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This self-balancing effect is a big part of how trade should work according to monetarist economics[0] But for reasons I don't fully understand (possibly Triff

by c54 5y ago

This self-balancing effect is a big part of how trade should work according to monetarist economics[0] But for reasons I don't fully understand (possibly Triffin's Dilemma[1]), this hasn't worked for the US. Triffin's explanation basically says it can't work for the global reserve currency issuer because we have to keep exporting our currency to other places (and exporting currency means importing goods and services) [0]https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_theory https://en.wikipedia.org/wiki/Balance_of_trade#Monetarist_th... [1]https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma

alert0 5y ago
I've seen an argument that we have reached the end of benefit from being the global reserve currency and that the US dollar should weaken to balance out trade. We have been a net importer (of goods) for so long, the upper class has reaped the benefits of cheaper goods while the manufacturing class has lost their jobs. China moved away from feeding the system by ceasing US bond purchases and starting the Belt and Road initiative. It seems like we're there and I'm pretty excited about a domestic manufacturing capability. Combining this with low interest rates, a ton of money is exiting the bond market looking for yield. A lot of it is flowing to stocks, decreasing earnings. Overall, I believe it means greater investment availability. It's really the perfect storm for a very prosperous time in the US (expansion!).
- vidarh 5y ago
  The US has plenty of manufacturing. The manufacturing jobs went. And they are not coming back. If anything, a push to move more manufacturing to the US will drive further automation.
  - alert0 5y ago
    There are multiple chip (Intel, TSMC) fabs under development in Arizona.
    - ddnb 5y ago
      Which is a very good example of highly-automated manufacturing.
- imtringued 5y ago
  It depends on what kind of economy you are in. If you are Turkey and you are struggling with a lack of domestic savings because everyone tries to keep their capital safe then you must do more investments than you can afford to keep growing. The lack of savings drive up the interest rate and ultimately put a stop to growth or slow it down significantly. The US isn't in this position, it's a mature economy that keeps outsourcing the easy work to other countries, relative to investments there is too much in savings and those savings are in the bank accounts of corporations who would invest, if they saw a reason to do so. Assuming another fall in inflation, there won't be any reason to put the money to good use. If inflation rises over time and stays at slightly above 2% then those savings will be eroded because they can't lend the money to anyone to obtain interest, they'd have to lend the savings to themselves, or to consumers (bad idea unless they start a company). If companies fail to invest in anticipation of inflation, then the people who receive the fresh money will get to spend it, which will drive demand for products and therefore demand for companies to invest their savings into more production.
imtringued 5y ago
China pegs (floating within a range) its currency against the dollar, so that the dollar will always be a stronger currency than the yuan. This makes Chinese products cheaper in USD, which attracts consumers in the US, since China is guaranteeing the exchange rate for dollars to yuan, China ends up with USD. If things were normal China would simply use the USD to buy American goods (to be more precise, goods traded in USD including oil, which may not necessarily come from the USA). However, the trade surplus is a political goal, therefore the USD are put into the foreign exchange reserve where they are being used to buy treasury bonds. Because the money is not reaching the US economy, the US government has to either create a debt equal to the foreign exchange reserve or it can increase the money supply. If it does neither the direct result is unemployment because one person's spending is another person's income and China isn't spending. It gets worse, because the USD is so widely adopted, transactions aren't limited to just USA <-> everyone, everyone <-> everyone is equally possible and it effectively has the same effect as the US importing products from China in regards to the deficit if the exporting side decides to purchase treasury bonds. E.g. foreign country puts the money into American companies, the investment pays off and then they use the profits to import something from China who then puts it into treasury bonds. Even though the US did nothing, the deficit must grow anyway.

by c54 5y ago

alert0 5y ago

I've seen an argument that we have reached the end of benefit from being the global reserve currency and that the US dollar should weaken to balance out trade. We have been a net importer (of goods) for so long, the upper class has reaped the benefits of cheaper goods while the manufacturing class has lost their jobs. China moved away from feeding the system by ceasing US bond purchases and starting the Belt and Road initiative. It seems like we're there and I'm pretty excited about a domestic manufacturing capability. Combining this with low interest rates, a ton of money is exiting the bond market looking for yield. A lot of it is flowing to stocks, decreasing earnings. Overall, I believe it means greater investment availability. It's really the perfect storm for a very prosperous time in the US (expansion!).

vidarh 5y ago
The US has plenty of manufacturing. The manufacturing jobs went. And they are not coming back. If anything, a push to move more manufacturing to the US will drive further automation.
- alert0 5y ago
  There are multiple chip (Intel, TSMC) fabs under development in Arizona.
  - ddnb 5y ago
    Which is a very good example of highly-automated manufacturing.
imtringued 5y ago
It depends on what kind of economy you are in. If you are Turkey and you are struggling with a lack of domestic savings because everyone tries to keep their capital safe then you must do more investments than you can afford to keep growing. The lack of savings drive up the interest rate and ultimately put a stop to growth or slow it down significantly. The US isn't in this position, it's a mature economy that keeps outsourcing the easy work to other countries, relative to investments there is too much in savings and those savings are in the bank accounts of corporations who would invest, if they saw a reason to do so. Assuming another fall in inflation, there won't be any reason to put the money to good use. If inflation rises over time and stays at slightly above 2% then those savings will be eroded because they can't lend the money to anyone to obtain interest, they'd have to lend the savings to themselves, or to consumers (bad idea unless they start a company). If companies fail to invest in anticipation of inflation, then the people who receive the fresh money will get to spend it, which will drive demand for products and therefore demand for companies to invest their savings into more production.

imtringued 5y ago

China pegs (floating within a range) its currency against the dollar, so that the dollar will always be a stronger currency than the yuan. This makes Chinese products cheaper in USD, which attracts consumers in the US, since China is guaranteeing the exchange rate for dollars to yuan, China ends up with USD. If things were normal China would simply use the USD to buy American goods (to be more precise, goods traded in USD including oil, which may not necessarily come from the USA). However, the trade surplus is a political goal, therefore the USD are put into the foreign exchange reserve where they are being used to buy treasury bonds. Because the money is not reaching the US economy, the US government has to either create a debt equal to the foreign exchange reserve or it can increase the money supply. If it does neither the direct result is unemployment because one person's spending is another person's income and China isn't spending. It gets worse, because the USD is so widely adopted, transactions aren't limited to just USA <-> everyone, everyone <-> everyone is equally possible and it effectively has the same effect as the US importing products from China in regards to the deficit if the exporting side decides to purchase treasury bonds. E.g. foreign country puts the money into American companies, the investment pays off and then they use the profits to import something from China who then puts it into treasury bonds. Even though the US did nothing, the deficit must grow anyway.