3 ms·

Sure, it helps to borrow in your own currency but when you are the reserve currency. You are essentially using the goodwill/confidence bestowed by the world to

Sure, it helps to borrow in your own currency but when you are the reserve currency. You are essentially using the goodwill/confidence bestowed by the world to solve your domestic problems. The goodwill is finite and there is no free lunch. When more money is printed, it is a hidden tax on everyone holding dollars. Not sure how long other nations will be happy diluting their own wealth because the US decides it needs to print more.. Its like a run on the bank. Great till everyone thinks everything is okay, but the moment confidence shakes in the bank, and bam you've got a collapse on your hands.. unlike a bank, if countries start dumping the dollar there is no higher authority that can step in and pause things for a bit so everyone settles down...

fallingfrog 6y ago
This is a reasonable take. We should be careful to not overplay our own hand in terms of how much money we create because while you can pay back your debts with printed money, it may make people reluctant to lend to you again (interest rates might go up).
spiralx 6y ago
The US has been trying to reduce the usage of the USD as a reserve currency (it's the largest such currency but not the only one) due to it not having any real benefit to the US while exposing its economy to the effects of financial crises around the world. --- Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”? https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d... > A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies... > The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult. --- The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t... > This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world. > The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.
- dmingod666 6y ago
  Yes, I am convinced that the US doesn't like the fact that it can generate wealth without any real assets backing it. Earlier, kings had to raise taxes to go to war. There were repercussions of war. Now, the US can do multi decade long wars, with 0 consequences on it economy. I'm sure they don't like that too.. I'm as convinced as listening to some celibity on oprah saying all they want is to be a regular person and they don't like fame.. What do you think they're going to say? We love that we can print as much funny money as we want and we're proud it's our top export to the world? I am sure they also think it is a huge burden that the whole world money routing is done through american systems. That is too much of a burden to implement and enforce sanctions. They probably want to 'get rid' of that too.. After the exceptional leadership in the 2008 crisis, I believe everything Ben Bernanke says..
  - spiralx 6y ago
    That seems a very simplified and conspiratorial view of finance to me, but whatever makes you happy.

fallingfrog 6y ago

This is a reasonable take. We should be careful to not overplay our own hand in terms of how much money we create because while you can pay back your debts with printed money, it may make people reluctant to lend to you again (interest rates might go up).

spiralx 6y ago

The US has been trying to reduce the usage of the USD as a reserve currency (it's the largest such currency but not the only one) due to it not having any real benefit to the US while exposing its economy to the effects of financial crises around the world. --- Ben Bernanke (ex-FED Chairman) - The dollar’s international role: An “exorbitant privilege”? https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d https://www.brookings.edu/blog/ben-bernanke/2016/01/07/the-d... > A great deal of U.S. currency is held abroad, which amounts to an interest-free loan to the United States. However, the interest savings are probably on the order of $20 billion a year, a small fraction of a percent of U.S. GDP, and that “seigniorage,” as it is called, would probably still exist even if the dollar lost ground to other currencies... > The safe haven aspect of the dollar is actually a negative for U.S. firms, since it implies that they become less competitive (the dollar is stronger) at precisely the times that global economic conditions are most difficult. --- The ‘reserve currency’ myth: The US dollar’s current and future role in the world economy https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t https://www.ussc.edu.au/analysis/the-reserve-currency-myth-t... > This safe-haven bid for US dollar assets means that the US dollar often behaves in ways that seem counter-intuitive relative to US economic fundamentals. As Figure 2 shows, the US dollar appreciates in response to economic policy uncertainty. A 1 per cent increase in the Global Economic Policy Uncertainty Index raises the real value of the US dollar by 0.2 per cent, controlling for relative interest rate, inflation and economic growth differentials with the rest of the world. > The appreciation exacerbates trade tensions between the United States and the rest of the world by weighing on US export competitiveness, setting in train a protectionist spiral.

dmingod666 6y ago
Yes, I am convinced that the US doesn't like the fact that it can generate wealth without any real assets backing it. Earlier, kings had to raise taxes to go to war. There were repercussions of war. Now, the US can do multi decade long wars, with 0 consequences on it economy. I'm sure they don't like that too.. I'm as convinced as listening to some celibity on oprah saying all they want is to be a regular person and they don't like fame.. What do you think they're going to say? We love that we can print as much funny money as we want and we're proud it's our top export to the world? I am sure they also think it is a huge burden that the whole world money routing is done through american systems. That is too much of a burden to implement and enforce sanctions. They probably want to 'get rid' of that too.. After the exceptional leadership in the 2008 crisis, I believe everything Ben Bernanke says..
- spiralx 6y ago
  That seems a very simplified and conspiratorial view of finance to me, but whatever makes you happy.