4 ms·

You won't be keeping the USD as the global reserve. Trump wants his cake and to eat it, but that position is likely unsustainable long term anyways. Mind you, t

You won't be keeping the USD as the global reserve. Trump wants his cake and to eat it, but that position is likely unsustainable long term anyways. Mind you, the role of reserve currency today is larged hoisted by the rest of the world onto the USA, there is no rule dictacting its role. But the thing is anybody who is large enough to support it (EU/China) dosen't want that role either, lest they end up deindustrialising like USA. The actual alternative, with the so-called multilateral "Bancor" and the International Clearing Union as originally proposed by Keynes works via directly controlling exchange rates to punish surplus nations and provide relief to deficit nations. Well, it's for that reason there isn't a serious effort to create it from these other nations, which leaves them at an impasse. That's why as much as I hate to admit, Trump may actually win here because other countries don't really have any good options. Unfortunately the USA is playing a necessary systemic role here that nobody else wants to do.

rayiner 1y ago
Is there a resource you’d recommend to learn about this?
- corimaith 1y ago
  You can read Bern Bernanke's hypothesis on the Global Savings Glut. But there are plenty of articles by almost all economic insitutions that are talking about the imbalanced nature of trade today. https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/ https://www.federalreserve.gov/boarddocs/speeches/2005/20050...
qqqwerty 1y ago
Trump is being pulled in too many different directions to the point where nothing coherent is going to emerge from his strategies (or lack of). You can't promise Wall Street/Corporate America the moon and keep the economy running along nicely while rounding up and deporting immigrants, cutting federal spending, and implementing regressive taxes via tariffs. If he would have just limited himself to the goal of balancing trade while maintaining reserve currency status, I think that he would have had a shot to pull it off. But there is the very real risk that the rest of the world just starts routing around the US so even that is not a given. But when you combine this with all the other things he is trying to do, I think he is seriously risking sending the U.S. economy off a very tall cliff. That is also why he probably is so obsessed with lower interest rates. It is an attempt to try and jolt the economy before all the head winds from his policies start to have an impact.
- jacquesm 1y ago
  > But there is the very real risk that the rest of the world just starts routing around the US so even that is not a given. That's no longer just a risk, it is a reality.
geraneum 1y ago
I do largely agree with you, however > Mind you, the role of reserve currency today is largely hoisted by the rest of the world onto the USA It’s the opposite [1]. Trump openly threatens anyone who tries to replace dollar. It even goes beyond Trump. I bet it will go to war if there are real threats to replace USD. > there is no rule dictating its role There’s also no rule dictating other countries to honor US sanctions, but they do. Tarrif 1. https://www.reuters.com/markets/currencies/trump-repeats-tariffs-threat-dissuade-brics-nations-replacing-us-dollar-2025-01-31/ https://www.reuters.com/markets/currencies/trump-repeats-tar...
sho 1y ago
> the role of reserve currency today is larged hoisted by the rest of the world onto the USA > Unfortunately the USA is playing a necessary systemic role here that nobody else wants to do Well. I know what you're trying to say, but it's not like the USA just does nothing to maintain the system. The military, the middle east bases, the petrodollar - none of this is free. The economy is larger than oil, of course - but at the end of the day, most countries still need oil, most oil is still paid for in USD, and will continue to be as long as the USA is the final underwriter of security in that region (and asian, and europe.. until recently). That's always been the deal. The USA provides the security at the end of the day, and everyone else agrees to use its currency. The unwritten promise part is that the US government won't allow too much inflation, keeps an independent central bank, and the debt it offers is to be considered risk-free. The US military isn't going away but the security guarantees which were such an important part of the compact are fading, and inflation - serious inflation - seems to be coming into view. It won't happen overnight but it does smell a bit like the beginning of the end. > EU/China) dosen't want that role either, lest they end up deindustrialising like USA I don't actually think there's any law of nature that reserve currency status == de-industrialization. The UK didn't do so when it wore the crown and I don't think there's any reason the EU or PRC would inevitably do so either should they step up. I think it just happened to overlap - plenty of rich countries also de-industrialized without being the USA! I think/hope that it will eventually be the EU that steps up but it obviously won't happen quickly and they aren't exactly covering themselves with glory over the current crises. There would need to be a lot of changes needed on their side, not least of which the mechanisms and mandate to issue a much, much larger amount of debt. But if the USA sees 5% inflation for a year or two - I think the opportunity would be there.
- corimaith 1y ago
  >That's always been the deal. This is a bit of popular myth on sites like this but isn't supported by economists, historians or people in finance. The total volume of oil trade is small fraction of total global trade or capital flows. Like I said, the USD is the reserve partly because it's beneficial to these surplus economies to have somebody else holding the bags, but also because there aren't viable alternatives because anybody else who can do it dosen't want to. And given there are 180^180 possible exchanges, a reserve currency will exist for practical reasons. >I don't actually think there's any law of nature that reserve currency status == de-industrialization. A currency that assumes reserve currency status will strengthen due to increased demand, thus making their exports more expensive and thus uncompetitive on the international stage. Which is incompatible with the export-driven strategies of the EU, China or Japan, all the main contenders for alternative reserve currencies. If you look at the behaviour of their central banks, when they receive capital inflows, they in turn buy assets elsewhere to offset the appreciation to maintain the value of their currency. But the Fed cannot and dosen't do that.

rayiner 1y ago

Is there a resource you’d recommend to learn about this?

corimaith 1y ago
You can read Bern Bernanke's hypothesis on the Global Savings Glut. But there are plenty of articles by almost all economic insitutions that are talking about the imbalanced nature of trade today. https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/ https://www.federalreserve.gov/boarddocs/speeches/2005/20050...

qqqwerty 1y ago

Trump is being pulled in too many different directions to the point where nothing coherent is going to emerge from his strategies (or lack of). You can't promise Wall Street/Corporate America the moon and keep the economy running along nicely while rounding up and deporting immigrants, cutting federal spending, and implementing regressive taxes via tariffs. If he would have just limited himself to the goal of balancing trade while maintaining reserve currency status, I think that he would have had a shot to pull it off. But there is the very real risk that the rest of the world just starts routing around the US so even that is not a given. But when you combine this with all the other things he is trying to do, I think he is seriously risking sending the U.S. economy off a very tall cliff. That is also why he probably is so obsessed with lower interest rates. It is an attempt to try and jolt the economy before all the head winds from his policies start to have an impact.

jacquesm 1y ago
> But there is the very real risk that the rest of the world just starts routing around the US so even that is not a given. That's no longer just a risk, it is a reality.

geraneum 1y ago

I do largely agree with you, however > Mind you, the role of reserve currency today is largely hoisted by the rest of the world onto the USA It’s the opposite [1]. Trump openly threatens anyone who tries to replace dollar. It even goes beyond Trump. I bet it will go to war if there are real threats to replace USD. > there is no rule dictating its role There’s also no rule dictating other countries to honor US sanctions, but they do. Tarrif 1. https://www.reuters.com/markets/currencies/trump-repeats-tariffs-threat-dissuade-brics-nations-replacing-us-dollar-2025-01-31/ https://www.reuters.com/markets/currencies/trump-repeats-tar...

sho 1y ago

> the role of reserve currency today is larged hoisted by the rest of the world onto the USA > Unfortunately the USA is playing a necessary systemic role here that nobody else wants to do Well. I know what you're trying to say, but it's not like the USA just does nothing to maintain the system. The military, the middle east bases, the petrodollar - none of this is free. The economy is larger than oil, of course - but at the end of the day, most countries still need oil, most oil is still paid for in USD, and will continue to be as long as the USA is the final underwriter of security in that region (and asian, and europe.. until recently). That's always been the deal. The USA provides the security at the end of the day, and everyone else agrees to use its currency. The unwritten promise part is that the US government won't allow too much inflation, keeps an independent central bank, and the debt it offers is to be considered risk-free. The US military isn't going away but the security guarantees which were such an important part of the compact are fading, and inflation - serious inflation - seems to be coming into view. It won't happen overnight but it does smell a bit like the beginning of the end. > EU/China) dosen't want that role either, lest they end up deindustrialising like USA I don't actually think there's any law of nature that reserve currency status == de-industrialization. The UK didn't do so when it wore the crown and I don't think there's any reason the EU or PRC would inevitably do so either should they step up. I think it just happened to overlap - plenty of rich countries also de-industrialized without being the USA! I think/hope that it will eventually be the EU that steps up but it obviously won't happen quickly and they aren't exactly covering themselves with glory over the current crises. There would need to be a lot of changes needed on their side, not least of which the mechanisms and mandate to issue a much, much larger amount of debt. But if the USA sees 5% inflation for a year or two - I think the opportunity would be there.

corimaith 1y ago
>That's always been the deal. This is a bit of popular myth on sites like this but isn't supported by economists, historians or people in finance. The total volume of oil trade is small fraction of total global trade or capital flows. Like I said, the USD is the reserve partly because it's beneficial to these surplus economies to have somebody else holding the bags, but also because there aren't viable alternatives because anybody else who can do it dosen't want to. And given there are 180^180 possible exchanges, a reserve currency will exist for practical reasons. >I don't actually think there's any law of nature that reserve currency status == de-industrialization. A currency that assumes reserve currency status will strengthen due to increased demand, thus making their exports more expensive and thus uncompetitive on the international stage. Which is incompatible with the export-driven strategies of the EU, China or Japan, all the main contenders for alternative reserve currencies. If you look at the behaviour of their central banks, when they receive capital inflows, they in turn buy assets elsewhere to offset the appreciation to maintain the value of their currency. But the Fed cannot and dosen't do that.