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>There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kicks

>There's the risk of this system stop working and that's when the US might have hard times due to being forced to live by its means and have no ability to kickstart its own production when that time comes. I think the risk is greater than that. A concern is not just a regression to the mean, but indebtedness and the future having to pay up for the spending of the past. I think a different analogy would be a joint credit card where someone can run up the bill and then die. Like national debt, you can always default, but it will be the survivor that takes the hit, not the dead person that spent their life in luxury. The trade deficit isn't necessarily a problem, but national debt is. It would be one thing if this money was being invested in growth, but it largely isn't. Most of it funds non-growth consumption. This is largely a self-made internal problem around governmental prioritization and balancing revenue with expenditure. That isn't to say other countries don't also benefit. The US is trading future prosperity for consumption today. Investing countries are trading consumption today for future prosperity.

foobarian 1y ago
These all seem like side effects of the global reserve currency status. You can't balance the budget until that is given up. Giving up that status would be very painful, so given the choice of pain now or pain later, the current situation seems reasonable to me.
- s1artibartfast 1y ago
  I disagree, it is a consequence of debt outpacing growth. The key characteristics of a reserve currency are stability and liquidity. If you have these, you don't even need to pay interest. With properly managed that, being the reserve currency is a win on all fronts. You get to run a deficit because people are happy to trade real products for your paper. People are also willing to loan your paper back to you at more favorable rates. The only downside is if you get drunk and outspend even the inflated demand for your currency. The smart move is to rain in deficit spending if you can't get favorable lending rates. Blowing up reserve status doesn't help this problem. Then you just have to pay higher and higher interest rates because no one wants your paper anymore
- randerson 1y ago
  Maybe I'm missing something, but the budget deficit and trade deficit are two separate issues. We can have a budget surplus (as we had under the Clinton administration) while still having a trade deficit.
  - alexey-salmin 1y ago
    They are separate but closely connected. Something has to cross the border in the opposite direction. Could be corporate stocks or bonds, could be government bonds. You can see export of government bonds as the last line of defense where the economy failed to produce enough of other instruments to cover the imbalance.
    - randerson 1y ago
      My understanding is that other countries who end up with those dollars from our trade deficit tend to invest those dollars in US financial institutions: treasuries being one form, but also US stocks and corporate bonds and so on. So the deficit indirectly helps anyone with a 401K, and also allows the government to keep borrowing money. But the trade deficit is mostly a private sector thing. It doesn't stop the government from raising taxes and cutting spending to achieve a budget surplus and eventually paying down the debt.
      - s1artibartfast 1y ago
        >So the deficit indirectly helps anyone with a 401K, and also allows the government to keep borrowing money. And hurts taxpayers and anyone who wants to buy stock, housing, or anything else that has been bid up. You are right that budget deficits are a governmental problem independent of trade.
overfeed 1y ago
> but indebtedness and the future having to pay up for the spending of the past The debt is denominated USD, the US mint could hypothetically print a trillion dollar note and settle the debts. Doing so would wreck trust in the existing system - so it's not just about the debt, but people tend to gloss over how much control the US has over the debt, so the indebtedness (in USD) is a relatively small factor overall.
- s1artibartfast 1y ago
  Inflating away the debt is a default in all but name, with the same results. If I pay you 50% of what I owe, or 100% reset to half the value. Both burn creditors and ruin credit.
  - alexey-salmin 1y ago
    While there are similarities, I think it's still very different. Default by itself doesn't make the debt disappear, you just stop serving it for a while. Then you may negotiate some cuts with creditors in exchange for a promise to repay the rest but there's no way they just forgive 100% of it, this makes no economic sense. If you want to get out of the debt completely you need not only a default but bankruptcy and dissolution which is rather painful at the state level. An example would be the Russian revolution and civil war where among other things the Bolsheviks refused to recognize tsar's debts claiming it's a new state now.
- JumpCrisscross 1y ago
  > Doing so would wreck trust in the existing system It would cause immediate hyperinflation. Those notes would go to bondholders who would use it to buy things because holding billions in cash printed by a defaulter isn’t anyone’s cup of tea. So anyone willing to take even absurd amounts of dollars for non-dollar assets is offered absurd amounts. Which means those who didn’t get the helicopter drop find their currency, savings and wages worthless in real terms.
  - david927 1y ago
marcosdumay 1y ago
> but indebtedness and the future having to pay up for the spending of the past Who do you expect will hold the US into its indebtedness? The entire world is powerless to stop Argentina, why do you think the US will be more impacted?
- s1artibartfast 1y ago
  Nobody can stop the US, they just stop lending under favorable terms, like Argentina. Nobody wants to make loans to Argentina (or within Argentina) payable in the Argentine Peso. This is the punishment. The punishment of being credit unworthy is an inability to use credit markets. This means businesses struggle and the government has its hands tied in dealing with economic crises. Argentina can't use economic stimulus to correct economic recessions. There is no deep demand for the Argentine peso, so stimulus leads to more inflation rather than increased economic activity

foobarian 1y ago

These all seem like side effects of the global reserve currency status. You can't balance the budget until that is given up. Giving up that status would be very painful, so given the choice of pain now or pain later, the current situation seems reasonable to me.

s1artibartfast 1y ago
I disagree, it is a consequence of debt outpacing growth. The key characteristics of a reserve currency are stability and liquidity. If you have these, you don't even need to pay interest. With properly managed that, being the reserve currency is a win on all fronts. You get to run a deficit because people are happy to trade real products for your paper. People are also willing to loan your paper back to you at more favorable rates. The only downside is if you get drunk and outspend even the inflated demand for your currency. The smart move is to rain in deficit spending if you can't get favorable lending rates. Blowing up reserve status doesn't help this problem. Then you just have to pay higher and higher interest rates because no one wants your paper anymore
randerson 1y ago
Maybe I'm missing something, but the budget deficit and trade deficit are two separate issues. We can have a budget surplus (as we had under the Clinton administration) while still having a trade deficit.
- alexey-salmin 1y ago
  They are separate but closely connected. Something has to cross the border in the opposite direction. Could be corporate stocks or bonds, could be government bonds. You can see export of government bonds as the last line of defense where the economy failed to produce enough of other instruments to cover the imbalance.
  - randerson 1y ago
    My understanding is that other countries who end up with those dollars from our trade deficit tend to invest those dollars in US financial institutions: treasuries being one form, but also US stocks and corporate bonds and so on. So the deficit indirectly helps anyone with a 401K, and also allows the government to keep borrowing money. But the trade deficit is mostly a private sector thing. It doesn't stop the government from raising taxes and cutting spending to achieve a budget surplus and eventually paying down the debt.
    - s1artibartfast 1y ago
      >So the deficit indirectly helps anyone with a 401K, and also allows the government to keep borrowing money. And hurts taxpayers and anyone who wants to buy stock, housing, or anything else that has been bid up. You are right that budget deficits are a governmental problem independent of trade.

overfeed 1y ago

> but indebtedness and the future having to pay up for the spending of the past The debt is denominated USD, the US mint could hypothetically print a trillion dollar note and settle the debts. Doing so would wreck trust in the existing system - so it's not just about the debt, but people tend to gloss over how much control the US has over the debt, so the indebtedness (in USD) is a relatively small factor overall.

s1artibartfast 1y ago
Inflating away the debt is a default in all but name, with the same results. If I pay you 50% of what I owe, or 100% reset to half the value. Both burn creditors and ruin credit.
- alexey-salmin 1y ago
  While there are similarities, I think it's still very different. Default by itself doesn't make the debt disappear, you just stop serving it for a while. Then you may negotiate some cuts with creditors in exchange for a promise to repay the rest but there's no way they just forgive 100% of it, this makes no economic sense. If you want to get out of the debt completely you need not only a default but bankruptcy and dissolution which is rather painful at the state level. An example would be the Russian revolution and civil war where among other things the Bolsheviks refused to recognize tsar's debts claiming it's a new state now.
JumpCrisscross 1y ago
> Doing so would wreck trust in the existing system It would cause immediate hyperinflation. Those notes would go to bondholders who would use it to buy things because holding billions in cash printed by a defaulter isn’t anyone’s cup of tea. So anyone willing to take even absurd amounts of dollars for non-dollar assets is offered absurd amounts. Which means those who didn’t get the helicopter drop find their currency, savings and wages worthless in real terms.
- david927 1y ago

marcosdumay 1y ago

> but indebtedness and the future having to pay up for the spending of the past Who do you expect will hold the US into its indebtedness? The entire world is powerless to stop Argentina, why do you think the US will be more impacted?

s1artibartfast 1y ago
Nobody can stop the US, they just stop lending under favorable terms, like Argentina. Nobody wants to make loans to Argentina (or within Argentina) payable in the Argentine Peso. This is the punishment. The punishment of being credit unworthy is an inability to use credit markets. This means businesses struggle and the government has its hands tied in dealing with economic crises. Argentina can't use economic stimulus to correct economic recessions. There is no deep demand for the Argentine peso, so stimulus leads to more inflation rather than increased economic activity