-driver-type economy creates a whole lot of wealth, then people get human rights, then they stop being driven like slaves and coast off the accumulated power, but forget the basic principles of wealth creation in the process (see also "good times create weak men" etc) and just spend all their resources arguing about who gets the wealth that is there instead of creating more. And I'm not saying that in an individualist framework - the reason individuals can't do it is a problem with the whole society, not with those individuals.

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Ultimately you get out of this trap by making work sustainable and trying to level the playing field.

Almost nobody is spending resources in the US. And that's half of the problem. It's spent elsewhere, therefore labor stagnates or falls, only leaving low tier jobs to work. No factories locks out advancement reducing morale and draining the best that could have their kids advance.

In the US, you had skyrocketing prices on basics like healthcare and housing too, way more than elsewhere. UK has a lot of this problem too.

That together ultimately causes a reduction in teaching and educational standard, which further shrinks the high end advantage.

Short version: economy and people hollowed out in the middle is unsustainable.

> Ultimately you get out of this trap by making work sustainable and trying to level the playing field.

And you can't make work sustainable and level the playing field when you have free trade with developing countries.

People cite Ricardo like gospel, but the math of free trade treats every safety net, worker safety protection, etc., as a loss of "comparative advantage." You know how Texas takes jobs from California by having lower standards, lower wages, etc.? That's what happens when you have free trade with third world countries. It's a race to the bottom.

> Something that surprisingly few people have mentioned recently is that having the biggest trade deficit is the same thing as being the global reserve currency.

Can you explain this a little more? Why does having a trade deficit make your currency more valuable? My naive assumption is it would put more dollars in other countries, so they don't need them as much, making dollars less valuable.

"Why does having a trade deficit make your currency more valuable?"

Its the other way around, having the reserve currency drives demand for it and therefore imports are cheap and budgetary deficits are free (since interest rates are low).

You get free stuff and free debt, but over time your industry collapses

Your currency being valuable increase imports!

Other counties need dollars to settle their international trade (particularly oil but practically a lot more), and to hold in reserve. The dollar is actually the only currency that's been printed enough to serve this purpose alongside its other benefits. This demand for dollars makes the US less attractive to import from as the price of the dollar is driven up by this extra demand.

US is the alpha consumer. If you can sell in the US, you won. You want to sell in the US. You get dollars for what you sell in the US and since everyone else also wants to sell in the US, you trade with everybody using dollars. Also, your government goes batshit crazy statistically more often than the US, so your currency risk is smaller if you're settling trade in dollars.

Having the global reserve currency is another way of saying other countries have a lot of your currency.

Having a huge trade deficit is another way of saying you've sent a lot of your currency to other countries and haven't received it back yet.

I'm sure you can see how those are the same thing.

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