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It's interesting to read this with an eye on current global macroeconomic conditions. The dollar is significantly overvalued today, a result of its status as t

It's interesting to read this with an eye on current global macroeconomic conditions. The dollar is significantly overvalued today, a result of its status as the global reserve currency. And the consequences of that are all the same ones mentioned for the pound in the article. The U.S. has been running a large current account deficit since 1980: we import more than we export. Our jobs are moving overseas, because it doesn't make sense to employ Americans at the wages they demand, because the wages they demand are artificially inflated by the overvalued dollar they're paid in. We need to keep interest rates high relative to peer countries to maintain the dollar's reserve status. We insist - through foreign diplomacy if possible and military intervention if not - that oil-producing companies price their oil in dollars, creating demand for dollars that would otherwise flow through other currencies. And all of this has been widely reported for the last couple decades. The U.S. has stated that they're committed to defending the dollar as the world's reserve currency. What happens when they can't, and the collective weight of the market is more than a national government can prop up?

jk27277 7y ago
"we import more than we export. " Doubt that. Before you answer with a statistic, Google "dark matter in accounting" regarding the deficit. If apple sells an iPhone to Germany. In what export balance does it appear? What company makes the profits?
- user5994461 7y ago
  Magic, the profits are transmuted into a sandwich?
- PeterisP 7y ago
  Without putting much analysis into it, IMHO whenever Apple would sell an iPhone in Germany the effects are as follows: Goods export worth the "wholesale price" from China to EU; An EU company (Apple entity in Ireland or Netherlands? the 'double Irish sandwitch' arrangement which IIRC is still used is a bit tricky, but one of these) earning almost all of the profits of that deal; The shares of publicly traded USA company 'Apple' appreciating in value because the value of the EU company that they fully own increased because they gained profit and cash (but which won't be repatriated to USA due to tax reasons). IMHO that sale wouldn't have any direct effect on USA trade balance and on USD supply/demand. Does this make sense? Am I getting something substantially wrong?
  - ganeshkrishnan 7y ago
    Double Irish Dutch sandwich. Apple would have entity in both Netherlands and Ireland for sales in EU. Money is transferred to Netherlands and then to Irish subsidiary and then further to other countries. The second Irish company is for sales from US.
  - jayalpha 7y ago
    It does not matter if you use Germany or the USA. iPhones or whatever gets produced in China, likely by Foxconn. Profit margins are small. I iphones get sold to Apple HK, apple HK sells them to Apple US or Apple Germany for a huge mark up. iphones are sold in the US or Germany for a small mark up. I don't know if this is apples setup but profits would be accrued in HK tax free. In the end it does not matter since. On the balance sheet China or HK is exporting goods to the US or Germany but all the profits land at a US company - apple. Amazon, Google, eba, Microsoft is big in Europe. Where do you see their products in the trade balance sheets? YOU DON'T. Microsoft is not shipping Windows CDs from the US to the UK or France or Germany. The bottom line: While the huge trade deficit of the US is not healthy, it is highly distorted and probably much lower than you think. "IMHO that sale wouldn't have any direct effect on USA trade balance and on USD supply/demand." People buy stocks in the US. They buy them with US dollars. Why are they buying US stocks? Because these companies are highly competitive. Why are they highly competitive? Most pay hardly any taxes and their products don't appear in any trade balance sheet.
danharaj 7y ago
Every empire has created the conditions of its collapse.
jlg23 7y ago
> The U.S. has stated that they're committed to defending the dollar as the world's reserve currency. What happens when they can't... What happens if they already ain't? The narrative of the us$ being the reserve currency is old, but today it is even less convincing...
- j8014 7y ago
  This strange conspiratorial angle you have going on is ridiculous, there is no narrative and no convincing needed. Look at the facts and educate yourself.
nabla9 7y ago
U.S. dollar share of global currency reserves at lowest since 2013 > of the market is more than a national government can prop up? The US is not propping up the USD like UK did.
drawkbox 7y ago
There are upsides and downsides to being a reserve currency though that other nations might not want to take on, a non nation state currency that wants/needs to inflate might be a better bet. The US built up on the good side of being a reserve currency. > The advantages of reserve currency status for the dollar are well known. The world’s willingness to accumulate dollar reserves in the post World War II period first removed and later reduced the requirement of maintaining balance of payments equilibrium, or, more specifically, current account balance. By removing or weakening this restraint, U.S. policymakers had more freedom than policymakers in other countries to pursue strictly domestic objectives. We ran current account deficits year after year, balanced, or paid for, by capital inflows from our trading partners. The good side of that was that we could import real goods and services for domestic consumption or absorption and pay for them with paper, or the electronic equivalent. In other words, our contemporary standard of living was enhanced by others’ willingness to hold our currency without “cashing it in” for goods and services, or, before 1971, gold. [1] The US is in the bad side of this process now and losing because of the reserve currency status. > The bad side of our reserve currency status, although seldom recognized, was that the very leeway that enhanced our current standard of living built up debt (and/or reduced foreign assets) to dangerous levels. I remember well when, in 1985, the United States ceased being a net creditor nation to the rest of the world and, instead, became a net debtor nation. Our net indebtedness has only grown over the years, and hangs over us like the legendary sword of Damocles. [1] Every nation knows that being the reserve currency comes at great risk and harms middle class and internal markets eventually. It might even be a fatal flaw. What other country wants to take that on other than one with decades and decades of growth ahead of them and an already robust middle class they can devolve. Being a reserve currency helps build up the middle class and then when you switch to debt, which is natural as a reserve currency, it slowly widdles it away. US is scraping the barrel and the middle class is all but tapped, stagnation and lower purchasing power since the 70s in lower/middle class is evident. Worker share of GDP being on a long dwindle down [2] and velocity of money is off a cliff [3]. [1] https://www.forbes.com/sites/bobmcteer/2013/09/05/reserve-currency-status-a-mixed-blessing/ https://www.forbes.com/sites/bobmcteer/2013/09/05/reserve-cu... [2] https://fred.stlouisfed.org/series/W270RE1A156NBEA https://fred.stlouisfed.org/series/W270RE1A156NBEA [3] https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

jk27277 7y ago

"we import more than we export. " Doubt that. Before you answer with a statistic, Google "dark matter in accounting" regarding the deficit. If apple sells an iPhone to Germany. In what export balance does it appear? What company makes the profits?

user5994461 7y ago
Magic, the profits are transmuted into a sandwich?
PeterisP 7y ago
Without putting much analysis into it, IMHO whenever Apple would sell an iPhone in Germany the effects are as follows: Goods export worth the "wholesale price" from China to EU; An EU company (Apple entity in Ireland or Netherlands? the 'double Irish sandwitch' arrangement which IIRC is still used is a bit tricky, but one of these) earning almost all of the profits of that deal; The shares of publicly traded USA company 'Apple' appreciating in value because the value of the EU company that they fully own increased because they gained profit and cash (but which won't be repatriated to USA due to tax reasons). IMHO that sale wouldn't have any direct effect on USA trade balance and on USD supply/demand. Does this make sense? Am I getting something substantially wrong?
- ganeshkrishnan 7y ago
  Double Irish Dutch sandwich. Apple would have entity in both Netherlands and Ireland for sales in EU. Money is transferred to Netherlands and then to Irish subsidiary and then further to other countries. The second Irish company is for sales from US.
- jayalpha 7y ago
  It does not matter if you use Germany or the USA. iPhones or whatever gets produced in China, likely by Foxconn. Profit margins are small. I iphones get sold to Apple HK, apple HK sells them to Apple US or Apple Germany for a huge mark up. iphones are sold in the US or Germany for a small mark up. I don't know if this is apples setup but profits would be accrued in HK tax free. In the end it does not matter since. On the balance sheet China or HK is exporting goods to the US or Germany but all the profits land at a US company - apple. Amazon, Google, eba, Microsoft is big in Europe. Where do you see their products in the trade balance sheets? YOU DON'T. Microsoft is not shipping Windows CDs from the US to the UK or France or Germany. The bottom line: While the huge trade deficit of the US is not healthy, it is highly distorted and probably much lower than you think. "IMHO that sale wouldn't have any direct effect on USA trade balance and on USD supply/demand." People buy stocks in the US. They buy them with US dollars. Why are they buying US stocks? Because these companies are highly competitive. Why are they highly competitive? Most pay hardly any taxes and their products don't appear in any trade balance sheet.

danharaj 7y ago

Every empire has created the conditions of its collapse.

jlg23 7y ago

> The U.S. has stated that they're committed to defending the dollar as the world's reserve currency. What happens when they can't... What happens if they already ain't? The narrative of the us$ being the reserve currency is old, but today it is even less convincing...

j8014 7y ago
This strange conspiratorial angle you have going on is ridiculous, there is no narrative and no convincing needed. Look at the facts and educate yourself.

nabla9 7y ago

U.S. dollar share of global currency reserves at lowest since 2013 > of the market is more than a national government can prop up? The US is not propping up the USD like UK did.

drawkbox 7y ago

There are upsides and downsides to being a reserve currency though that other nations might not want to take on, a non nation state currency that wants/needs to inflate might be a better bet. The US built up on the good side of being a reserve currency. > The advantages of reserve currency status for the dollar are well known. The world’s willingness to accumulate dollar reserves in the post World War II period first removed and later reduced the requirement of maintaining balance of payments equilibrium, or, more specifically, current account balance. By removing or weakening this restraint, U.S. policymakers had more freedom than policymakers in other countries to pursue strictly domestic objectives. We ran current account deficits year after year, balanced, or paid for, by capital inflows from our trading partners. The good side of that was that we could import real goods and services for domestic consumption or absorption and pay for them with paper, or the electronic equivalent. In other words, our contemporary standard of living was enhanced by others’ willingness to hold our currency without “cashing it in” for goods and services, or, before 1971, gold. [1] The US is in the bad side of this process now and losing because of the reserve currency status. > The bad side of our reserve currency status, although seldom recognized, was that the very leeway that enhanced our current standard of living built up debt (and/or reduced foreign assets) to dangerous levels. I remember well when, in 1985, the United States ceased being a net creditor nation to the rest of the world and, instead, became a net debtor nation. Our net indebtedness has only grown over the years, and hangs over us like the legendary sword of Damocles. [1] Every nation knows that being the reserve currency comes at great risk and harms middle class and internal markets eventually. It might even be a fatal flaw. What other country wants to take that on other than one with decades and decades of growth ahead of them and an already robust middle class they can devolve. Being a reserve currency helps build up the middle class and then when you switch to debt, which is natural as a reserve currency, it slowly widdles it away. US is scraping the barrel and the middle class is all but tapped, stagnation and lower purchasing power since the 70s in lower/middle class is evident. Worker share of GDP being on a long dwindle down [2] and velocity of money is off a cliff [3]. [1] https://www.forbes.com/sites/bobmcteer/2013/09/05/reserve-currency-status-a-mixed-blessing/ https://www.forbes.com/sites/bobmcteer/2013/09/05/reserve-cu... [2] https://fred.stlouisfed.org/series/W270RE1A156NBEA https://fred.stlouisfed.org/series/W270RE1A156NBEA [3] https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V