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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 ve

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.

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.