This is Called "Capital Flight"
noahpinion.blog
noahpinion.blog
It’s pretty clear trump himself is doing that, playing pump and dump with the entire economy.
Firstly, euros cost now as much as they did three years ago. So that is clearly a price that can be reached with any number of causes. Then, UK pounds cost only what they did last September. And other world currencies? Values vs the dollar are all over the map, up, down, and nearly unchanged. No clear trend at all.
I had heard a good way to check the absolute value of dollars is to google USDX. Guess what? It's not particularly low, well within the normal range of ups and downs.
The fall of dollar was caused by capital flight. Money is moving mainly into Euro-area. Not UK, not elsewhere.
Investors are taking money out from the US. They sell assets, get dollars, then covert them to other currencies and take them out of country.
"All the arguments for Trump's tariffs are wrong and bad"
https://www.noahpinion.blog/p/all-the-arguments-for-tariffs-...
From it I learned that only 60% of Americans disagree with the statement "Tariffs are Tax Cuts".
And also that the chaos in the markets was muted because only 15% of traders even believed the tariffs would be in place for more than 6 months.
I'm somewhat saddened that this opportunity to touch the stove has not been fully utilised and so we are doomed to repeat it.
Specifically "Normally, when Treasuries get sold off, people park their money in cash, instead of moving it overseas. This time, a bunch of investors actually pulled their money out of America entirely."
They didn't, because to get out you require a bunch of other investors putting their money into America, otherwise there would be no exchange in the first place.
It's a fallacy of composition. Individual investors can sell their dollars and buy euros, but investors overall cannot. Somebody has to be selling euros and buying dollars, and the question has to be asked "what did they do with those dollars when they got them, and why were they coming in that direction in the first place?".
Liquidating static savings and pushing them back into the flow tends to cause more physical transactions to occur. It's taking money out of a drawer and spending it. That's likely stimulative.
And the exchange rate of barrels to tomatoes hasn’t changed as that is a productivity issue.
There is no universal chart against which value is determined. Instead there are ever moving currency zone orbits, possibly shifting financial savings around.
What there won’t be is any “shortage of capital”
But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. I understand this might be the intended effect, but it's not good for me.
That’s not what anybody with scale will have done.
And now you have to reevaluate the cost of that service relative to the alternatives - including letting them know they need to take fewer Euros to retain your custom vs the competitive alternatives.
Customers are hard to come by. Are they prepared to let you go?
I will still stick with them because they're better value than the American alternatives, but that's beside the point.
You were arguing that the same number of dollars will get me the same number of goods and services, which is not true.
In aggregate within a rational competitive framework.
It is true for those that are rational and subject to competition.
Where else are they going to sell their stuff? Why would you agree to pay more?
Your behaviour will change, as will everybody elses - and you're the customer. So you go back to them and say no I won't pay any more. Haggle. Are they going to turn you away?
Why is you agreeing to pay more more important than the other person who decides it is too much and cancels the service?
Changing the goalposts is assuming you, and everybody else, are always a price taker, passively accepting what you are given. That's describing a monopoly/oligopoly scenario.
I'm sure that isn't the case.
European services would be the least of issues. The main issue would be the tons of foreign imported food, cars, products, clothes, gadgets, and so on - including tons of component parts for "american" products (not to mention materials and tooling to make even the increasingly rarer "100% made in US" products).
Where else are they going to sell all that stuff given there isn't an untapped source of demand to absorb it (or that demand would already be serviced).
So what you have is a production glut, and nowhere to shift it to. Which usually causes a price collapse and production collapse.
Which then causes unemployment in the source nation and interest rate cuts...
Not as much, as they can route around the issue, selling elsewhere. The import (or things "made in USA" but depending on imports) represents like X% of US good consumption, but each players' US exports represents a much smaller (and falling) share of their total exports.
The world is much wider in 2025 than it was in the 1980s or even in 2000 or 2010. 2025 United States's Share of Global GDP: 12.7% (project to fall to 11.x in the next 5 years). It was around 40% in 1960s, and 25-30% in 1990. US represents in average 20% of China's exports across various categories. The max % seen is about 25% for consumer electronics segment.
The rest is cope.
I don't mean to suggest that the current American devaluation is as large as the UK's 1967 devaluation, at least so far. Just that your reasoning here is wrong: when your currency falls, that has a domestic inflationary effect precisely because your currency is worth less than before.
What might have happened in 1971 that changed the way thing worked overall?
By that logic you are saying if the US dollar to Euro went 10 to 1 or even 100 to 1 there would be no impact because the same number of dollars will still settle the mortgage or tax bill.
Surely there is a flaw in your logic.
We have a floating exchange rate. Explain how it gets to your disaster scenario given the flows.
The outcome has to come from the operation of the system doesn't it. So run through it.
Like when you graph something and you say, ok, what happens as it approaches zero or infinity. We learn from the extreme cases and use that to inform our understanding of the middle ground.
In concrete terms, the US is not an island. It does not manufacture, grow and produce everything it needs. Many things are imported. If the US dollar keeps going down, all of those things get more expensive. The dollar number of the mortgage won’t go up (until it is renewed) but everything coming from outside the country will.
Currencies go up and down all the time, making things more or less expensive.
If only our living expenses were just taxes and mortgages, amiright?
This take reminds me of the old joke:
“I don’t get why people complain about gas prices going up. I used to put in 40 bucks, and I still put in 40 bucks.”
Prices go up if there is scarcity and no effective competition for your purchases. Is that is what is going to happen?
Transportation and home heating or cooling costs will go up when petro products rise. Oil is scarce and globally priced. Gas for the car is 3% of household income. Utilities are 6-7% of income
Fertilizer costs rise. Nitrogen-based fertilizers come from natural gas, and phosphate and potash are globally priced and often imported. That means higher costs for farmers, stacked on top of rising fuel and transport expenses. That's foods already 10-15% of income.
So food gets more expensive from every angle. Inputs, shipping, storage. All of it.
So that's 20%+ of household expenses hit.
Education costs go up too. Foreign students now effectively get a discount if their home currency strengthens and universities are expert at making that squeeze when they have room to raise prices without losing demand (if students still come, if they don't come well...education costs also go up to make up the shortfall of high paying foreign students).
Almost - either imports or things produced and run using imports.
Of course if you make above $200,000/year your "living expenses" related to consumption of food, clothes, house goods, gas, etc. are a tiny part of that. For most people that's not the case.
If nobody wants dollars, then to import things it's necessary to send more unwanted dollars, so the exchange rate does up, so everything imported is more expensive, so you have inflation, so the interest in the mortaje goes up, so you have to pay more.
[Hi from Argentina! Been there, done that, got a pile of worthless bills as souvenirs.]
We're talking the USA here. Where else are those running 'export-led growth' going to sell their stuff?
Where is the excess Argentinian beef scheduled for the USA going to find a market?
There is no untapped source of demand. Or you'd be selling beef to them already.
So what happens with the beef production glut?
"so you have inflation, so the interest in the mortaje goes up"
Increase in prices doesn't necessarily mean inflation. It's just scarce goods being shared out by the market.
And as we know putting up interest rates doesn't fix inflation. Argentina being the case in point (and they still haven't learned that lesson).
Import is buying. You will have higher prices because stuff you buy is more expensive.
But also, export as in selling others tend to go up as currency looses value.
> Increase in prices doesn't necessarily mean inflation.
What do you think inflation is?
Why? Why won't the supplier have lower income because they have no other alternative than to sell for the same USD amount as they did before?
Why is the supplier always the price setter? Can you always charge your customers anything you want to and they keep buying?
The customer is king, but not when FX is involved? How does that work?
"What do you think inflation is?"
It's a general rise in the entire price range. If the price of eggs goes up, but your wage didn't then that is a redistribution of scarce resources, not inflation.
That is, after all, how price competition works.
> Where is the excess Argentinian beef scheduled for the USA going to find a market?
The offer is elastic too. A previous government added too many task and restrictions to the export of beef, so the producers sold the young cows instead of letting them grow to get more mothers. After 2 or 3 years the numbers of reproducing cows was so low that we almost had to import beef from Uruguay. IIRC the land was converted to soy farms, because exporting soy had a lot of taxes but not as many as beef.
And when those other investors bought those dollars they did so for a lower price in another currency than they previously would have, which results in the overall value of the total dollars to fall. This alone does not signify capital flight, but the combination with rising yields does. There's simply less demand both for US dollars and all dollar-denominated assets.
Again you’re implying a fixed exchange and there isn’t one. The exchange rate of barrels to tomatoes hasn’t altered since that is a matter of productivity
This is why “devaluations” in the fixed exchange rate period didn’t work
Of course it has. We are one of the world’s largest importers of tomatoes [1]. The dollar devaluing makes them more expensive. That, in turn, means the internal price of tomatoes goes up. We’re a net oil exporter, on the other hand. So yeah—the “exchange rate of barrels [of oil] to tomatoes” has been altered. In part because the productive benefits of comparative advantage are being slashed. In part because trade frictions are being introduced that reduce our economy’s productivity.
[1] https://www.worldstopexports.com/international-markets-for-i...
There is no untapped source of demand at that price is there.
We already know from history that devaluations don’t work. What has changed that suggests they have suddenly started working?
It’s currently cheaper for me to take a vacation to Canada to buy next year’s skis than it is to buy them domestically. That’s demand transfer.
On the other hand, car factories that used to export to America are being idled in Canada and Mexico. That’s supply contraction.
More pointedly, if you have an unreliable trading partner, it makes sense to offer discounts to other buyers who will make up for the price cut in the long term. (Either with increased quantities demanded or a less-volatile trading relationship.)
> We already know from history that devaluations don’t work. What has changed that suggests they have suddenly started working?
We’re not in a controlled devaluation. This is America facing its first semblance of a currency crisis. Far from fully blown. But if a large foreign holder of Treasuries started dumping them, for example, and were to co-ordinate it with our erstwhile allies, that could create problems.
What's the policy response to supply contraction causing people to lose their jobs? What does that tend to do to exchange rates?
" it makes sense to offer discounts to other buyers"
If they are offering discounts to other buyers, then won't those buyers then take the advantage and re-export to the US?
There's an arbitrage opportunity right there - as we've seen with Russian oil.
Why won't that happen?
Plus why go through the problem of trying to obtain new customers for less money, when you could just pay the 10% tariff and get the same amount of less money for less effort?
"But if a large foreign holder of Treasuries started dumping them, for example, and were to co-ordinate it with our erstwhile allies, that could create problems."
How would it create problems? Run through it precisely at the transaction level please.
Then you'll find it doesn't.
To 'dump' Treasuries somebody else has to buy them - so no fewer Treasuries. To 'dump' US dollars somebody else has to buy them - so no fewer dollars. Same number of dollars chasing the same number of Treasuries?
The somebody that took on the dollars and the Treasuries wanted to buy them or the transaction would never have happened. Why did they want to buy them?
So where's the problem?
You’re acting like the Asian financial crisis or like Argentina haven’t existed.
> If they are offering discounts to other buyers, then won't those buyers then take the advantage and re-export to the US?
Across-the-board tariffs.
> when you could just pay the 10% tariff and get the same amount of less money for less effort?
Stability. Again, you’re acting like Smoot-Hawley didn’t happen.
> To 'dump' Treasuries somebody else has to buy them - so no fewer Treasuries
Nobody…said as much. In this case, look at Russia in the late 90s.
> where's the problem?
People buy the treasuries on the secondary market and then have less demand on the primary. That lowers their price which raises yields. That, in turn, makes the policy remedy you suggested at the top—for unemployment—more difficult as it requires monetising the debt.
It seems so clear to me that the economically superior position is lower deficit spending, extremely low treasury yields, high investment, and high growth.
Am I severely underestimating the effectiveness of government spending at stimulating growth?
It seems that large deficit spending should be reserved emergency stimulus for correction, not a feature of healthy growing economy, and their use during "good times" diminish capacity for use in the "bad times"