7 ms·

What you point out here is a major weakness in the typical US citizen's understanding of where US wealth and power comes from. The US prints two kinds of dolla

What you point out here is a major weakness in the typical US citizen's understanding of where US wealth and power comes from. The US prints two kinds of dollars, the regular kind, then the T-bills. T-bills get exchanged like dollars, investors/governments buy them because they are thought to be as stable as dollars, but also bear a bit of yield. The US benefits by printing T-bills over dollars because merely by changing the current interest rate, they change the dollar supply. Increasing interest rates lower the value of T-bills, decreasing the supply of dollars (as Silicon Valkey Bank found out...). This allows the US currency to remain very stable. Referring to the $40T of T-bills merely as "debt" is quite deceptive. It's the global currency. You need enough currency out there to represent the actual amount of wealth, otherwise the values of dollars increases, and deflation is the only thing worse than inflation. The US' $2T budget deficit is basically the rest of the world paying the US for the privilege of using US currency. The US is printing money, and getting the benefits of spending, because the rest of the world needs dollars to transact. They send us goods, we send them printed dollars. And then we get a president who calls this situation bad, because he doesn't understand what a "trade deficit" is. Utter insanity to have such a position and then just throw it all away.

anon84873628 1mo ago
That said, it's not necessarily a great deal for the US middle class anymore, due to the Triffin Dilemma: https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma This 2020 piece by Lyn Alden is a great explainer: https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/ (Not that I think anything Trump has done has helped the situation even accidentally.)
- epistasis 1mo ago
  Nothing there explains why it's a bad deal for the middle class. The middle class actually benefits the most from this situation! More goods, more government services, etc. How much more? Just add up all the trade deficits, that's all benefit accrued almost entirely to the middle class.
  - anon84873628 1mo ago
    It is explained in the Alden piece, section "The Fraying of the Petrodollar System", subsection "The Triffin Dilemma Unfolds". What I meant was "blue collar working class" as opposed to the neo-artistocrat professional class. The Triffin Dilemma is a contributor to the K shaped economy and rise of populism. >And from there, the value of the system depends on who you ask. Folks who are often on the higher end of the income spectrum who worked in finance, government, healthcare, or technology benefitted from this system, since they obtained many of the benefits of globalization and none of the drawbacks. Folks who are often on the lower end of the income spectrum, specifically those that make physical things, are the ones that benefitted least and gave the most up, since their jobs were outsourced and automated at a faster rate than other developed countries. But now with China also undermining the structure of the system, even the geopolitical/hegemonic benefits for the political class are subverted as well.
    - epistasis 1mo ago
      I guess I'm not seeing anything tying the trade deficit to the destruction of unions, to the massive reduction in top tax rates resulting in higher CEO compensation, etc. The piece puts increasing trade deficits next to lots of stuff about increasing inequality, but it does not make the case that trade deficits are the cause of increasing inequality. There's a person that had a job making physical things, but they are not inherently a "person that only makes physical things." The idea that bringing back the making of physical things will make these people wealthier is, well, suspicious. Unions? Better taxations systems? Modernizing manufacturing so that each worker is far more productive and we can compete with the world? That may help. But reducing trade deficits will not fix any of the K shaped economy.
      - anon84873628 1mo ago
        [flagged]
      - poncho_romero 1mo ago
        > Modernizing manufacturing so that each worker is far more productive and we can compete with the world How does this not correspond directly to reduced trade deficits? In this scenario the US is either sourcing more of what it needs internally, and thereby importing less, or it is more competitive globally and therefore exporting more, or both.
- ianjbutler 1mo ago
  Vance is making this idea popular/mainstream again lately, I wonder why? The US will predictably lose reserve-currency status as a consequence of losing all the rest of the trust and good will available to her, so it's time to make it seem like that was the plan all along. Sure, there was a serious conversation to be had about this at some point, but it was probably before stacking up tons of unsustainable debt that directly depends on that part of the shell game. And there are many things that can/should change, but in a certain way and at a certain time to avoid pain and chaos. Arguing "this was always bad for us, fuck it" is kind of a pattern now, right? When someone wants to change some things, great, everything sucks. But when someone wants to tear down every status quo, and especially the ones that they apparently benefited from while saying "everyone after me doesn't need it", then it's a pretty clear sign. US is now a lot of crazy old people finding new ways to eat their children and trying to see the world burn before they check out. They created the bulk of the debt, benefited from it immensely, propped it up with collateral that was always kind of imaginary, continue to increase the debt. Not great, but now we are also proposing to just destroy what's left of that thin collateral? I don't know how to explain that with greed or stupidity even, it just seems like spite.
  - anon84873628 1mo ago
    Historian Timothy Snyder has called it "Superpower Suicide".
  - Avicebron 1mo ago
    > US is now a lot of crazy old people finding new ways to eat their children and trying to see the world burn before they check out. They created the bulk of the debt, benefited from it immensely, propped it up with collateral that was always kind of imaginary, continue to increase the debt. Not great, but now we are also proposing to just destroy what's left of that thin collateral? I don't know how to explain that with greed or stupidity even, it just seems like spite. And is your proposal to just hope to be one of the next generation who still can eat their children? Or better yet, the children of those who didn't make it before the ladder was pulled up?
logicchains 1mo ago
>deflation is the only thing worse than inflation. In any empirical sense this is absolutely false. The only instance of a significant negative instance of deflation was its contribution to the Great Depression in the early nineteen hundreds, and the effect of that was minor compared to the effects of extreme inflation (hyperinflation) that occurred in places like Weimar Germany and Zimbabwe. Deflation is inherently self-limiting because people have a baseline of goods they must consume for survival (housing, food etc.), and once that baseline is reached spending does not fall further; there's not a single instance in history of 99% deflation, while 99%, 999% and even 999999999% inflation has happened within even just the past few decades.
- smallmancontrov 1mo ago
  > people have a baseline of goods they must consume for survival (housing, food etc.), and once that baseline is reached spending does not fall further Oh boy, do I have news for you. It is in fact possible to run out of money, and in a deflating economy with no jobs you can't just go out and earn more. It puts peoples' collective backs against the wall -- at which point they decide to fight like cornered animals rather than die in a corner, and things get nasty. Inflation crises are awful, but when you run out of money there are jobs and you can get more and this generally prevents them from turning into bloodbaths. This is why we collectively decided to err in this direction. Weimar Germany is the perfect example. Did it suck? Yeah. Savings were incinerated, everyday activities became market speculation, the memes are all true -- but it happened under nearly full employment and once the root causes were addressed everything largely simmered down. This is in stark contrast to the deflationary shock of the Great Depression later that decade which propelled the Nazis into power and led directly to WWII. 99% deflation doesn't happen because people start killing each other long before then.
- IAmBroom 1mo ago
  > the Great Depression in the early nineteen hundreds, and the effect of that was minor compared to the effects of extreme inflation (hyperinflation) that occurred in places like Weimar Germany and Zimbabwe. Millions unemployed, dependent on soup lines for survival, and their families living in makeshift shanty towns, is "minor"? Children were sold to provide subsistence. Generational wealth, from industries to family farms, were erased.
IshKebab 1mo ago
> the rest of the world needs dollars to transact Why? Dollars are currently the most convenient. If that changes the world could easily switch to Euros, Yen, Yuan, etc.
- dismalaf 1mo ago
  So which do you choose? Yuan carries Chinese geopolitical risk, Yen, probably not enough of it in the world plus Japan keeps trying to devalue, Euro maybe, but there's plenty of geopolitical risk there with Russia on the doorstep and shifting politics... Plus if everyone doesn't choose the same it's less convenient.
  - coldtea 1mo ago
    You make sound like we're stuck with it, but the franc and the sterling pound used to have a similar role for a few centuries each... these things change.
    - dismalaf 1mo ago
      Didn't say we're stuck with it, just at this exact moment there's no obvious replacement. If China ever replaces Xi and the next generation takes a softer stance on a bunch of stuff it'll be a shoe in, but right now they're weirdly belligerent.
      - coldtea 1mo ago
        They're quite softer in all kinds of stuff. The US is run by an aggressive madman and neocon/MIC combo in comparison (tarrifs, trade blackmail, Greenland, straight of Hormuz, the list goes on).
  - crote 1mo ago
    Russia is going to have a very hard time directly attacking the Eurozone without also hitting NATO home soil - which through Article 5 would also pull in plenty of non-Euro countries, including the United States. Besides, shoveling never-ending piles of cash into the furnace of the War Machine doesn't seem to have hurt the dollar? As to shifting politics: The EU is famously extremely hard to move. The European Council decides the political direction and consists of the heads of state of the member countries; the European Commission is the executive cabinet and needs buy-in from the Council of the European Union and the European Parliament; the Council of the European Union is made up from ministers of the member states and each member state has a veto right on all foreign policy proposed by the European Commission; the European Parliament's members are directly elected through independent elections in the individual member states with proportional representation, and any policy proposed by the European Commission also needs a majority here; the Court of Justice of the European Union's General Court oversees this and is composed of two judges appointed by each member state for a renewable six-year period and reviewed by an independent committee. In other words: nothing gets done fast, and nothing gets done without buy-in from a lot of people with very opposed political goals. Quite different from a country like, say, the United States, where the loser of the popular vote routinely becomes president, is handed God-Emperor levels of power, and is virtually impossible to unseat - leaving the foreign policies of a nuclear superpower to be decided by how a single person felt when he stepped out of his bed this morning.

anon84873628 1mo ago

That said, it's not necessarily a great deal for the US middle class anymore, due to the Triffin Dilemma: https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma This 2020 piece by Lyn Alden is a great explainer: https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/ (Not that I think anything Trump has done has helped the situation even accidentally.)

epistasis 1mo ago
Nothing there explains why it's a bad deal for the middle class. The middle class actually benefits the most from this situation! More goods, more government services, etc. How much more? Just add up all the trade deficits, that's all benefit accrued almost entirely to the middle class.
- anon84873628 1mo ago
  It is explained in the Alden piece, section "The Fraying of the Petrodollar System", subsection "The Triffin Dilemma Unfolds". What I meant was "blue collar working class" as opposed to the neo-artistocrat professional class. The Triffin Dilemma is a contributor to the K shaped economy and rise of populism. >And from there, the value of the system depends on who you ask. Folks who are often on the higher end of the income spectrum who worked in finance, government, healthcare, or technology benefitted from this system, since they obtained many of the benefits of globalization and none of the drawbacks. Folks who are often on the lower end of the income spectrum, specifically those that make physical things, are the ones that benefitted least and gave the most up, since their jobs were outsourced and automated at a faster rate than other developed countries. But now with China also undermining the structure of the system, even the geopolitical/hegemonic benefits for the political class are subverted as well.
  - epistasis 1mo ago
    I guess I'm not seeing anything tying the trade deficit to the destruction of unions, to the massive reduction in top tax rates resulting in higher CEO compensation, etc. The piece puts increasing trade deficits next to lots of stuff about increasing inequality, but it does not make the case that trade deficits are the cause of increasing inequality. There's a person that had a job making physical things, but they are not inherently a "person that only makes physical things." The idea that bringing back the making of physical things will make these people wealthier is, well, suspicious. Unions? Better taxations systems? Modernizing manufacturing so that each worker is far more productive and we can compete with the world? That may help. But reducing trade deficits will not fix any of the K shaped economy.
    - anon84873628 1mo ago
      [flagged]
    - poncho_romero 1mo ago
      > Modernizing manufacturing so that each worker is far more productive and we can compete with the world How does this not correspond directly to reduced trade deficits? In this scenario the US is either sourcing more of what it needs internally, and thereby importing less, or it is more competitive globally and therefore exporting more, or both.
ianjbutler 1mo ago
Vance is making this idea popular/mainstream again lately, I wonder why? The US will predictably lose reserve-currency status as a consequence of losing all the rest of the trust and good will available to her, so it's time to make it seem like that was the plan all along. Sure, there was a serious conversation to be had about this at some point, but it was probably before stacking up tons of unsustainable debt that directly depends on that part of the shell game. And there are many things that can/should change, but in a certain way and at a certain time to avoid pain and chaos. Arguing "this was always bad for us, fuck it" is kind of a pattern now, right? When someone wants to change some things, great, everything sucks. But when someone wants to tear down every status quo, and especially the ones that they apparently benefited from while saying "everyone after me doesn't need it", then it's a pretty clear sign. US is now a lot of crazy old people finding new ways to eat their children and trying to see the world burn before they check out. They created the bulk of the debt, benefited from it immensely, propped it up with collateral that was always kind of imaginary, continue to increase the debt. Not great, but now we are also proposing to just destroy what's left of that thin collateral? I don't know how to explain that with greed or stupidity even, it just seems like spite.
- anon84873628 1mo ago
  Historian Timothy Snyder has called it "Superpower Suicide".
- Avicebron 1mo ago
  > US is now a lot of crazy old people finding new ways to eat their children and trying to see the world burn before they check out. They created the bulk of the debt, benefited from it immensely, propped it up with collateral that was always kind of imaginary, continue to increase the debt. Not great, but now we are also proposing to just destroy what's left of that thin collateral? I don't know how to explain that with greed or stupidity even, it just seems like spite. And is your proposal to just hope to be one of the next generation who still can eat their children? Or better yet, the children of those who didn't make it before the ladder was pulled up?

logicchains 1mo ago

>deflation is the only thing worse than inflation. In any empirical sense this is absolutely false. The only instance of a significant negative instance of deflation was its contribution to the Great Depression in the early nineteen hundreds, and the effect of that was minor compared to the effects of extreme inflation (hyperinflation) that occurred in places like Weimar Germany and Zimbabwe. Deflation is inherently self-limiting because people have a baseline of goods they must consume for survival (housing, food etc.), and once that baseline is reached spending does not fall further; there's not a single instance in history of 99% deflation, while 99%, 999% and even 999999999% inflation has happened within even just the past few decades.

smallmancontrov 1mo ago
> people have a baseline of goods they must consume for survival (housing, food etc.), and once that baseline is reached spending does not fall further Oh boy, do I have news for you. It is in fact possible to run out of money, and in a deflating economy with no jobs you can't just go out and earn more. It puts peoples' collective backs against the wall -- at which point they decide to fight like cornered animals rather than die in a corner, and things get nasty. Inflation crises are awful, but when you run out of money there are jobs and you can get more and this generally prevents them from turning into bloodbaths. This is why we collectively decided to err in this direction. Weimar Germany is the perfect example. Did it suck? Yeah. Savings were incinerated, everyday activities became market speculation, the memes are all true -- but it happened under nearly full employment and once the root causes were addressed everything largely simmered down. This is in stark contrast to the deflationary shock of the Great Depression later that decade which propelled the Nazis into power and led directly to WWII. 99% deflation doesn't happen because people start killing each other long before then.
IAmBroom 1mo ago
> the Great Depression in the early nineteen hundreds, and the effect of that was minor compared to the effects of extreme inflation (hyperinflation) that occurred in places like Weimar Germany and Zimbabwe. Millions unemployed, dependent on soup lines for survival, and their families living in makeshift shanty towns, is "minor"? Children were sold to provide subsistence. Generational wealth, from industries to family farms, were erased.

IshKebab 1mo ago

> the rest of the world needs dollars to transact Why? Dollars are currently the most convenient. If that changes the world could easily switch to Euros, Yen, Yuan, etc.

dismalaf 1mo ago
So which do you choose? Yuan carries Chinese geopolitical risk, Yen, probably not enough of it in the world plus Japan keeps trying to devalue, Euro maybe, but there's plenty of geopolitical risk there with Russia on the doorstep and shifting politics... Plus if everyone doesn't choose the same it's less convenient.
- coldtea 1mo ago
  You make sound like we're stuck with it, but the franc and the sterling pound used to have a similar role for a few centuries each... these things change.
  - dismalaf 1mo ago
    Didn't say we're stuck with it, just at this exact moment there's no obvious replacement. If China ever replaces Xi and the next generation takes a softer stance on a bunch of stuff it'll be a shoe in, but right now they're weirdly belligerent.
    - coldtea 1mo ago
      They're quite softer in all kinds of stuff. The US is run by an aggressive madman and neocon/MIC combo in comparison (tarrifs, trade blackmail, Greenland, straight of Hormuz, the list goes on).
- crote 1mo ago
  Russia is going to have a very hard time directly attacking the Eurozone without also hitting NATO home soil - which through Article 5 would also pull in plenty of non-Euro countries, including the United States. Besides, shoveling never-ending piles of cash into the furnace of the War Machine doesn't seem to have hurt the dollar? As to shifting politics: The EU is famously extremely hard to move. The European Council decides the political direction and consists of the heads of state of the member countries; the European Commission is the executive cabinet and needs buy-in from the Council of the European Union and the European Parliament; the Council of the European Union is made up from ministers of the member states and each member state has a veto right on all foreign policy proposed by the European Commission; the European Parliament's members are directly elected through independent elections in the individual member states with proportional representation, and any policy proposed by the European Commission also needs a majority here; the Court of Justice of the European Union's General Court oversees this and is composed of two judges appointed by each member state for a renewable six-year period and reviewed by an independent committee. In other words: nothing gets done fast, and nothing gets done without buy-in from a lot of people with very opposed political goals. Quite different from a country like, say, the United States, where the loser of the popular vote routinely becomes president, is handed God-Emperor levels of power, and is virtually impossible to unseat - leaving the foreign policies of a nuclear superpower to be decided by how a single person felt when he stepped out of his bed this morning.