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People have been predicting the decline of US hegemony for over thirty years now. It rears its head nearly every time there’s a major US policy failure. Every

People have been predicting the decline of US hegemony for over thirty years now. It rears its head nearly every time there’s a major US policy failure. Every time this argument is raised it’s now ‘Yes, but now is really the time.’ But why not after the Cold War, when a multipolar world was widely predicted? Or after Iraq, or the Arab Spring, or the financial crisis? If COVID really is the trigger, I’d argue that people have had a good taste of China-style authoritarian restrictions on freedom and movement over the last year, and I’d say they didn’t like it very much. It’s got to the point where in the absence of any new and compelling evidence, such claims have to be treated with a little scepticism.

dkjaudyeqooe 6y ago
As is typical, there is an element of truth to it, but people love to make sensational claims because it gets people to read. It would be completely natural for there to be a transition to more balance between the major trading bloc currencies, namely USD, EUR and RMB, but it won't be as severe or cataclysmic as claimed, mainly because that doesn't serve anyone's interest (who is holding USD and can bring it about) and because the markets will smooth the way. The most likely outcome is that everyone will be better off and The US will lose some soft power, which is a process that has already been underway.
- twelve40 6y ago
  He mentions this right here: "So, what is wrong with three world currencies – the euro, the renminbi, and the dollar – sharing the spotlight? ... US government borrowing rates would almost certainly be affected" USG owes $28 trillion, borrowing at an increasing volume. If switching to 3 reserve currencies happens as you say, rates will go up. How exactly do you service $28 trillion and beyond debt with higher rates? So no, it won't be as joyous for everyone as you suggest.
  - dcolkitt 6y ago
    Why would rates go higher? The Eurozone has lower rates than the US. Heck, Australia and New Zealand (not exactly global reserve currencies) have the same rates as the US. The only way that the dollars international status would meaningfully affect USG’s ability to borrow is if it was relegated to emerging markets status. All developed market currencies can borrow at sub-2% rates. That doesn’t require you to have reserve currency status.
    - twelve40 6y ago
      Great question, I'm just reading the article and noticed he's so convinced that the rates will go up in this case, that he used the words "almost certainly". Maybe a deeper look at his works can explain his conviction.
    - fennecfoxen 6y ago
      Borrowing is subject to supply and demand. If people are buying substitutes for dollar-denominated debt, they're not buying dollar-denominated debt, or they're buying less of it. The price paid for the bond goes down, so the rate goes up. Yes, there's a Federal Reserve too, and they can bid up the price of bonds and buy as many as they want, but it's functionally equivalent to printing money, so it becomes a question of how badly they overshoot their inflation target, and that influences demand as well.
      - dcolkitt 6y ago
        Central banks FX reserves make up only a sliver of the demand for long bonds (5+ years of maturity). Long bonds are generally not considered money substitutes, so FX reserves have no interest in holding them. Foreign central banks may hold a sizable proportion of short bonds, particularly 3-month T-Bills. But there’s essentially an infinite wall of demand for short bonds at the near zero bound. So maybe loss of reserve status increases borrowing costs from 0.02% to 0.15%. Not exactly a catastrophe for the budget deficit. This is why reserve status is essentially irrelevant to borrowing costs. All developed market governments, regardless of their currency’s reserve status, can borrow cheap in today’s regime.
  - dkjaudyeqooe 6y ago
    It's the same point: it won't be as bad as you're implying. Rates will of course go up, but not drastically. The US won't be able to borrow as much, which is good, but it will still be able to borrow close to the same amount as a percentage of GDP. The US will service the debt the way it always has, by growing its economy. Somewhat higher inflation will actually reduce the debt load in real terms. The "joy" is that the US will be forced to be more disciplined.
midasuni 6y ago
> I’d say they didn’t like it very much. Depends on the country. Majority of U.K. want vaccine passports to go to places like pubs and ball games
pram 6y ago
The article is specifically about the US dollar as the global reserve currency. To your point, it has in fact been declining for the majority of the past thirty years. https://www.reuters.com/article/us-global-forex-reserves/u-s-dollar-share-of-global-fx-reserves-hits-lowest-in-25-years-in-fourth-quarter-imf-idUSKBN2BN24C https://www.reuters.com/article/us-global-forex-reserves/u-s...
- dcolkitt 6y ago
  FTA: > The greenback’s share slid to 59% in the fourth quarter, from 60.5% in the third, declining for three straight quarters. Its share in 1995 was 58%.
roenxi 6y ago
If you have a building, and the engineer says "it is unsafe and going to fail soon", then each month that passes witout anything happening should increase the expectation of failure, not decrease it. Besides, the situation did change recently. Wikipedia now recognises China as effectively the worlds largest economy. https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)
- Jaxkr 6y ago
  Important to note this is the PPP GDP, not the nominal one. When talking about macro concepts like currency dominance, nominal GDP is more useful (in which the US still maintains a lead).
  - jimmydef 6y ago
    Both the nominal and PPP GDPs of the US as a percentage of the world GDP have been dropping steadily over the past few decades. It used to be near 40% of the world's GDP. Now it's barely 20%. At what percentage point will the world look at the US Dollar and its economy and decide maybe that figure is too low for the dollar to be world reserve currency? 15%? 10% or 5%? And did weaponizing the dollar as a geopolitical stick against its enemies change that threshold? Or does it even matter as long as the US retains military primacy on our planet? These things are more guesswork and storytelling than anything.
    - throwaway210222 6y ago
      This. At some point the world economy is so much bigger than the USA's (even if no one stuffs up), the the US government simply CANNOT product enough dollars* for the demand. Exactly the same reason why the Swiss franc can never be the global reserve currency. * Although the current USG is certainly giving it a good go ;).
      - hntrader 6y ago
        The supply of USD should be mostly irrelevant. If supply is constrained then the FX rate just adjusts. The parent's point (about US' share of world GDP) is quite different to the one you're making here.
twelve40 6y ago
Covid is only mentioned once in the article, mostly in the context of ginormous astronomical compounding debt, the favorite remedy for no matter what came our way in the last two decades. The article seems to be more about this: "Just as the US eclipsed Britain at the end of the nineteenth century as the world’s largest trading country, China long ago surpassed America by the same measure." that seems to be the author's new compelling evidence. Side note, I don't see how most of the events you listed: winning the Cold War, Iraq or the Arab Spring could even remotely challenge the US dominance, just the opposite, if anything.
redis_mlc 6y ago
I actually follow this. It is a military goal of the CCP to displace the US dollar. Trump/Pompeo's policies would have strangled China in about 24 months. (Russia dissolved largely due to similar US currency policies.) But under Biden's executive order rollbacks, the CCP has the room to advance their currency. Also, Wall Street actively opposed Trump's efforts. One of the many things China can do is to tie BRI funding/refinancing to their digital currency. Also, after Taiwan is unified, China can tax shipping transit in the S. China Sea. etc. The reason it's different this time is that Russia was an inward-looking country with a weak mfg. sector, while China is almost the opposite. China is much weaker financially than most people realize, but they're very militant. The wildcard is when the genocide/organ harvesting issue reaches a tipping point. I think that will happen in mid-2021, in which case you'll see a lot more decoupling - your brand name is everything. Most Western countries are wrestling with what genocide really means (similar to WW2), and when they stare long enough into the abyss, will not be able to continue a trade relationship with, literally, monsters.
throwaway_kufu 6y ago
> It’s got to the point where in the absence of any new and compelling evidence, such claims have to be treated with a little scepticism. But there is constantly new and compelling evidence. In my opinion there are two factors. 1. Domestic economic and fiscal health; and 2. Foreign aid. US debt, consumer debt, student loan debt, and corporate debt are all at historic highs. Across the board there are defaults at historic highs and a general inability to service these debts at every level. In that period of 30 years you mention we have seen for the first time ever US cities and governments declare bankruptcy. But maybe even more important to maintaining global hegemony is foreign aid. That it’s paying foreign governments to make it worth their while to support the US dollar as the global reserve. Consider from 2001-2011 foreign aid exploded from $10B to $50B where it peaked and has plateaued and even slightly declined for the next 10 years (and in reality numbers aren’t even available for the last 2 years). It should come as no surprise the explosion in spending kept the US ahead of China, but since the US peaked China now outspends the US in foreign aid. It’s “keeping up with the Jones’” on a global scale.
the-dude 6y ago
> But why not after the Cold War Because the former USSR is/was far weaker than anticipated.
throwaway4good 6y ago
Kennth Rogoff actually wrote a book called: this time it is different. For USA and Europe COVID-19 has been really expensive whereas China in particular has grown through it. The US relies on Asia - in particular China and Japan to cover that cost by buying US treasuries in an slowly inflating currency. At the same time the relationship between China and the west is increasingly antagonistic. This creates a different dynamic from 2008 - how different - time will tell.
- Amezarak 6y ago
  China and Japan are the top foreign holders of treasuries, yes, but the story is a little more complicated. https://www.fiscal.treasury.gov/files/reports-statements/treasury-bulletin/2021-1.pdf https://www.fiscal.treasury.gov/files/reports-statements/tre... As of the end of 2020, there are 27.7 trillion dollars in outstanding public debt. 10.8 trillion is held by the Federal Reserve and the US government. About 7 trillion (no data since September) is held by foreign countries. Of those, China owns 1.07 trillion and Japan owns 1.29 trillion. I don't think it's reasonable to characterize the US as relying on China and Japan to cover those costs. The other major (all holding > 100 billion) holders of US debt overseas, in order, are the UK, Ireland, Luxembourg, Brazil, Switzerland, Belgium, Taiwan, Hong Kong, the Caiman Islands, India, Singapore, Saudi Arabia, Korea, Canada, and France. This seems like a pretty good mix. NB: Real yields on treasuries are all negative. People are buying treasuries despite knowing they will lose money in real terms. I don't think people giving the US free money just so they can hold t-bills is a sign of the weakness of the US dollar. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2021&fbclid=IwAR1W18AOoVdMIvbc9SjTf1HECa002DcSWYolpWaw5X9T4xShQML8aZ8klqU#:~:text=Real%20yields%20on%20Treasury%20Inflation%20Protected%20Securities%20%28TIPS%29,by%20the%20Federal%20Reserve%20Bank%20of%20New%20York https://www.treasury.gov/resource-center/data-chart-center/i....
  - throwaway4good 6y ago
    I don't know how much it matters. The numbers sound big but then in different perspective not so big. The internal debt of the US, in some sense, at least when we are thinking about the viability of the US dollar in international trade, cancels itself out. And debt and swaps with Europe or the UK? Perhaps it matters less than debt to other countries. It really boils down to the exorbitant privelige. How big is it really? Who exactly bears the cost and who encurs the benefits? Not exactly clear in the details. However were Japan and China to give up their "mercantalistic" practices of buying US treasuries and instead letting their own currencies appreciate and start trade and investing without using the USD. Then that probably would be quite a thing.
sunir 6y ago
You have it backwards. One should always assume our way of life is about to fail, so we take action to protect it. If you assume it is impervious, complacency will let it decay. Pessimists persists in humanity because sometimes they are right. It’s valuable to let that fear be voiced, explored, determined, and planned for.
xml_linter 6y ago
The new development is that the USA had been exporting freedom (at least on the surface) and projecting strength. Now it exports totalitarian morality, while China is telling boys to be more masculine and mocks the western 白左. It is fairly easy to lose a country's reputation.

dkjaudyeqooe 6y ago

As is typical, there is an element of truth to it, but people love to make sensational claims because it gets people to read. It would be completely natural for there to be a transition to more balance between the major trading bloc currencies, namely USD, EUR and RMB, but it won't be as severe or cataclysmic as claimed, mainly because that doesn't serve anyone's interest (who is holding USD and can bring it about) and because the markets will smooth the way. The most likely outcome is that everyone will be better off and The US will lose some soft power, which is a process that has already been underway.

twelve40 6y ago
He mentions this right here: "So, what is wrong with three world currencies – the euro, the renminbi, and the dollar – sharing the spotlight? ... US government borrowing rates would almost certainly be affected" USG owes $28 trillion, borrowing at an increasing volume. If switching to 3 reserve currencies happens as you say, rates will go up. How exactly do you service $28 trillion and beyond debt with higher rates? So no, it won't be as joyous for everyone as you suggest.
- dcolkitt 6y ago
  Why would rates go higher? The Eurozone has lower rates than the US. Heck, Australia and New Zealand (not exactly global reserve currencies) have the same rates as the US. The only way that the dollars international status would meaningfully affect USG’s ability to borrow is if it was relegated to emerging markets status. All developed market currencies can borrow at sub-2% rates. That doesn’t require you to have reserve currency status.
  - twelve40 6y ago
    Great question, I'm just reading the article and noticed he's so convinced that the rates will go up in this case, that he used the words "almost certainly". Maybe a deeper look at his works can explain his conviction.
  - fennecfoxen 6y ago
    Borrowing is subject to supply and demand. If people are buying substitutes for dollar-denominated debt, they're not buying dollar-denominated debt, or they're buying less of it. The price paid for the bond goes down, so the rate goes up. Yes, there's a Federal Reserve too, and they can bid up the price of bonds and buy as many as they want, but it's functionally equivalent to printing money, so it becomes a question of how badly they overshoot their inflation target, and that influences demand as well.
    - dcolkitt 6y ago
      Central banks FX reserves make up only a sliver of the demand for long bonds (5+ years of maturity). Long bonds are generally not considered money substitutes, so FX reserves have no interest in holding them. Foreign central banks may hold a sizable proportion of short bonds, particularly 3-month T-Bills. But there’s essentially an infinite wall of demand for short bonds at the near zero bound. So maybe loss of reserve status increases borrowing costs from 0.02% to 0.15%. Not exactly a catastrophe for the budget deficit. This is why reserve status is essentially irrelevant to borrowing costs. All developed market governments, regardless of their currency’s reserve status, can borrow cheap in today’s regime.
- dkjaudyeqooe 6y ago
  It's the same point: it won't be as bad as you're implying. Rates will of course go up, but not drastically. The US won't be able to borrow as much, which is good, but it will still be able to borrow close to the same amount as a percentage of GDP. The US will service the debt the way it always has, by growing its economy. Somewhat higher inflation will actually reduce the debt load in real terms. The "joy" is that the US will be forced to be more disciplined.

midasuni 6y ago

> I’d say they didn’t like it very much. Depends on the country. Majority of U.K. want vaccine passports to go to places like pubs and ball games

pram 6y ago

The article is specifically about the US dollar as the global reserve currency. To your point, it has in fact been declining for the majority of the past thirty years. https://www.reuters.com/article/us-global-forex-reserves/u-s-dollar-share-of-global-fx-reserves-hits-lowest-in-25-years-in-fourth-quarter-imf-idUSKBN2BN24C https://www.reuters.com/article/us-global-forex-reserves/u-s...

dcolkitt 6y ago
FTA: > The greenback’s share slid to 59% in the fourth quarter, from 60.5% in the third, declining for three straight quarters. Its share in 1995 was 58%.

roenxi 6y ago

If you have a building, and the engineer says "it is unsafe and going to fail soon", then each month that passes witout anything happening should increase the expectation of failure, not decrease it. Besides, the situation did change recently. Wikipedia now recognises China as effectively the worlds largest economy. https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP) https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)

Jaxkr 6y ago
Important to note this is the PPP GDP, not the nominal one. When talking about macro concepts like currency dominance, nominal GDP is more useful (in which the US still maintains a lead).
- jimmydef 6y ago
  Both the nominal and PPP GDPs of the US as a percentage of the world GDP have been dropping steadily over the past few decades. It used to be near 40% of the world's GDP. Now it's barely 20%. At what percentage point will the world look at the US Dollar and its economy and decide maybe that figure is too low for the dollar to be world reserve currency? 15%? 10% or 5%? And did weaponizing the dollar as a geopolitical stick against its enemies change that threshold? Or does it even matter as long as the US retains military primacy on our planet? These things are more guesswork and storytelling than anything.
  - throwaway210222 6y ago
    This. At some point the world economy is so much bigger than the USA's (even if no one stuffs up), the the US government simply CANNOT product enough dollars* for the demand. Exactly the same reason why the Swiss franc can never be the global reserve currency. * Although the current USG is certainly giving it a good go ;).
    - hntrader 6y ago
      The supply of USD should be mostly irrelevant. If supply is constrained then the FX rate just adjusts. The parent's point (about US' share of world GDP) is quite different to the one you're making here.

twelve40 6y ago

Covid is only mentioned once in the article, mostly in the context of ginormous astronomical compounding debt, the favorite remedy for no matter what came our way in the last two decades. The article seems to be more about this: "Just as the US eclipsed Britain at the end of the nineteenth century as the world’s largest trading country, China long ago surpassed America by the same measure." that seems to be the author's new compelling evidence. Side note, I don't see how most of the events you listed: winning the Cold War, Iraq or the Arab Spring could even remotely challenge the US dominance, just the opposite, if anything.

redis_mlc 6y ago

I actually follow this. It is a military goal of the CCP to displace the US dollar. Trump/Pompeo's policies would have strangled China in about 24 months. (Russia dissolved largely due to similar US currency policies.) But under Biden's executive order rollbacks, the CCP has the room to advance their currency. Also, Wall Street actively opposed Trump's efforts. One of the many things China can do is to tie BRI funding/refinancing to their digital currency. Also, after Taiwan is unified, China can tax shipping transit in the S. China Sea. etc. The reason it's different this time is that Russia was an inward-looking country with a weak mfg. sector, while China is almost the opposite. China is much weaker financially than most people realize, but they're very militant. The wildcard is when the genocide/organ harvesting issue reaches a tipping point. I think that will happen in mid-2021, in which case you'll see a lot more decoupling - your brand name is everything. Most Western countries are wrestling with what genocide really means (similar to WW2), and when they stare long enough into the abyss, will not be able to continue a trade relationship with, literally, monsters.

throwaway_kufu 6y ago

> It’s got to the point where in the absence of any new and compelling evidence, such claims have to be treated with a little scepticism. But there is constantly new and compelling evidence. In my opinion there are two factors. 1. Domestic economic and fiscal health; and 2. Foreign aid. US debt, consumer debt, student loan debt, and corporate debt are all at historic highs. Across the board there are defaults at historic highs and a general inability to service these debts at every level. In that period of 30 years you mention we have seen for the first time ever US cities and governments declare bankruptcy. But maybe even more important to maintaining global hegemony is foreign aid. That it’s paying foreign governments to make it worth their while to support the US dollar as the global reserve. Consider from 2001-2011 foreign aid exploded from $10B to $50B where it peaked and has plateaued and even slightly declined for the next 10 years (and in reality numbers aren’t even available for the last 2 years). It should come as no surprise the explosion in spending kept the US ahead of China, but since the US peaked China now outspends the US in foreign aid. It’s “keeping up with the Jones’” on a global scale.

the-dude 6y ago

> But why not after the Cold War Because the former USSR is/was far weaker than anticipated.

throwaway4good 6y ago

Kennth Rogoff actually wrote a book called: this time it is different. For USA and Europe COVID-19 has been really expensive whereas China in particular has grown through it. The US relies on Asia - in particular China and Japan to cover that cost by buying US treasuries in an slowly inflating currency. At the same time the relationship between China and the west is increasingly antagonistic. This creates a different dynamic from 2008 - how different - time will tell.

Amezarak 6y ago
China and Japan are the top foreign holders of treasuries, yes, but the story is a little more complicated. https://www.fiscal.treasury.gov/files/reports-statements/treasury-bulletin/2021-1.pdf https://www.fiscal.treasury.gov/files/reports-statements/tre... As of the end of 2020, there are 27.7 trillion dollars in outstanding public debt. 10.8 trillion is held by the Federal Reserve and the US government. About 7 trillion (no data since September) is held by foreign countries. Of those, China owns 1.07 trillion and Japan owns 1.29 trillion. I don't think it's reasonable to characterize the US as relying on China and Japan to cover those costs. The other major (all holding > 100 billion) holders of US debt overseas, in order, are the UK, Ireland, Luxembourg, Brazil, Switzerland, Belgium, Taiwan, Hong Kong, the Caiman Islands, India, Singapore, Saudi Arabia, Korea, Canada, and France. This seems like a pretty good mix. NB: Real yields on treasuries are all negative. People are buying treasuries despite knowing they will lose money in real terms. I don't think people giving the US free money just so they can hold t-bills is a sign of the weakness of the US dollar. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldYear&year=2021&fbclid=IwAR1W18AOoVdMIvbc9SjTf1HECa002DcSWYolpWaw5X9T4xShQML8aZ8klqU#:~:text=Real%20yields%20on%20Treasury%20Inflation%20Protected%20Securities%20%28TIPS%29,by%20the%20Federal%20Reserve%20Bank%20of%20New%20York https://www.treasury.gov/resource-center/data-chart-center/i....
- throwaway4good 6y ago
  I don't know how much it matters. The numbers sound big but then in different perspective not so big. The internal debt of the US, in some sense, at least when we are thinking about the viability of the US dollar in international trade, cancels itself out. And debt and swaps with Europe or the UK? Perhaps it matters less than debt to other countries. It really boils down to the exorbitant privelige. How big is it really? Who exactly bears the cost and who encurs the benefits? Not exactly clear in the details. However were Japan and China to give up their "mercantalistic" practices of buying US treasuries and instead letting their own currencies appreciate and start trade and investing without using the USD. Then that probably would be quite a thing.

sunir 6y ago

You have it backwards. One should always assume our way of life is about to fail, so we take action to protect it. If you assume it is impervious, complacency will let it decay. Pessimists persists in humanity because sometimes they are right. It’s valuable to let that fear be voiced, explored, determined, and planned for.

xml_linter 6y ago

The new development is that the USA had been exporting freedom (at least on the surface) and projecting strength. Now it exports totalitarian morality, while China is telling boys to be more masculine and mocks the western 白左. It is fairly easy to lose a country's reputation.