Era of U.S. dollar may be winding down
news.harvard.edu
news.harvard.edu
https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt
Leaving a comment for others just in case others are experiencing that same mis-connect. As far as the article goes, we'll see! I'm inclined to think that is true, that the US is retreating from the world stage and the dollar will follow, but whether that happens now, later or never, I couldn't say. Interesting times!
> Economics professor L. Randall Wray criticized Reinhart and Rogoff for combining data "across centuries, exchange rate regimes, public and private debt, and debt denominated in foreign currency as well as domestic currency," in addition to "statistical errors," and for lacking a "theory of sovereign currency".
One of the things to learn is that a lot of "think tank" content (including those at affiliated departments at universities) is just thought leadership used to drive an agenda. I've been guilty of doing that, and so is everyone else.
I'm reminded of:
>John Maynard Keynes once said: “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
I mean not quite that but people who don't understand economics tend to pick up on something they read without great discernment. See for example Trump and deficits and tariffs.
The pretend claim the debt police went with later is that the paper somehow proves debt is inversely related to growth in some way. This is not an interesting claim, and certainly not proved by showing that low-growth countries are often also high-debt countries.
edit: there is absolutely no reason to think that government debt is related to GDP. That's why they resort to making statistical, associative arguments. The balance of payments is the important number, and it's an accounting identity that if holding the balance of trade steady, when government debt goes down, private debt must go up. The only thing you can be sure of when government spending goes down is that systemic investments by governments are being neglected, in favor of individuals borrowing money for personal consumption. Hello Temu.
I like how Richard Wolff put it: There is a reason business school and economics aren't in the same building.
But people are deeply invested in these ideas and would rather die than correct the mistakes.
The only thing I admire in Trump is his ability to change his mind. Maybe he can beach the ship before it sinks. I hope there is something to eat on the island. That would at least make the infighting worth it.
His position can be summarized in that he is an extremist advocate of Marxism and the fact that that puts one person in control (ie. dictatorship) he describes as a positive. And he won't discuss ... see point 3.
Of course, that is not what he generally discusses, that part of his beliefs (but I'll credit him with at least not lying about it, or "failing to understand" that part). He is an expert economist and will point out every historical moral flaw in international relations in all of history AND blame it on capitalism. First, the criticism "sure, this was abuse, exploitation, but at the end of the exploitation everyone was much better off than at the beginning of it" is a point you can make about nearly every argument he makes (because he only complains about western influences which got us to our current world).
Second, he's selectively outraged. For example the Soviets, Chinese and especially Ottomans are, to put it mildly, a LOT worse than the states he complains about. In reality, exploitation is the norm in history, not the exception, but listening to Richard Wolff you will get the opposite impression.
Third, the Western societies that he complains did the exploitation are not exactly capitalist societies. They were dictatorships, in the best case mercantile societies. Capitalism had influence in these societies, but the case he makes, that capitalism controlled these societies is ridiculous.
And, of course, that the solution he advocates would take us back to authoritarian dictatorships, and it seems there is a lot of historical proof that this, to put it mildly, that won't end exploitation, is never discussed.
AND he's dishonest. There's no other word. He's making "American empire has fallen" announcements since the 90s.
Add to that that you can't listen to him for 1 minute without cringing. But hey, he's a professor, so I guess that's par for the course.
The general pattern i see everywhere is that in a society with layers of hierarchy each layer is amazingly ignorant about the things the ones above and below know very well. Not knowing the abstraction vs abstracting away important things.
No, I'm not sold on Wolff's new js framework.
It's like trying to convince your parents to let you stay home by faking a temperature on the thermometer, then when caught repeating the measurement and shouting about how it actually shows 98.9°F and you really do have a fever!
Consensus was and remains that public debt and GDP growth correlate very poorly if at all, and the book that claimed the opposite was simply wrong.
I don't understand why or how that would be a goal. Doesn't the US get / consume something like 25% of the world's production while having about 5% of the population? If they're consuming 5x their share, the bottom is way, way further down than anyone can fathom, isn't it?
I'm honestly not sure there's any grand design or even inkling of a plan. It's happening and we have to deal with the consequences
The "Mar-a-Lago Accord" is a proposed economic strategy, often discussed in financial circles, suggesting a coordinated effort to devalue the US dollar and reduce the country's trade deficit. Essentially, it envisions a deal where the US would pressure its trading partners to weaken the dollar and lower US borrowing costs, potentially in exchange for continued US security guarantees. The idea is rooted in the 1985 Plaza Accord, where major economies agreed to jointly weaken the dollar, but with some key differences.
I found this confusing as weakening the dollar and lowering borrowing costs would seem to be at odds. Apparently the "deal" involves central banks which hold US Treasuries swapping some large share of them for near-zero interest ultra-long Treasury bonds (50-100 years), to prevent yields on typical Treasury bonds spiking when rolling over debt. See https://www.cfr.org/article/mar-lago-accord-not-recipe-succe...
I'm still not sure how that's supposed to work to actually lower borrowing costs rather than blunt the increase. Maybe it's like the Laffer Curve where they rely on some very specific hypothetical conditions to make the numbers work?
If you think about, it really is a default, because US borrowers are being forced to exchange their cash into trust-me-bro letters.
Technically USD has been a trust me bro paper ever since Bretton Woods, but today the trust in the system is really at very low level, unlike before
It did this by running up an impossibly massive trade debt since Reagan. This is not something that can be done endlessly, unless you're going to "start" invading other countries for resources.
It also can't be done (in the sense of grown) endlessly if the only tools brought to bear upon it are the ones of heterodox economics and the historical policies of the two major US parties. You don't, however, need to invade other countries. You can take the sort of approach MMT advocates, for example.
From afar I'd say it could be the same.
* I say most, because obviously there were also an awful lot of useful idiots.
Especially when the consequences downstream of that error were so stark in terms of policy.
1. https://www.nytimes.com/2025/05/02/opinion/ezra-klein-podcas...
Ezra gave Rogoff a lot of push back and Rogoff came off as a guy who intuitively understands things but doesn't rigorously understand them so he looked kind of foolish multiple times. Rhetorically he was poor and if I hadn't already gone in agreeing with his general consensus, I would probably have been left fairly unconvinced. Of course, the curse of knowing a lot is that your knowledge of what you don't know is much larger than other people's knowledge so it's harder to confidently present things because you can think of exceptions or why they might not be true or how things could be much worse or much better than what seems most likely.
Unrelated but this is John Connaly who was governor of Texas during the JFK assassination. One of the bullets -- possibly the one that killed Kennedy -- went through Connaly's wrist & ribs
It was the end of the bretton woods system/the gold backed US dollar.
The major consequences are inflation, which devalues savings and transfers the buying power lost from devalued savings to those who own assets, and removing the consequences of poor policy, letting the market remain more irrational and letting corruption fester longer before reality asserts itself.
Because the relationship between money and value are severed, it allows for wage stagnation and real economic production to stagnate while paper power and paper growth are allowed to metastasize because the supply of money can always be expanded rather than having to deal with the reality of potentially not being able to import things that fuel the engine of your economy.
So 1971 is when we started to hang ourselves with our exorbitent privilege: https://en.wikipedia.org/wiki/Exorbitant_privilege
There are quite a few of them, and you've conspicuously omitted them.
It's a bit like issuing a scathing review of the automobile by listing all the disadvantages of diesel engines compared to horses.
If you are responsible with your levels of corruption, then fiat currency is generally very beneficial. So it ends up being like a drug. Appropriate amounts can improve your life, but abuse, which the drug will promote, can destroy it.
It's a form of power, and if you can use it responsibly it's good, and if you abuse it it's bad.
Rampant shortermism promoted by shareholder supremacy especially when compounded by government funded bailouts really amplifies our ability to damage our future with our monetary system.
If you can think in the long term then it's very net beneficial, but if you allow short term interests to dominate... the hangover will be devastating.
Thinking about it more, lack of inflation makes savings valuable and potentially implies deflation where saving/not spending money gives you more buying power than investing it. This takes money out of the market and reduces "dollar velocity"/the sum total of market activity which can devastate your economy.
If that happens, then there is a mechanism that prevents systems of compounding power, and the wages "stolen" by inflation are put back into the economy rather than becoming part of someone's hoard. If wealth is redistributed then that allows for monetary inflation without changing power relationships.
If that does not happen, then power compounds and those with power will enact systems that benefit themselves since they will never have to experience the long term consequences of their looting of tomorrow for today. The poor will continue to get poorer and the rich will get richer, until the rich have so much power and poor have so little power, that law, the prevention of arbitrary exercises of power by the powerful, becomes meaningless and the rich will take what they wish unopposed. Some people will get so powerful that when a government says "you can't fish all the fish in the sea because we need to have fish next year" they pay enough money to replace that government's politicians with politicians that say you can, then next year there are no more fish left to fish.
Money is a note that denotes buying power, but that note is meaningful because there is a law that says it is meaningful and people with guns enforce that it is meaningful. So if people get powerful enough to subordinate people with guns it means that power is more effective at acquiring resources than money since someone with power can just take what they want without consequence.
So inflationary monetary policy is good because it means more money is active in the economy, but inflationary policy is bad because it also concentrates money/power and you must have a system to prevent the power concentration that inflation causes by default if you want the system to remain coherent.
If you're saying that people must empower themselves (by unionizing or the like) first because redistribution must follow power rather than power following redistribution, then I agree. If you're saying something else then I don't understand.
I do not want redistribution; America is equality of opportunity not outcomes. It's politically unsellable smacking of far left politics. I could not care less that some guy has $10M or $10B. I'm happy in my life ... however I am pissed I am getting squeezed in the middle.
I damn sure want the upper 15% + all corporations to pay the same percentage of taxes per dollar I do. I'm near the top end but not enough to have a coterie of CPAs playing paperwork games. I'm with 100% with Buffet on this. I've been in the Cisco/HP/whatever corporate buildings in SV; ditto Apple. I was both surprised and not surprised (knowing corporations) to hear Apple was Irish in some sense for tax purposes. That's BS.
Finally, Congress is going to have to get off its butt and do something to make them credible again on spending what they take in. This is another serious up-hill climb before selling ``higher" e.g. fairer taxes. At least as far as rhetoric goes --- but not reality --- it's hard to move the GOP to fair I mean ``higher" taxes when the top ~10% already pay something like 40% of all tax income. That's just a hard sell.
> 5% where all real income gains have gone.
Yes that's because wages are proportional to power, not output, and because poor people are getting poorer and rich getting richer, the power gap is widening resulting in fewer captured gains by those actually doing the work.
> I do not want redistribution; America is equality of opportunity not outcomes.
The problem with being against wealth distribution is two fold. One, and the more important part, is that you have to stop people from having too much, because having too much creates "too big to fail" situations which allow single individuals to compromise the government and be above the law. This was the age of robber barrons. Are you arguing we should support robber barrons?
The second, less important reason, is that people who have a better start early in life are able to contribute more taxes/more to the economy later in life. Today's poor people are tomorrows drug addicts and criminals or potentially entrepreneurs and scientists and money can influence that significantly. Many anti wealth redistribution people are pro nuclear family people, but money issues and overwork/stress break up families. Jesus, which many of those people also claim to be followers of, was very pro wealth redistribution.
Public schools are literally wealth redistribution, the most important kind. Do you really want to be in a country where it's the rule rather than the exception that people who cant do basic algebra can vote on tax policy?
> It's politically unsellable smacking of far left politics.
So it's wrong because it's left politics, but not wrong because it's a bad idea? Do you see how your description of it being wrong shows you're playing team sports. For you left and wrong are so close semantically that they're basically the same word which is why you don't realize how intellectually bankrupt that statement is. Everything conservatives claim to love, the teachings of Jesus and the constitution are extremely left ideals. Freedom isn't free is born out of left philosophy even though right wing people tend to be the ones saying it.
> I could not care less that some guy has $10M or $10B.
You really really really should. If a congress person costs 10M to compromise/primary/bribe/etc, the the guy with 10M guy can at most compromise one, while the 10B guy can compromise 1,000 of them. The 10B guy can buy a news Channel, the 10M guy can buy a commercial... The 10B guy can start a surveillance company in Palo Alto that makes use of all the pervasive surveillance collected from virtually everywhere and use it to support the politicians they prefer. The 10B guy can buy a social media company that algorithmically controls the political content people are exposed to.
> I damn sure want the upper 15% + all corporations to pay the same percentage of taxes per dollar I do.
The military, police, and social programs all contribute vastly disproportionately to their wealth.
> I'm near the top end
Well at least your point of view makes sense.
> Apple was Irish in some sense for tax purposes
But you have trouble connecting the dots that it's because they are an extremely rich corporation that they are able to buy or otherwise coerce themselves into being above the law?
> Congress is going to have to get off its butt and do something
Yet if they do, those 10B dollar citizens decide to devote their resources to primary-ing them in order to ensure a climate of de-regulation. Trump is literally in power to enact a policy written by the heritage foundation meant to "put government workers in trauma to prevent them from enacting regulation against oil companies." Literally stated like that. That's literally what the head of the OMB said.
The whole last statement alone doesn't make any sense and ignores America's history.
It would be nice if America had equality of opportunity, but it's not. Not even close. No country is, and the US less than many.
Do you think a poor kid gets the same opportunities in life as a rich kid? A kid with drug addicted parents the same as a kid with loving parents? A kid growing up in a criminal neighborhood the same as one in a safe neighborhood?
Real equality of opportunity is probably just as impossible as equality of outcome, but it's possible to get a lot closer than where the US is.
> It's politically unsellable smacking of far left politics.
Wealth redistribution is so unsellable that the US used it very effectively from the 1930s to the 1980s. It was a massive boon to US economic growth, gave the US a strong middle class, before Reagan decided to undo all of that and wanted more money in the hands of the rich.
The only reason you see it as far left is because you've bought into right wing propaganda.
> I could not care less that some guy has $10M or $10B. I'm happy in my life ... however I am pissed I am getting squeezed in the middle.
Who do you think is squeezing you? The middle class is getting pushed back to the bottom. And the fact that some people have billions give them more power over society, over politics, and that helps them squeeze you.
My family is an example. I'm the only one in my family with a uni degree. I paid for it. My father is the only one with a degree in his family. His father worked in copper mines. Still our family has made continual progress. My son is starting his masters in engineering. My better half had a degree.
Redistribution as a macro government policy is still not advisable. Government cannot allocate resources well however well intended. Think Bush junior and housing crisis; he wanted house ownership up.
Gov can deal with point problems: reduce cost of higher education (stop giving loans and grants to Harvard, yale), tell people what the expected roi on a degree is, tell people what other universities charge for the same degree (more is not always more), lower health care costs. Stop subsidizing corporate america. There I'd zelously advocate for gov involvement in addition to my other points
Why not? It has worked very well in the past.
> Government cannot allocate resources well however well intended.
Your primary example is probably the US government, which hasn't wanted to do this well since Reagan. Instead, the focus has been to undermine its effect in order to justify cutting programs. But more benevolent governments have had much better success.
> Stop subsidizing corporate america.
I agree with that. The US has been redistributing wealth, but they've been redistributing it upward, rather than downward.
But the US could do a lot to improve equality of opportunity by providing better public education, more affordable advanced education, and more affordable healthcare. Those three are low hanging fruit with massive returns on investment.
Not to mention the interstate system, drinkable water in almost every home, and the world financial order as we know it today, the internet itself was a government project too. GPS?
We have almost eradicated many extremely harmful illnesses as a result of government programs, including something that neutralizes but does not cure HIV.
> Government cannot allocate resources well however well intended.
That's because the half of the government that says this is ensuring it is true in order to justify deregulation and privatization to make their 10B benefactors happy. Most of the people who say what you say feel confident saying it, not realizing that it's not structurally true, but only true because they believe it.
Government != corporation despite the fact they both need money. I'm for a well-funded government that I can hold accountable for their roles and responsibilities, ditto on the private site. See for example the Intel thread floating around on HN; there we see a corp losing their competitive grip.
Good lord: it will not kill America to have a decent linear combination of good and competent goverment and corporations. We need both.
Therein lies the problem with gold, which is why a decoupled currency was required. A natural resource such as gold or bitcoin, appreciates as the economy grows, which in turn slows the economy down. With a printable currency, a country can control inflation or depreciate past value to create agony for people who have to continuously work to create more value. That is what forces nation-building and what capitalism helps with.
Dollar worked. And it won't be replaced with a fixed resource such as gold or bitcoins. But as the article mentions, it may not remain unique. That will be very interesting though, since the world has never experienced those dynamics before.
If I own a teddy bear factory and I give you 10 teddy bears and you give me back 11 teddy bears I would prefer 11 dolphins instead as they are something that I don't have and can't make.
It inevitably brings us many benefits, but it does feel like the U.S. and other western countries are being hollowed out.
Maybe this is more of cost disease than dollar dominance. Maybe they are related in some ways?
I love my US made RedWings and Aldens, just not cheap. :)
(and I’m not American)
Frankly, sneaker prices are getting so damn high that for the last couple years “expensive” leather shoes and boots from manufacturers that have resisted big price hikes have been looking more and more like a bargain…
Red Wing in particular has only raised prices about 10% in the past 10 years.
What does this mean?
The opportunity is there, its just USA was supposed to use the reserve currency status to invest domestically in its own people. Instead USA made a business out of education (private schools and elite colleges).
This creates a situation where only high value jobs are feasible in the USA, but the education to do these high value jobs is too expensive. Now you have to import foreign talent, as well as goods, and this leads to erosion of the country.
China on the other hand, invested in its own people and developed industries domestically, rather than importing talent
> how come immigrants from Haiti/other 3rd world countries come to the poorest rural towns in USA and make it work, while US citizens drown in drugs and crime?
Any source(s) on this? First I'm hearing of this correlation.
It’s almost like some twisted version of Mutually Assured Destruction mixed with economics and realpolitik. As long as you don’t try to collect your money, it’s safe and profitable to lend me more of it. Because of the implication…
Reducing trade deficits to zero is exactly ending the dollar as a reserve currency since it implies that no country has dollars in reserve. There is a stated a goal of this ruling regime to return to the gold standard.
So who was being liberated? From what I could tell it was authoritarian countries from the consequences of the sanctions framework provided by SWIFT and trade predominately occurring via the dollar. Rogoff explicitly states that the dollar as reserve currency has incredible intelligence value and allowed for us to impose sanctions on other countries.
The number of ways to interpret liberation day in a dystopian way are large, and I can't really think of any American entity that directly benefits from liberation day "liberation" except potentially unskilled American labor who might be free to work sweatshop jobs that get re-homed, if they aren't automated or don't just disappear entirely.
The fall back for a long time was that half of the problem was exchanging money between two countries, and then shipping the goods relied on a strong blue water navy.
The U.S. doesnt have the lead it used to in either area.
Sanctions didnt help either.
Another issue is the ongoing attacks on the rule of law and the courts. There was a reason why Russians kept so much money in British banks, it was the trust in the institutions that caused the inflow.
Its like a perfect storm to destroy your currency credibility.
The USA will remain reserve currency even though it will or has withdrawn from bretton woods and its role as world police.
Could the world have two competing currencies? Possibly.
But the one way to guarantee that adversaries (I don't care who your adversaries are, I'm using that as a non-denominational term) don't get the upper hand, is to use a currency they can't control or manipulate.
ATM the US dollar, can be manipulated by the Fed, but also by the collaboration of other countries, and holders of debt, as recently shown by the US bond activity.
I know many on HN are going to hate to hear this, but a single, global, trust-less currency cannot be manipulated against any single group. So bitcoin may just be the answer here.
The reserve currency needs to be so liquid that the average person doesn't feel nations buying/selling massive amounts of currency for trade.
To believe Bitcoin fits this is to be completely ignorant of reality.
It would be questionable if the Euro is even liquid enough for this because of the bond market.
If you look at the Real, Ruble, Rupee and Yuan vs USD, the BRICS would like something else because USD is too strong.
To look at those currencies and conclude it is over for USD is just absurd.
Commercial trade and government debt operate a such large quantities, that they are essentially a market unto themselves.
This is essentially how gold worked wrt the gold standard, except that with gold, a large find in one country increases the wealth of that country, or makes it subject to war, as other countries want to capture that value for themselves.
A semi-joke-y take on BRICS:
> Pretty straightforward really. You combine Brazil's history of monetary stability, with Russia's respect for property rights, India's domestic tranquility, China's financial transparency, and South Africa's investment opportunities - and hey presto, you've got a new global money
* https://twitter.com/davidfrum/status/1665053372402081792
Of course more countries may enrol in the system, but that dilutes the influence of the five namesake nations of BRICS. But then you have to choose an actual currency(s), so you will they trust to be stable? Or perhaps go with a 'theoretical' currency likes Keynes' bancor?
It's utterly unsuited to the task. Far too slow, vulnerable to quantum computing, concentrated and tending toward even further concentration, and with utterly useless environmental impacts. At it's core its a cool concept, but cannot be upgraded to match what's currently out there. It's whale oil in a world of fusion power.
Fee-less, mining-less, spam resistant, quantum resistant, decentralized and near instant technology exists, right now, and has proven itself over the last ~9 years. It's wild that people think the first-mover advantage extends so far as to accept something so vastly inferior.
Something I think a lot of people miss in this discussion is that with computers and electronic markets dealing with currency conversions is fairly easy. In the past doing everything in USD vastly simplified everything, but today I think countries just trading with whatever currency works for a given market or transaction probably makes the most sense.
There is no other world currency that looks both large and stable enough to replace USD. Chinese Yuan/Renminbi is probably the closest but it's probably viewed by many as too easily manipulated. It's a pure fiat currency run by a single party state with little separation of powers.
If say a Thai company wants to buy cocoa beans from Nigeria, the Nigerian exporter doesn't have any immediate use for Thai baht if they aren't planning to buy something from Thailand. If exports and imports between two countries aren't relatively balanced there won't be a liquid market between their currencies.
You could also create derivative instruments based on baskets of currencies and use those as intermediates.
1. Currency flows are invisible to the Fed
2. US sanctions cannot ban mutual trade in other FX
What does it take to go from bitcoin being measured in US dollars to US dollars being measured in bitcoin.
Just for Bitcoin to no longer be deflationary. Right now it's much too good a store of value to become an effective medium of exchange.
One can certainly debate if it's a good strategy, but I'd highly recommend that everyone read this paper. A particular part that's surprising is that the headlines are constantly ~"US unable to stop decline of dollar" when according to this paper a weaker dollar is an explicit goal.
Edit: CountSessine has an excellent (and currently downvoted) set of posts about the paper elsewhere in this thread: https://news.ycombinator.com/item?id=43941376
I think your model depends on "workers" being the only people who are taxed, so if workers are being paid less than the cost of the goods they have to consume, the government + workers must be running at a constant deficit.
But you also tax employers and owners.
Inflation is a tool intentionally used by governments to quickly lower wage costs across the board. People at the bottom end can be subsidized, and productive people whose nominal worth just went up with inflation will negotiate for higher pay. Everybody else gets a pay cut.
has my vote
If you think this is a crazy thing to suggest, consider that there is a faction in the US that wants this to happen. They see a strong US dollar as harmful to manufacturing and the working class.
I suspect these forces will combine to significantly weaken the dollar.
Frankly I really struggle to see how someone who has been reasonably paying attention would need examples; they’re too many to mention.
Off the top of my head and in no particular order:
1.) Unilaterally and without the consent of congress invoking emergency powers to place broad tariffs on almost the entire world has never been done
2.) Frequently attacking and undermining the judicial branch, including by transparently punishing entire law firms that represent causes unpopular with the administration has never been done
3.) Brazenly abusing the office of the presidency to further personal financial gain by launching a meme cryptocurrency days before taking office has never been done
These are just some of the many examples, and that’s without going into the many things before Jan 20, 2025 that are clearly and undoubtedly unprecedented.
The current "plan" seems to be to leave behind the largely-defunct WTO once and for all and build a selective free-trade alliance specifically excluding China, much like GATT was. I don't think this would really make the US "richer" (or any participant in the alliance) - in fact it would probably make us all a bit poorer. But it would make China much poorer which at this point is kind of the goal.
https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese...
But that's just today. Next week someone else might get Trump's ear before he speaks to the press.
OTOH, if you believe that China is basically Germany circa 1938 (and indeed, China in 2025 is the largest and most successful fascist state in all of history), then kneecapping China's economy makes plenty of strategic sense.
But we could always just keep buying Hitler's Volkswagens - that's the direction our incentive gradient points in. The US doesn't need to be the global police - we could always just let China have Taiwan, the Senkakus, the Ryukyus, etc...
But the amounts are actually kind of clever and it reflects the fact that there's a more mature understand of trade barriers now vs when the WTO was negotiated.
How much do you know about trade barriers? Beyond tariffs, they're extraordinarily complicated and rely on regulations, trip-wires, and unequal application of rules.
Canada has "free trade" with dairy, but only on dairy imports up to a point, and after that heavy tariffs apply. But no one ever imports enough to incur those tariffs, so, that's free-trade, right? But actually, no one considers the Canadian dairy market worth the trouble without being able to import large amounts of dairy. So Canada can legitimately say that the trip-wire isn't applied, but it's a long ways from "free trade" because large importers are kept out.
China requires that foreign companies must partner with local companies to sell into the Chinese market. This effectively leads to a lot of technology transfers. It's not a tariff, but it's pretty clearly a "trade barrier" because companies that want to protect their IP are denied access.
In the 80's when US trade reps were negotiating with Japanese trade reps, the Americans would try to convince the Japanese that free trade was best for Japanese consumers. The Japanese reps would just respond, "how much do you want us to buy?"
The Japanese really didn't believe in free trade, and they were actively manipulating the value of the Yen at that point (it would be a few years still before the Plaza Accord), so they knew that just lowering tariffs wasn't going to make US goods sufficiently more competitive in Japan.
What's changed in 35 years is that the US doesn't really believe in "free trade" anymore either - not after all of the grief the WTO brought. The simple formulas are a no-bullshit approach to trade - the same ones that motivated those Japanese trade reps.
"I don't care how your trade barriers work - currency manipulation, tariffs, excess regulation, unequal rules - just fix your sh*t to reduce the trade imbalance."
That’s why all this talk of “forcing them to the negotiating table” is absurd.
The only world where USA has a trade balance with Vietnam is one where USA isn’t importing as much as they “should” from Vietnam.
But why does each individual country's trade need to be perfectly balanced with the US? What are the odds of that happening for every single country? What are the odds of it working for every possible pair of countries?
… it was never about imbalances but protectionism and racketeering
Strategically, Australia is more sympathetic to the US, but your trade with China is many multiples of your trade with the US. If you join the US you’ll have to raise tariffs against China and if you don’t you’ll naturally fall into China's orbit. Interesting times!
- These tariffs are permanent to rebalance trade
- These tariffs are temporary to use for negotiations
- US companies build factories
- Manufacturing comes back to the US
- China is left manufacturing what the US can't do locally
- China will dramatically up cost of resources US can't source elsewhere
- Nobody wins
- China waits out the storm
- Prices revert back to the mean
- Nobody wins
- Countries have divested US exports
- US has lost long term income
- US has lost soft power (and eventual hegemony)
- There's now a lot of pissed off people
I'd be keen to know your thoughts. And thanks - I just added the Miran paper to my Kindle, so thanks for the reference!
As an Australian, I'd put the odds of Australia imposing strong tariffs on anyone at very close to zero.
After we gave up on tariffs about 20 years ago we've seen only growth. We are one of the few (only) western economy to have not had a recession in that time. It's not something we are likely to give up on easily. Both the major political parties have firmly re-iterated a "no tariffs" policy.
As for "moving towards China" - I don't see much evidence of that. Australia is firmly rooted in the West. But there has been a change. Right now, I think it's true to say Australia is wondering if Trump's USA is as firmed root in the West as rest of the OECD is. I guess it's possible Australia may drift away from the USA as a consequence, but it won't be towards China. And it won't happen in the short term as Trump's USA is viewed as a temporary thing that will end with Trump.
None of this has much to do with the topic the paper is discussing. Australia has also been on the receiving end of China's industrialisation, so I imagine most Australian's would look on with interest and sympathy at the USA's attempt to undo the worst effects.
Every industrialized exporting country in the world has optimized for exporting to the US, and there’s plenty of govt policy involved. Trade barriers are the norm, not the exception. If other countries optimize their trade rules, regulations, and money supply to optimize for a sizeable trade surplus with the US, they can change their policy to reduce the surplus.
The USA exports plenty of goods, and in cases where there are these nebulous “trade barriers” being imposed, they should be investigated, discovered, publicized, and negotiated. That work was clearly not done here.
I didn't think that. Every country has tariffs and trade barriers to protect the industries they want to grow or protect. Even the US. Even before this administration or the last one, or the one before that. Sugar, for example.
> Every industrialized exporting country in the world has optimized for exporting to the US
Or maybe, more accurately, to earn US dollars. Possibly because of petroleum, which every country needs? I don't really know, I'm not an expert.
Like I said, he takes the advice of the last person who talks to him. He’s very suggestible. The best parts of his presidency, so far, have been when he follows the plan in project 2025, which you may not agree with, but is at least sane and coherent. The worst bits are when he adlibs, like the stupid tariff escalation with China.
Ultimately the biggest problem with Miran’s plan is that now that Trump is tearing up these trade agreements, no one has any reason to believe that the new one is worth the paper it’s printed on. He has no integrity and no one signs agreements with people who have no integrity.
> Ultimately the biggest problem with Miran’s plan is that now that Trump is tearing up these trade agreements, no one has any reason to believe that the new one is worth the paper it’s printed on
And to apocryphally quote Game of Thrones:
> A Trump never pays his debt
Yep. Political opinions aside, these combined are his hamartia and so it will be interesting to see in the near future if he's able to maintain his reality distortion field over the GOP or we'll ever see Vance stab him in the back.
> "I don't care how your trade barriers work - currency manipulation, tariffs, excess regulation, unequal rules - just fix your sh*t to reduce the trade imbalance."
Except that that is NOT what is going on. Trump has been screaming something to this effect for weeks, but when it comes to actually negotiating something he tells world leaders that the tariffs are there to stay! He just did this with the Japanese PM, mere days ago.
Not to mention that many countries have actual, effective tariffs or "trade barriers" on the order of 1% with the US, which means that he can't possible negotiate anything that will improve things more than that.
Trump has no actual strategy. He can't possibly, because his stated list of goals are mutually incompatible. He also wants to eliminate income tax and pay for this with tariffs! He can't do that and return tariffs to 0% after countries capitulate.
He also keeps talking about bringing manufacturing back to the US (note that it never left, it just got more high-tech), but he's tariffing industrial machinery and robots imported from Germany!
This "policy" makes about as much sense as a first-year student's homework essay thrown together the night before it is due.
Anyone engaging in good faith debates is missing the point entirely. There is nothing of substance to engage with, as multiple world leaders are discovered.
PS: Trump apparently made 200 deals, more than the number of countries in the world, then 17, and now just 1 with the UK, where he reduced tariffs from 1% to 0.8%. Wooo! Winning!
So, what do they want? It is pretty clear by now that they don't even know. They started a massive trade war without a clear plan or way out, and now they are progressively walking it back and attempting to negotiate some quick, face saving deals like the UK one that barely does anything.
And if they really are worried about China, then they need allies to be able to isolate the Chinese and put enough pressure on them. Except, they have just alienated everyone who could have helped with that.
These are not the actions of some master strategist, but of someone who is in way over his head.
Don't forget Nixon shock though. That was basically undoing Bretton Woods, but in an incompetent fashion that was amplified by low interest rate induced inflation, and produced "stagflation". https://en.wikipedia.org/wiki/Nixon_shock
The smartest guy we had was probably Lawrence Summers.
https://www.bls.gov/cpi/factsheets/purchasing-power-constant...
Food: you literally die without it.
ChatGPT: nothing of value is lost.
Look at your iPhone and realize that in any desperate situations, the burger and fries gets more and more valuable.
Modest inflation is good because it encourages investment.
Japan suffered fifteen years of deflation starting in the early 1990s. It wasn’t an economy anyone should envy.
I’d estimate it at somewhere in the region of $10–$30, personally.
Also, the dollar falling also does not make Americans poorer, as the implicit unit of wealth is the US dollar (e.g. the Forbes 400 list). Americans measure their net worth in dollar, not Euros. This would only matter if traveling oversea and purchasing power falls due to falling dollar. Otherwise, it does not matter.
"The total transaction volume for USD-pegged stablecoins in 2024 was approximately $27.6 trillion, based on industry reports from CEX.IO and other sources."
On top of that, transaction volume is meaningless. Those $27.6T could be $27.6T held in escrow being traded once, or $1 held in escrow being traded 26.6 trillion times. You can't derive USD demand from transaction volume.
"The total market capitalization of USD-pegged stablecoins exceeds $220 billion, with over 99% backed by fiat currencies, predominantly the U.S. dollar." https://chatgpt.com/share/681e95fe-4308-8008-ab25-61be94a418...
RE: Nobody wants to own stablecoins, they want easier transactions. Agree but that does not mean anything. Stablecoins seem to be solving a problem, and there is not evidence of any traction by any currency other than USD.
So this phenomenon definitely runs counter to the conventional intellectual wisdom that USD is in decline.
Disclaimer: I have never used stablecoins myself.
If they don't, stablecoins would presumably make it even easier to convert holdings into stablecoins backed by another currency (as there is no new account to be opened etc.) as soon as the sentiment on a given world currency shifts.
Yes, currently. This article is about a hypothetical in which this stops being the case. My argument is that stablecoins would not stop such a trend, and could possibly accelerate it.
In other words, I think Stablecoin is winner-take-all, and USD has already won.
But why?
Due to the existence of decentralized exchanges, all stablecoins are effectively equally widely accepted. Some blockchains even make it fully transparent by handling foreign exchange in the background for every payment where it's required, and for the ones that don't, most common wallets provide a "swap" feature directly in their UI.
Given that, why would people not hold the one that preserves their purchasing power best and that they have most trust in?
That is exactly what they are doing right now - USD.
But for arguments sake, what is the emerging alternative?
This seems like a phenomenally ironic claim to me. You're giving up government manipulation in favor of rampant individual manipulation and theft.
That's not possible with crypto.
The most annoying part was updating all my linked services, but I lost no money.
If someone literally robs the bank I have an account with, I also lose no money even if they actually steal some from the physical vault.
Satoshi would probably shudder at the thought of Bitcoin-backed fractional reserve currencies, but that's about the only thing he could do about it.
There are many countries with their own currencies, and all it takes is one of them to back it with gold, or a basket of commodities, and create infrastructure around it, and now there is something more attractive than the dollar to denominate debts in. That's all it takes. Everyone just wants to conduct business, get paid, buy food, etc. If the dollar is inflating away 10% every year, and there's something that fluctuates less than that, it's not exactly a hard choice. Especially if the choice is just a drop down in an app.
What may be more concerning, is it's not going to be a western democracy that sets up a stable-coin backed by commodities. They move too slowly, it's going to be an authoritarian regime that can move fast and wants to advance it's significance in the global economy.
It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war.
The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.
Oh boy, I have some news about US and its trust. China seems more trustworthy right now, which is kind of achievement in the US side.
USA cant be trusted to ve stable nor to keep its contracts. Whether Euro collapses into the same state remains to be seen.
Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. It's a kind of social technology like a constitution or super-majority requirement that creates stability. It's a plus that the US is stable power, but you can bet that the dollar will inflate year over year. That is its own form of instability.
Historical data contradicts the idea that you get stability on the gold standard:
* https://archive.is/https://www.theatlantic.com/business/arch...
* https://www.moneyandbanking.com/commentary/2016/12/14/why-a-...
If there were some event or events that causes a dramatic contraction in world trade and set off financial crises around the world, many countries may be unable to buy treasuries in the same quantity.
A potentially scary thought exercise may be to figure out what the collective reduction in treasury purchases needs to be before it all blows up. I have no clue what that number may be.
But I have a feeling that if the dollar ceases to be the reserve currency, it will not be because the world has decided on something else.
Because even if the currency is on the gold standard today, what stops the country's government from switching back to fiat tomorrow and pocketing all the gold? Or, gradually doing so by introducing restrictions on gold redemption and slowly tightening them over time?
Whether a currency is fiat or backed, it is ultimately a statement that you trust the government which controls the currency to take good care of it – and in general, it is easier to have that trust with democracies than authoritarian regimes. And this is part of the argument for fiat currencies – if trust in the institutions ultimately counts for more than what the currency is backed by, why do we really need the backing?
Which is why replacing the USD is so hard. I think even if the US starts to go really downhill, people will be looking at currencies like the EUR, JPY, GBP as an alternative. If the IMF allowed private parties to use SDR as a currency – a move the US has always blocked as a threat to the USD, but in a global crisis the US might feel it has no choice but to change its mind – that might become a viable alternative global currency. CNY may become important in trade with China and its close allies, but who outside of China trusts the Chinese government enough to use CNY as a long-term store of value? Only as a riskier bet in a diversified portfolio including safer options.
Though we are doing a particularly spectacular job of messing that up this year.
I think what matters more is national wealth, wealth per capita, and their growth rates. This is an interesting list: https://en.wikipedia.org/wiki/List_of_countries_by_total_wea...
There are a lot of reasons we like being in the position we’re in, and I don’t think we know how bad losing it will be, if we do, but I think it’s unlikely to be positive. (Clearly our economists have largely agreed or we’d have gotten here sooner.)
One way to think of it is that the US benefits from the current world order by essentially taxing the rest of the world to pay for its spending by devaluing their currencies relative to the dollar.
[1] https://www.pgpf.org/article/the-federal-government-has-borr...
It also means Americans get to buy stuff from all over the world cheaper than anyone else, the moment this goes away inflation for imported goods will eat into people's salaries, there will be less investment as it will be risky to invest in a country in a debt crisis and folks will find out what it is like to live in Argentina for the past few decades.
The quality of life loss in the country if this happens will likely get people to stop talking about the great depression.
Other countries who use dollars do not have that privilege.
That is effectively a 2% annual tax on the entire world, paid to the controller of the dollar.
I wouldn’t say I’m optimistic but it’s possible it may work.
It matters a lot to those of us among the capita who hold our wealth in US dollars.