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This supports my hunch that the current Iran war creates a lethal trifecta that could potentially cause a dollar collapse. 1. Massive military overspend. 2. Pet
by znnajdla 7mo ago
This supports my hunch that the current Iran war creates a lethal trifecta that could potentially cause a dollar collapse. 1. Massive military overspend. 2. Petrodollar squeeze (Strait of Hormuz). 3. Allies pulling out: Europe and the Gulf diversifying both their investments and defense purchases.
#1 creates oversupply of dollars and #2 and #3 lower demand. This study supports the idea that wars can indeed destroy purchasing power.
- engineer_22 7mo agoIt could also be a play to squeeze China or similar nation dependent on middle east oil. USA semicon production not ready, if there were signals that China was ready for a play on Taiwan maybe this is a gambit to buy some time.
- znnajdla 7mo agoThat would be a double whammy for America then: a devalued dollar and higher oil prices. Both cause inflation. China doesn’t seem to be squeezed when they seem to have a deal with Iran to buy in yuan.
- dboreham 7mo agoQuick note that "devalued dollar" is inflation, not a cause of inflation.
- joshuaissac 7mo agoInflation is about what goes on inside the country. So you can have inflation internally while the domestic currency strengthens against foreign currencies, and vice versa. If your currency is falling against foreign currencies but prices are also dropping domestically, you get deflation. This was happening in China a couple of years ago, and they were exporting this deflation to other countries.
- thisislife2 7mo agoIs China really dependent on middle-east oil? I read that they had been diversifying in preparation for an energy resource fight for some time now. For example, they've massively invested in Solar power generation, are building a 300-400 billion dollar gas pipeline from Russia, already buy a lot of oil to from Russia, and also purchased from Venezuela (though how that's going now is anybody's guess). They also have a good relationship with most of the players in the middle-east and helped repair ties between the Saudis and the Iranians.
- Icko 7mo agoI saw an article that went really into depth - basically oil has huge diversity, and they really wanted Venezuelan oil: https://open.substack.com/pub/endtropy/p/trumps-enormous-c-length-win-over https://open.substack.com/pub/endtropy/p/trumps-enormous-c-l...
- engineer_22 7mo agoYes, China imports most of its oil, and most of its imports are from the Middle East. As your own reply alludes, electrification was clearly strategic move to reduce their risk in a scenario such as where we find ourselves today. However, there are things that you can do with petroleum you can never do with batteries e.g. lubricants, asphalt, plastics, cosmetics, jet fuel, etc.
- unstatusthequo 7mo agoI think the idea is crash the stock market to force interest rate drop to refinance the massive debt.
- senderista 7mo agoHuh? Wouldn't bond yields go up if stocks went down?
- kingleopold 7mo agoyess and real final episode will be fed printing into that high bond yield, after that it's just full fun :) especially for all boomers.
- mulmen 7mo agoIt doesn’t have to make sense to be the plan.
- IAmGraydon 7mo agoBond yields go up when bonds are harder to sell. They’re harder to sell when the present more risk. The biggest risk to bond holders is inflation. So bond yields tend to go up when inflation expectations rise.
- bloppe 7mo agoThat's not how bonds work
- thisislife2 7mo agoIran is also playing its own Uno card here by saying that it would consider allowing some oil and gas shipments through the Strait if they have been bought with Chinese Yuan, than the US dollar. ( The Islamic Republic may grant safe passage to oil tankers if the cargo is traded in Chinese yuan - https://www.lbc.co.uk/article/iran-allow-chinese-ships-hormuz-5HjdWMM_2/ https://www.lbc.co.uk/article/iran-allow-chinese-ships-hormu... ).
- d3ckard 7mo agoThis is particularly funny if you consider petrodollar to be a bad deal for US, not a good one. Ironically, if yuan becomes new petroleum currency, it might hurt Chinese long term.
- high_na_euv 7mo agoWhy?
- tharmas 7mo ago>Ironically, if yuan becomes new petroleum currency, it might hurt Chinese long term. Agreed. Which is why the Chinese do NOT want their currency to become the Petrodollar or world's reserve currency. They know that that is what destroyed US Manufacturing. China wants to maintain their manufacturing dominance. They've seen what de-industrialization has done to the US.
- CrzyLngPwd 7mo agohttps://www.ft.com/content/c948b978-c22b-44b7-ba3d-4798e641e673?syn-25a6b1a6=1 https://www.ft.com/content/c948b978-c22b-44b7-ba3d-4798e641e...
- roncesvalles 7mo ago>Xi Jinping calls for China’s renminbi to attain global reserve currency status "Kill all the sparrows"
- leche 7mo agoOne of the goals of the Heritage Foundation is a weak dollar. They believe they can bring manufacturing back to the US this way. I don't think they're right. I do think they will continue weakening the dollar.
- skywhopper 7mo agoThe bigger question is, why is that even the primary goal?
- leche 7mo agoBecause Conservative politics is about returning to a past that often can no longer exist.
- sheikhnbake 7mo agoOr didn't exist to begin with. All too often mythologized into an absurd caricature of the past.
- tmountain 7mo agoActually, a past that never existed. It's pretty typically for authoritarian regimes to create idealized versions of the past as they attempt to rewrite history to better fit with their talking points and agendas.
- gruez 7mo agoI didn't realize that such causes like 90+% income taxes, lower income inequality, single earner households, and high unionization rates are "conservative" too.
- CamperBob2 7mo agoNo one actually paid 90% income taxes. I wish that myth would go away.
- 7mo ago
- preommr 7mo ago> Europe and the Gulf diversifying both their investments and defense purchases. With what? The euro, yuan? Or weapons from france? I hate to admit it, but it's much less that the US is great because it's the reserve currency, and much more that the world reserve currency is the dollar because the US is what it is. Weapons are expensive, and it only makes sense to buy them from a country that specializes in them. And a country that makes weapons at huge scale is likely to be big enough tilt the direction of the country to be all the ugly things the modern US military industrial complex is.
- fwipsy 7mo agoI'm having trouble reconciling this comment with reports that US stockpiles are already being depleted by the Iran war. At this point the US weapons production seems relatively specialized and inefficient, not "huge scale." Someone more informed care to weigh in?
- wat10000 7mo agoI’m probably not more informed, but it seems to me that it can be both. The rate of expenditure in a medium-sized war will far outstrip peacetime production needs. Even if you’re arming half the planet’s militaries, your peacetime production rate will be much smaller than what’s being used now, even if you’re building a lot by non-wartime standards.
- mrguyorama 7mo agoRaytheon is about half the size of Pepsico, with about the same profit margin. The supposed "Military Industrial Complex" that Ike warned about died years later, and the end of the Cold War buried what little remained. The F-35 is basically the only big military construction project we've had in a very long time, and it comes at a few hundred airframes per year. In WW2, we were producing 10k+ rather advanced airframes every single year. In each category. The company that designed and built the M1 Abrams Tank doesn't really exist anymore for example. We, like Russia, might not really have a capability of building 4000 hulls in a short timeframe, which is table stakes if we are actually concerned about a war with China. We were able to do these things back in WW2 because we, through central planning (not a free market), reorganized like 1/20th of the economy into building war assets. FDR decreed that we build 120k Shermans. We eventually managed 50k. A lot of the supposed "graft" and pork of the defense industry is about giving it a lot of leeway just to stick around. Once you lose domain knowledge it's gone forever, you have to expend considerable resources to rebuild and recollect it. No, documentation doesn't count. Reading all of our notes hasn't fixed the fact that Russia and China can't build the exceptional jet engines we can.
- kingleopold 7mo agoanyone who sees this are early early early, yes it's very likely to happen, probabilistically.
- raincole 7mo agoYou should check your hunch against the reality, at least periodically. The US dollar has strengthened since the current US-Iran conflict started.
- znnajdla 7mo agoI have checked. It’s too early to tell but anyway relative price is not what matters. What matters is purchasing power. EUR purchasing power was better and improving compared to USD. And check out interest rate derivatives — the euro has actually overtaken the dollar as the #1 currency in this massive market.
- roncesvalles 7mo agoPurchasing power for what? Consumer goods? Most purchasing power calculations are completely bogus because they rarely compare goods of equal quality. A neighborhood with just a Walmart doesn't have higher purchasing power than a neighborhood with just a Whole Foods.
- znnajdla 7mo agoCommodities. Raw materials with which all goods and services are made. Coffee, sugar, wheat, pound of beef, gasoline. Also products which are supposed to be identical like a Big Mac. Purchasing power is hard to measure but it’s a question studied deeply by economists.
- roncesvalles 7mo agoEven the Big Mac index is flawed because it's not quite the same burger, since it's not made in the same regulatory environment, or by people compensated equally fairly.
- znnajdla 7mo agoAll measures are flawed but can you do better?
- dandanua 7mo agoIt is by design. How else can you make trillionaires?
- whynotmaybe 7mo agoZimbabwe did make a 100 trillion note.
- roncesvalles 7mo ago#1: US military war spending concerns are largely overblown. It's expending what it already has. The spending is mostly on its own internal industry i.e. the US economy (with due respect to broken window fallacy). It arguably makes it all back from the increase in oil prices. It's a very different thing to fire a $5m missile that you imported vs one that you made domestically with all-domestic components and labor.
- wat10000 7mo agoWhy is it different? If it’s foreign made then you need to export $5 million of stuff to pay for it, so the economic effect should be similar. Expending what it already has is true but doesn’t really help. It’s not like we’re going to sit here with a reduced stockpile forever. Those munitions will be replaced. The fact that the spending comes after using them rather than before doesn’t change the equation much.
- roncesvalles 7mo agoThey will be replaced, but most likely with something better. Which we would have done for modernization purposes eventually anyway, while disposing of the old stock. Our wars are pre-paid for. America spends $900B/year on the military. Use it or lose it.
- wat10000 7mo agoI don't think they expire that quickly. It's true they would have been replaced eventually, but this is accelerating that schedule for some munitions by a decade or two. That $900B/year figure is for peacetime (or what passes for peacetime in an empire constantly involved in small conflicts around the world) and peacetime rates of equipment/munitions replacement. This is the most intense air war the US has been in since at least Desert Storm, maybe Vietnam. That level of expenditure is not already paid for.
- BadBadJellyBean 7mo agoI'd say firing a missile into another country is technically firing finite or hard to acquire resources into another country. All the resources for the new rockets have to be sourced from somewhere and it's not really important where they came from. They are a real cost not some circular funding. It's more or less blowing up big piles of cash that can not easily be replaced.
- johnthedebs 7mo agoJust noting: it's interesting to see the term "lethal trifecta" used here given the relatively recent coinage relating to LLM security: https://simonwillison.net/2025/Jun/16/the-lethal-trifecta/ https://simonwillison.net/2025/Jun/16/the-lethal-trifecta/
- DeathArrow 7mo agoAdd the fact that some countries are using other currencies to trade oil and goods. Also, some countries started to use other systems beside SWIFT to transfer money.
- elzbardico 7mo agoIn my worst cynical days, I think that's exactly the plan. Erase US government debt via hyper-inflation, and let the people that will still have liquidity buy all remaining assets the middle class will be desperate to sell at pennies on the dollar.
- RealityVoid 7mo agoThis kills the golden goose.
- dhosek 7mo agoOne of the biggest myths that people believe is that war is an economic stimulus. In fact, the US entry into World War II delayed the economic recovery from the Great Depression (and created conditions for a recession after the war). One of the reasons that Republicans were so opposed to entry into the war was because they (correctly) believed that it would delay the US economic recovery. Wars have never been correlated with economic growth.