5 ms·

This is the answer to all American manufacturing woes. The dollar as a reserve currency gives the US a ton of global leverage but requires a trade deficit thus

This is the answer to all American manufacturing woes. The dollar as a reserve currency gives the US a ton of global leverage but requires a trade deficit thus it comes at the expense of domestic industries.

specialist 3y ago
I'd love to understand statements like this. Lemme try: Because trade deficits induce demand for dollars? Like how Japan and now China hold a bajillion US dollars? So if the US had (prolonged) trade surplus, no one would be holding dollars? But wouldn't trade partners still need US dollars to buy US goods? Like the situation post-WWII? So then we'd "loan" partners US dollars to buy our stuff? Aiugh. My brain just broke. How does a noob like me learn about these systems. I know it all probably makes sense to the learned. But with my folk (mis)understanding, these claims sound counterintuitive. Thanks.
- maxglute 3y ago
  https://en.wikipedia.org/wiki/Exorbitant_privilege https://en.wikipedia.org/wiki/Exorbitant_privilege
- prettychill 3y ago
  I found this blog post to be quite interesting https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
- depereo 3y ago
  I think of it as another type of https://en.wikipedia.org/wiki/Resource_curse https://en.wikipedia.org/wiki/Resource_curse
- fuzztester 3y ago
  "Aiugh. My brain just broke. How does a noob like me learn about these systems. I know it all probably makes sense to the learned. But with my folk (mis)understanding, these claims sound counterintuitive. Thanks. " don't worry, your intuition is right. you are on the right track when you say that your brain broke. you are more learned, or rather, more wise than those guys. because a lot of economics is BS, a hotchpotch of some art, craft, heuristics, observations and formulae, pretending to be a science. this is exactly why economics is known as "the dismal science", and why there is a saying that if you get 20 economists in a room and ask them the same question, you will get 20 different answers. (italics mine) I studied economics in high school for a whole year (11th grade). the course covered both microeconomics and macroeconomics. the Samuelson (MIT prof., IIRC) book was one of our text books. I did well in class, was among the top few students. I made some penetrating comments to which my teacher had no satisfactory answer. it was on a situation / question regarding OPEC (the oil cartel). from that time on, and also from subsequently reading economics articles and news now and then, I could intuit and piece together the opinions that I stated above. :) so, not to worry :)
  - edgyquant 3y ago
    Not sure how you can pretend I’m wrong when what I stated is an observation of the world and not an opinion. The US moved its industry overseas and switched to exporting dollars in an effort to buy sway inside of other countries. It did this to isolate Russia and win the Cold War.
    - fuzztester 3y ago
      edgy, you are quant(ifiably) edgy. ;) i never replied to you. so how could I have pretended you were wrong? you seem to be mistaken. trace your way upthread and tell me where I replied to you. i, at least don't see it. but whether it is your error or mine, it may be due to the shitty message threading style used here on hn. I have commented about it in the past. if the better Usenet / NNTP style was used, such confusions would not occur. The D language forum uses it, for example. maybe you need some edgyqation ...
  - cycrutchfield 3y ago
    So you declare an entire field as BS and your basis of expertise is a high school class you took and a (probably underpaid and overworked) teacher who couldn’t satisfactorily answer your questions? Dunning-Kruger effect in action.
    - ducttapecrown 3y ago
      Further economics classes only pull the curtain farther back on what economics is: applied mathematics and applied sociology combined! I'm personally undecided on dismissing economics and trying to learn more of it!
      - fuzztester 3y ago
        diss it, you won't miss it! ;)
    - fuzztester 3y ago
      [flagged]
- mywittyname 3y ago
  > So then we'd "loan" partners US dollars to buy our stuff? Other way around, they buy T-bonds -- i.e., "loan" dollars to the US Government. But the country is still owed that money back - it's like a trillion dollar bank account. One could say China "lends" dollars to the Treasury, but it's also just as accurate to say they "deposit" dollars into the Treasury. It's all just words to describe the action of giving money to another party to hold onto temporarily. "Strong" currency means there's more demand for it. Demand is usually a function of what you can buy with the currency. When countries reinvest their dollars into T-Bonds, they are double dipping on establishing demand for dollars. On one hand, they are owed back the dollars handed over to the Treasury (thus, creating future demand for USD), and on the other, accepting USD for the sales of their goods/services induces demand for USD, since it is yet another good that can be purchased with USD. "Weak" currency means that there's less demand for it. Weak currencies tend to be those from countries that produce little in the way of goods and services, or they only produce commodities (like oil) that are generally traded in other currencies. A weak currency can be a benefit. Hence why so many countries seek to artificially weaken their currency (aka currency manipulation). They often do this by strengthening the the USD. Sell to the USA, accept USD from foreign trade partners, buy T-Bonds with excess currency. The market for USD is so damn big that this is often trivial to do unnoticed, like using ocean to fill a swimming pool. But economies like Japan and China eventually grew to the point where their currency manipulation had a meaningful impact on the USD and American economy, rising the ire of American politicians. You can read about the Japanese "lost decade" which was suspected to be the result of American politicians intentionally targeting the Japanese economy due to currency manipulation and a general fear that the Japanese would "take over the world." (you can see these fears highlighted in 80s movies) > How does a noob like me learn about these systems. Take an economics class. Eco 101 is kind of trash for understanding anything truly useful. But at higher levels, you get into mathematical models for the underlying systems that govern trade. Granted, it's a little more hand-wavy, since economists can't conduct experiments at the scale that physicists can. But there is generally some experimental data supporting the models (it just might be data collected on college students trading candy bars). You can read about what happened to the Swiss economy during the pandemic. They are a smaller economy that's been plagued by an absurdly strong currency. There's been a lot of reporting and research into the many factors contributing to the currency's strength as well as the impacts it has had on such a small country.
- edgyquant 3y ago
  Honestly I learned the basics in Econ classes during college and have an interest in international relations/geopolitics so I’m not sure a good single source for learning about it all. But yeah there is some macroeconomic wizardry involved here. I’ll add it is a political thing and not a right v wrong policy. Choosing manufacturing power or global influence is a trade off with pros and cons.
- nostrademons 3y ago
  You're on the right track. In a normal, non-reserve-currency situation, the demand for a country's currency is proportional to the demand for its products. After all, that's what you use a currency for: to buy the products that are sold in that currency. This has a well-behaved equilibrium, because if a country produces a lot of good products, that means the value of its currency will rise, which makes goods developed in that country relatively more expensive, which cuts demand, until everything equilibrates at a point which is roughly reflective of the actual quality and productivity of the country. In a reserve-currency situation, the currency is used for many things other than buying the products of the country. For example, oil is priced in dollars; if India wants to buy oil from Saudi Arabia, it needs dollars to make the transaction, and then Saudi Arabia has an excess of dollars. Frequently it uses these to buy U.S. T-bills or invest in American tech startups like Uber or WeWork, both other sources of demand for dollars. The dollar is basically the currency of the global financial system: instead of directly converting rupee to riyal, you convert rupee to dollars, handle your transaction, and then convert dollars to riyal. This creates a large source of demand for dollars outside of the traditional market for a national currency. Indeed, America's export here is basically financial services, which as a sector has been doing great since 1990, one of the few areas where you're likely to get paid handsomely. The other area is tech, which at its core is about enabling these cross-border commerce flows - Amazon, Google, Facebook, UpWork, Stripe, CoinBase, Ripple, Stellar, PayPal, E-bay, Shopify, AirBnB are all about creating global marketplaces where you can buy anything from anywhere. Finance and tech crowd out everthing else that you would normally use dollars for. Basically America has specialized in being the global marketplace - it's only purpose is to be the common standard that every other country needs to transact in. Because there's so much demand for dollars simply to do international transactions, it pushes the price of the dollar up. This makes everybody who's trying to sell actual things in dollars (rather than take a commission when other people sell things in dollars) uncompetitive. It works great, until the rest of the world decides that it wants to cut out the middleman. At that point, since we don't produce anything anymore, we're screwed. America's basically given itself Dutch Disease, where our only viable industry is financial services.
  - FirmwareBurner 3y ago
    >It works great, until the rest of the world decides that it wants to cut out the middleman. Isn't this why the US invests in having the world's biggest military by a long margin, plus the world's most powerful spy agencies? To make sure nobody dares cut them out of their privileged position otherwise they get a dose full of aircraft carriers, F-35 and B-2s after the NSA finds out what their plans is from the spyware they put in their iPhone.
- hayst4ck 3y ago
  Principles for Dealing with the Changing World Order by Ray Dalio: https://www.youtube.com/watch?v=xguam0TKMw8 https://www.youtube.com/watch?v=xguam0TKMw8 I think this video addresses the topic in question at a layman level.

specialist 3y ago

I'd love to understand statements like this. Lemme try: Because trade deficits induce demand for dollars? Like how Japan and now China hold a bajillion US dollars? So if the US had (prolonged) trade surplus, no one would be holding dollars? But wouldn't trade partners still need US dollars to buy US goods? Like the situation post-WWII? So then we'd "loan" partners US dollars to buy our stuff? Aiugh. My brain just broke. How does a noob like me learn about these systems. I know it all probably makes sense to the learned. But with my folk (mis)understanding, these claims sound counterintuitive. Thanks.

maxglute 3y ago
https://en.wikipedia.org/wiki/Exorbitant_privilege https://en.wikipedia.org/wiki/Exorbitant_privilege
prettychill 3y ago
I found this blog post to be quite interesting https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
depereo 3y ago
I think of it as another type of https://en.wikipedia.org/wiki/Resource_curse https://en.wikipedia.org/wiki/Resource_curse
fuzztester 3y ago
"Aiugh. My brain just broke. How does a noob like me learn about these systems. I know it all probably makes sense to the learned. But with my folk (mis)understanding, these claims sound counterintuitive. Thanks. " don't worry, your intuition is right. you are on the right track when you say that your brain broke. you are more learned, or rather, more wise than those guys. because a lot of economics is BS, a hotchpotch of some art, craft, heuristics, observations and formulae, pretending to be a science. this is exactly why economics is known as "the dismal science", and why there is a saying that if you get 20 economists in a room and ask them the same question, you will get 20 different answers. (italics mine) I studied economics in high school for a whole year (11th grade). the course covered both microeconomics and macroeconomics. the Samuelson (MIT prof., IIRC) book was one of our text books. I did well in class, was among the top few students. I made some penetrating comments to which my teacher had no satisfactory answer. it was on a situation / question regarding OPEC (the oil cartel). from that time on, and also from subsequently reading economics articles and news now and then, I could intuit and piece together the opinions that I stated above. :) so, not to worry :)
- edgyquant 3y ago
  Not sure how you can pretend I’m wrong when what I stated is an observation of the world and not an opinion. The US moved its industry overseas and switched to exporting dollars in an effort to buy sway inside of other countries. It did this to isolate Russia and win the Cold War.
  - fuzztester 3y ago
    edgy, you are quant(ifiably) edgy. ;) i never replied to you. so how could I have pretended you were wrong? you seem to be mistaken. trace your way upthread and tell me where I replied to you. i, at least don't see it. but whether it is your error or mine, it may be due to the shitty message threading style used here on hn. I have commented about it in the past. if the better Usenet / NNTP style was used, such confusions would not occur. The D language forum uses it, for example. maybe you need some edgyqation ...
- cycrutchfield 3y ago
  So you declare an entire field as BS and your basis of expertise is a high school class you took and a (probably underpaid and overworked) teacher who couldn’t satisfactorily answer your questions? Dunning-Kruger effect in action.
  - ducttapecrown 3y ago
    Further economics classes only pull the curtain farther back on what economics is: applied mathematics and applied sociology combined! I'm personally undecided on dismissing economics and trying to learn more of it!
    - fuzztester 3y ago
      diss it, you won't miss it! ;)
  - fuzztester 3y ago
    [flagged]
mywittyname 3y ago
> So then we'd "loan" partners US dollars to buy our stuff? Other way around, they buy T-bonds -- i.e., "loan" dollars to the US Government. But the country is still owed that money back - it's like a trillion dollar bank account. One could say China "lends" dollars to the Treasury, but it's also just as accurate to say they "deposit" dollars into the Treasury. It's all just words to describe the action of giving money to another party to hold onto temporarily. "Strong" currency means there's more demand for it. Demand is usually a function of what you can buy with the currency. When countries reinvest their dollars into T-Bonds, they are double dipping on establishing demand for dollars. On one hand, they are owed back the dollars handed over to the Treasury (thus, creating future demand for USD), and on the other, accepting USD for the sales of their goods/services induces demand for USD, since it is yet another good that can be purchased with USD. "Weak" currency means that there's less demand for it. Weak currencies tend to be those from countries that produce little in the way of goods and services, or they only produce commodities (like oil) that are generally traded in other currencies. A weak currency can be a benefit. Hence why so many countries seek to artificially weaken their currency (aka currency manipulation). They often do this by strengthening the the USD. Sell to the USA, accept USD from foreign trade partners, buy T-Bonds with excess currency. The market for USD is so damn big that this is often trivial to do unnoticed, like using ocean to fill a swimming pool. But economies like Japan and China eventually grew to the point where their currency manipulation had a meaningful impact on the USD and American economy, rising the ire of American politicians. You can read about the Japanese "lost decade" which was suspected to be the result of American politicians intentionally targeting the Japanese economy due to currency manipulation and a general fear that the Japanese would "take over the world." (you can see these fears highlighted in 80s movies) > How does a noob like me learn about these systems. Take an economics class. Eco 101 is kind of trash for understanding anything truly useful. But at higher levels, you get into mathematical models for the underlying systems that govern trade. Granted, it's a little more hand-wavy, since economists can't conduct experiments at the scale that physicists can. But there is generally some experimental data supporting the models (it just might be data collected on college students trading candy bars). You can read about what happened to the Swiss economy during the pandemic. They are a smaller economy that's been plagued by an absurdly strong currency. There's been a lot of reporting and research into the many factors contributing to the currency's strength as well as the impacts it has had on such a small country.
edgyquant 3y ago
Honestly I learned the basics in Econ classes during college and have an interest in international relations/geopolitics so I’m not sure a good single source for learning about it all. But yeah there is some macroeconomic wizardry involved here. I’ll add it is a political thing and not a right v wrong policy. Choosing manufacturing power or global influence is a trade off with pros and cons.
nostrademons 3y ago
You're on the right track. In a normal, non-reserve-currency situation, the demand for a country's currency is proportional to the demand for its products. After all, that's what you use a currency for: to buy the products that are sold in that currency. This has a well-behaved equilibrium, because if a country produces a lot of good products, that means the value of its currency will rise, which makes goods developed in that country relatively more expensive, which cuts demand, until everything equilibrates at a point which is roughly reflective of the actual quality and productivity of the country. In a reserve-currency situation, the currency is used for many things other than buying the products of the country. For example, oil is priced in dollars; if India wants to buy oil from Saudi Arabia, it needs dollars to make the transaction, and then Saudi Arabia has an excess of dollars. Frequently it uses these to buy U.S. T-bills or invest in American tech startups like Uber or WeWork, both other sources of demand for dollars. The dollar is basically the currency of the global financial system: instead of directly converting rupee to riyal, you convert rupee to dollars, handle your transaction, and then convert dollars to riyal. This creates a large source of demand for dollars outside of the traditional market for a national currency. Indeed, America's export here is basically financial services, which as a sector has been doing great since 1990, one of the few areas where you're likely to get paid handsomely. The other area is tech, which at its core is about enabling these cross-border commerce flows - Amazon, Google, Facebook, UpWork, Stripe, CoinBase, Ripple, Stellar, PayPal, E-bay, Shopify, AirBnB are all about creating global marketplaces where you can buy anything from anywhere. Finance and tech crowd out everthing else that you would normally use dollars for. Basically America has specialized in being the global marketplace - it's only purpose is to be the common standard that every other country needs to transact in. Because there's so much demand for dollars simply to do international transactions, it pushes the price of the dollar up. This makes everybody who's trying to sell actual things in dollars (rather than take a commission when other people sell things in dollars) uncompetitive. It works great, until the rest of the world decides that it wants to cut out the middleman. At that point, since we don't produce anything anymore, we're screwed. America's basically given itself Dutch Disease, where our only viable industry is financial services.
- FirmwareBurner 3y ago
  >It works great, until the rest of the world decides that it wants to cut out the middleman. Isn't this why the US invests in having the world's biggest military by a long margin, plus the world's most powerful spy agencies? To make sure nobody dares cut them out of their privileged position otherwise they get a dose full of aircraft carriers, F-35 and B-2s after the NSA finds out what their plans is from the spyware they put in their iPhone.
hayst4ck 3y ago
Principles for Dealing with the Changing World Order by Ray Dalio: https://www.youtube.com/watch?v=xguam0TKMw8 https://www.youtube.com/watch?v=xguam0TKMw8 I think this video addresses the topic in question at a layman level.