This is itself inconsequential. Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired.
While it is true that the will probably slowly shift during the coming decades to some degree of de-dolarization, it is not going to happen overnight and neither is the expiration of this agreement a prime mover of that. Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow.
But all those upcoming powers like China, India have a vested interest in the continued survival of the dollar, as they hold (both the states and private companies) vast amounts of assets tied to the dollar. They may try to reduce their exposure a bit, but they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth.
Things will keep running as today probably for the next 20 years. Meanwhile the US will have the chance to re-industrialize itself as the dollar gradually weakens.
And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.
These agreements are just agreements.
The dollar has been the reserve currency for a long time because (1) the US has been a big promoter of liberalization and world trade, but really most importantly, (2) despite various conflicts, the US currency has been consistent and stable for decades, and everyone who values stability is going to want to park their value in a currency that continues to be boring. So far, the US has been able to scratch that itch because it’s been the same government that has been predictably the same for nearly 250 years.
Now it doesn’t mean the world’s reserve currency won’t change over time but if it does, it’s because some other country or group of people have managed to establish themselves as equally boring for decades. And by the time that happens, the world will have already changed significantly already.
Really, the reason the US Dollar has held for so long is because the rest of the world has had a lot of instability (think world wars, governance changes, unions of countries formed or abolished, etc.). The US hasn’t even had a change in states in 60 years.
Don’t forget strong property rights, fairly impartial justice system wrt foreign representation, and a large body of corporate case law with predictable outcomes
What is the argument that makes the US special in this regard, in light of their seizure of Russian assets? Assets which might well end up being tagged for use waging war with Russia and supporting Russia's target?
It is hard to see the US system seizing its own assets to donate to the targets of US aggression in a comparable way. But for the sake of argument - impartial it may be, but it doesn't seem like the type of impartiality that is appealing to foreigners. If China goes for Taiwan they'll lose all their US assets for example; I doubt that sits well with them.
It's a spectrum, not a binary distinction. The answer would be don't go to war with the explicit notion of overturning the very system that maintains the security of those assets. Any system that is totally impartial to enemies that seek to exploit it's rules against itself is doomed to failure; Ergo there will be ALWAYS be the distinction between "insiders" and "outsiders".
But the US is a conglemeration of interests, and if you are businessman, an investor, a Capitalist, your interests are the US interests. If you actually understand what guides US foreign policy it's actually very easy to align yourself with US interests in a beneficial way without much costs. To become an "insider". There is no such thing as "unprovoked US aggression", it's all quite predictable decades ahead from certain actions performed today. The US is predictable, and that makes it easy to invest in.
China, Iran, Russia, NK, Cuba etc instead are still guided by nationalist impulses, which unfortunately can result in irrational decisions (Ukraine, Taiwan) that are unalignable with business interests. It's a matter of pride really, and that's a big no-no for the investor. It's unpredictable, we don't know if China will really invade Taiwan or not, and that's going to put a major cost in investing. As for other places like India or the EU, their economies aren't large enough and have good enough returns yet, but even if they did, they would likely operate in a similar manner as the US.
China are, in a disturbingly literal sense, doing dress rehearsals for a Taiwan invasion. As far as I know (not speaking Chinese) their rhetoric has been quite clear that they see military invasion as an option on this topic. They're probably going to be a US-calibre military superpower in short order given their economic and manufacturing foundations.
I doubt your answer will make a compelling case to their ears.
That is suspect:
* It almost rejects the entire concept of unprovoked aggression. Although de-facto it is, damaging or obstructing the US's commercial interests isn't supposed to be considered a military provocation.
* It is at odds with a country like the US that is continuously in a state of conflict because of their commercial interests. On balance they're probably the most militarily aggressive country in existence right now. That is a lot of implicit provocation!
I can't resist a jab at this one. Thank goodness the rationalists prevailed on topics like Iraq and Afghanistan, leading to glorious success, prosperity and other good outcomes!
China is responding to provocative actions of the US in Taiwan, the same way russia responded in Ukraine.
"The others are irrational actors, crazies. We are the normal ones" If you can't smell the propaganda you've been fed to believe this irrational racist statements probably you will enjoy the draft.
No country should be subjugated to the desires of another. Ukraine wanted to join the EU, that was their provocation?
Several paramilitary groups in its home soil have been funded by Russia, Russia took over Crimea, Russia has invaded them. Only then was NATO ever on the table.
The provocateur is pretty obvious in this case.
Hello, 2014 American sponsored, Nuland-designed Maidan coup which got rid of an elected President whose election had been formally and successfully vetted by EU observers, following which a fifth of Ukraine's ethnic Russian regions rebelled.
Remember - Nuland was so personally involved that she was handing over food and drinks to "protestors". If this had been a U.S. ally, there would have been howls of foreign interference 24x7 on TV.
Ukraine even put joining NATO as a constitutional guideline and part of their National Security Strategy in 2020-21!
Imagine Mexico as a member of a military Anti-USA coalition - you can bet that there would an American invasion the next year for "regime change".
Remove U.S. military bases from Cuba, Iraq and Syria - and then talk about "subjugation" to the desires of another nation. The sanctimonious hypocrisy of Americans always astonishes non-NATO citizens.
Hello, there was no "Nuland-designed Maidan coup", and no, there was no indigenous violent rebellion in the Eastern regions.
Nuland was so personally involved that she was handing over food and drinks to "protestors"
And still she had no effect on the actual course of events. The whole Nuland story exists entirely in the lefty/peacenik blogosphere; but it's a complete non-story within Ukraine. You will literally not find a single educated person who gives any credence to it (outside the usual 5 percent of population who are ready to go off and believe anything).
See also: https://news.ycombinator.com/item?id=40481317
I see Americans will disgustingly continue to put their head into the sands regarding the extreme culpability of the U.S. statement department in the coup of Ukraine despite any level of evidence. There are any number of decade-old videos you can find of Nuland joyfully co-mingled with Maidan protestors. She traveled several times to Ukraine to participate in the protest. (Many of explicitly clear ones where she cracks jokes regarding the President while handing out cookies have disappeared over the years, thanks to take-downs)
In the famous Nuland-Pyatt leaked call, Nuland and Pyatt discussed who should or should not be in Ukraine's new government. This was happening even before the President Yanukovych was kicked out! She even said "No" to Vitaly Klitschko as a replacement. He was far too moderate, you see. She explicitly mentioned anti-Russian extremist Yatsenyuk as her choice. And LO - the heavens agreed with her choice. He became the leader of the post-coup government.
And that lead directly to the rebellion. It was the equivalent of a Nazi taking charge of a nation with a large number of Jewish districts. Obviously, you would have a rebellion after the coup. And obviously the rebels would ask for Russian help and receive it. Israel gets hardcore military support halfway across the world from U.S anytime it needs it. Why wouldn't Russia assist rebelling ethnic Russian regions terrified by the coup ? Remember - this was a LAWFULLY elected President - VETTED by the EU overthrown in a coup! With the U.S. State Department Shining Star in full support.
(There was another interview with a frightened EU minister who talked about the U.S. involvement in the coup and her fear of the future. Can't find this since its been a decade now)
Nuland immediately became the lead U.S. point person for Ukraine's "Revolution of Dignity" and also established loan guarantees to Ukraine's new government, including a $1 billion loan guarantee in 2014.
You appear to need an absolute, extraordinary threshold of evidence - which is simply impossible without waiting for 2064 where this stuff will be hopefully de-classified, unless the U.S. President at the time postpones de-classification. Yet, the U.S. has gone to war on the basis of circumstantial evidence time and time again.
https://www.cato.org/commentary/americas-ukraine-hypocrisy# https://www.bbc.com/news/world-us-canada-26089450
I see Americans will ...
You have no bleeding idea what I am. But you are welcome to be disgusted by whatever you like.
Nuland giving out cakes and comingling with protestors represents major culpability in a coup?
So those protestors didn't riot because Yanukovych killed the EU association agreement a day before signing?
An agreement that he ran his election platform on and replaced it with a customs union with Belarus and Russia.
Btw it was Yanukovych who proposed making Yatsenyuk as prime minister on Jan 25.
FSB thug Igor Girkin himself said that he and his men started the Donbas conflict when they occupied Sloviansk.
The first prime minister of Donetsk Alexander Borodai once said in a phone call that his loyalty was to one and one nation only, the Russian Federation.
Of course you define yourself as an educated person and everyone else is wrong. Because you said so and you are American so you are always right.
You try to justify an invasion of Ukraine by explaining what Russia perceived as problems. Dude, we know Russia’s position on the matter: we don’t believe it is enough. Giving water to protestors, and the existence of Gunatanamo do not make Putin correct.
Hey, did the man in the telly ever tell you about how messy the process of setting Ukraine's borders was back in 1990? Independent countries had to be carved out from the corpse of the USSR, and how does one set their borders? Well, one convenient way would be to use some existing administrative boundary, and this Ukraine was created within the borders of the Ukrainian SSR...
Except that it wasn't that easy. Even back then there as debate over what status Crimea should have. The region already was an autonomy, and even held elections and elected a president. And then got attached to Ukraine anyway and had its independence obliterated.
https://en.m.wikipedia.org/wiki/Yuriy_Meshkov
Sure, because there is not 100% consensus on the political situation of Crimea, that gives the right of Russia to invade Ukraine and kill people as much as it wants.
There is a mechanism to resolve those matters: referendums. Once again your arguments are left wanting. Messy and difficult internal politics surrounding fundamental issues does not allow the invasion of a neighbour.
Crimea didn't need daddy Russia to forcibly integrate it into the Russian state. It could have done that all its own if it had wanted. The fact Russia has to lower itself to violence to integrate territory illustrates how poor its logic is.
Funny, because just such a referendum was held. And ignored. And I'm not talking about the recent one, but the one back in the early 1990s.
It wasn't ignored -- it got a lot of attention all right.
But then 2014 happened, and everything changed. Once you choose to ally yourself with a foreign power that is aggressively attacking the larger nation you are attempting to secede from -- as the political establishment of the ASSR did at the time -- your moral claim to independence (a key being always an assurance that you will never do harm to that nation) is instantly invalidated.
And when that foreign power you are seeking to ally with also happens to be the one that genocided a large chunk of your indigenous population -- not centuries ago; but in living memory -- that claim is nullified even further.
How many countries has NATO invaded?
- Bosnia (92-95, air and naval campaign)
- Kosovo (99, air campaign)
- Afghanistan (ISAF, technically post-invasion, 03-14)
- Libya (11, air campaign)
If Russia is worried about NATO aggression, that doesn't seem to be supported by facts.
Uh, if we’re literally counting air campaigns as invasion better not tally up Wagner’s score.
Beyond moronic to frame invading Ukraine as defensive. It’s as inexcusable as us fucking into Iraq.
"Unilaterally violated territorial sovereignty" is probably a more objective way to put it.
Although there's the argument the Kurds invited us into Iraq... (before we abandoned them for the 3rd time)
Everyone believes this, not just those on "our" side. Geopolitics is currently best described as a forcefield, where a myriad of interests vie for influence at any cost. To believe that "the other side" is simply responding to the nefarious, expansionist ambitions of the west is not smelling the propaganda too.
The good side is but one, the side that seeks to replace destructive, imperialist, selfish policies from all sides with cooperation and the rule of international law. That is unfortunately a fledgling position to take ATM.
.
From the Pacific to the Himalayas, the republic of China will be free?
which was started via China's provocations in the southern china seas. Not to mention the de-democratization of hong kong.
As for russia, their "response" is due to the fact that they don't want ukraine to lean westwards, regardless of the desire of the populous. I personally don't believe russia should have any say in how ukraine leans, and if their populous wants to lean westwards, russia have no right to intervene.
US diplomats say US foreign policy is governed by national interests, implying it's common sense. Who claims impartiality?
Who is more impartial than the US, in these scenarios?
"Don't invade fellow democracies".
Business doesn't like things like wars of conquest where the legal system your factories operate under, your workers and the factories all seized by force or blown up when someone artillery strikes the town they're in to the ground.
The whole point of being a reserve currency is to be stable and a key part of that is also enforcing stability - which the US does through things like it's naval supremacy.
"Don't invade fellow democracies" is a pretty easy set of rules to play by, and is appealing to every country which would like not to be invaded - which is to say, economically doing business with the US is a very good deal if it means the US has your back if someone does look like they want to invade you.
This entire concept is one of the ideas currently being used to try and keep China in check, and it was presumed in Europe that this was what would keep Russia in check (and the failure of that assumption is now the cause of the huge uptick in orders for US military equipment - so even there, the US is doing well out of the policy).
Those assets are merely 'frozen' currently, all that was approved to be spent is some of the income.
Seems like that’s crumbling, to the point it’s concerning even to me.
I took am genuinely worried that our society is losing its respect of rule of law due to disinformation and stupidity on the social web.
And, perhaps most of all, a willingness to run massive deficits to accommodate foreigners' desire to hold those debts as an asset.
I would say that the freezing of Russian assets has changed this equation considerably for almost every non-western country.
People seem to think we are still living in the past, where the US alone accounted for more than 40% of the global GDP and was the single most important trade partner of every country outside the former communist block.
It is a different world now. The BRICS GDP in Purchase Power Parity terms has surpassed the G-7, their growth rate is also bigger.
Yeah. it is not the end of the world. Things won't change everyday, zero-hedge doomers are a bunch of crazy scammers shorted as fuck. But the situation is dynamic and requires attention.
Yes, random arrangement of countries beats another in a stat.
Two of the BRICS are increasing military tensions with each other. One just saw a massive change in government, and with it, possible geopolitical alignment. Another is in the shitter.
The dollar should wane in importance alongside China’s rise. But BRICS sure as hell won’t have anything to do with it.
Either I must have slept through the Indo-Sino (Sino-Indo?) Peace Treaty Negotiations & Signing Ceremony or "disagreements" is doing some heavy lifting in the above quote.
https://en.wikipedia.org/wiki/2020%E2%80%932021_China%E2%80%...
Correct. For the avoidance of doubt, India and China have signed no peace treaty. They're increasingly militarising their disputed borders, which have never actually been agreed upon, and India is now joining mulitple U.S.-involved security arrangements.
America's superpower is in trade and diplomacy. Agreements. We don't win because we can blow stuff up bigger. (Though we can.) We win because we're uniquely competent at knitting together alliances. I believe that directly draws from our commercial culture--it encourages cutting deals over face-saving Pyrrhic victory.
This is the most laughable thing I have ever read. The United States are a bully that has proven time over time that are completely agreement incapable and that has resorted to force more than any other country in modern story. It is not loyal even to its friends, except for Israel.
Conduct between nations is sovereign, and outside of any enforceable jurisdiction or legal system. So there will always be the need for a a strong dominant nation to set and establish the rules of conduct and enFORCE them as has been the role of the US since WW2.
Its a dirty job keeping this world order in some semblance of functional, and the Dominant enforcer of that order will always take a cut for their imperfect pursuit of the same. All-volunteer police forces are less common than the compensated type. Perhaps CRINK (China, Russia, Iran and NoKo) will deal you and your peoples a better hand than the US has?
Yes, unlike Russia, China and Iran, our paragons of peace.
Yes, the Allies in WWI and WWII as well as NATO were ineffective. (As are AUKUS and the Quad to-day. I'll ignore the United Nations, IMF, World Bank, WTO, G-20, G-7, OECD, et cetera out of respect.)
Superpowers be superpowering. News at 11.
Can't believe I took your other comments in good faith...
Yeah. You can see things like that and call the BRICS a random arragement of countries and ignore that it is evolving into a more formal and integrated coalition, all the while believing all the FUD from the press that overvalues the disagreements between China and India.
I also wouldn't call the government changes in India a masssive government change. Neither china is in the shitter. Stock and Financial market shenanigans are not as critical in China as they are in the US because they are heavily regulated, they are not as critical for capital financing as in the US, and chinese citizens wealth and retirement are not tied as strongly to stocks.
Or you can just see things in another way and realize that most former colonial countries have developed a lot, and that the US and Europe are no longer the former titans compared to what people sometimes call the global south.
BRICS+ is all talk, no action. Russia, China, and India all have diametrically opposed interests on core issues and none will ever agree to a total realignment of the global financial system lest one of the other two gain an advantage. South Africa is a failed state with a crashing economy.
What's your information source? Mine includes family in the Indian military.
South Africa. (India's government didn't change.)
Russia.
Correct. Look at with whom India, Eastern Europe and South-east Asia are allying.
The C in BRICS is for China though.
Sure. What's good for America isn't necessarily good for NATO, the OECD or WTO. Similarly, BRICS is a stupider Belt & Road pitch.
China is doing real work in becoming a superpower. That ascent has nothing to do with BRICS.
Excuse my ignorance but how are frozen assets relevant? Isn't the utility of the dollar and the unassailability of US held assets a different thing?
If we used gold or yuan and the US froze those assets how would it devalue those currencies?
Not sure how the US would freeze gold in a Moscow bank. It can freeze dollars because it controls SWIFT and how dollars move. The dollars it froze were not a huge pile of physical bills in Russia but electronic chits.
Well, exactly. Is the US's influence over swift tied to the dollar or to the fact it's a superpower and has forged these relationships? If we used other currencies wouldn't that be the same situation or are you saying that the dollar's stability is tied directly to swift?
Said another way, if there is a backlash to these frozen accounts, shouldn't it be against swift and for swift alternatives instead of against the dollar?
The US has frozen national assets before, most notable Iran but the big difference this time is that the US is now openly considering confiscating those assets and giving them to another country just because it has the ability to do so. Even Iran, who for decades was considered part of the "Axis of Evil" had its frozen assets kept in reserve until they were eventually given back. It really feels like the powers that be are now people who have no consideration for anything they can't see past the horizon and have unwavering faith that "it'll all just work out in the end somehow". They're becoming reckless on so many levels and unfortunately the public, or at least the loudest voices, are happy to cheer them on.
Even if the US ultimately doesn't turn over Russian assets to Ukraine, just making the threat to do so is globally destructive to faith in the current system that greatly benefits the United States.
Its not genocide when I say it isnt is not convincing anyone, all we see is the once mighty uncle sam groveling at the feet of some small country that just happens to control the entire us government.
People mistakenly think it is about Palestinans or Israelies.
I disagree. If things had moved in the same trajectory as the last decades a decline of the current system seemed inevitable. So why not use that power while you still have it.
Also considering the state of most BRICS countries, it does not seem so certain that there will be viable alternatives to the current system.
Almost all small to medium countries started efforts to create or find alternatives to SWIFT should be a clue.
The efforts started after weaponizing dollar.
Pan-African Payment and Settlement System, ASEAN QR settlement, Direct currency settlement. Even mBridge for settlement between BRICS was launched just a couple days before the end of petrodollar agreement.
Current SWIFT settlement is not going anywhere but everyone is starting to wait and see.
[BRICS is comprised of] Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates
Really, you only need RIC and you'd be making a much stronger argument. The idea that all these countries work in unison to some end is weak.
So what is the alternative to park your money? Rubles, Yuan, Rupees.....? So don't invade and annex your neighbors if you want your assets to be safe. Quite frankly I am not sure if that is a net positive or negative in the long run.
> BRICS GDP in Purchase Power Parity terms
I'm confused as to how this is a useful metric in the context of choice of currency in international trade.
You can't trade between countries in PPP currency.
This is an exaggeration. There have been at least 3 drastic shocks to the United States currency in that time. The secession of the southern states, who adopted their own currency. Leaving the silver standard for the gold standard. And devaluing the dollar then leaving the gold standard unilaterally in the 1970s.
Don't forget FDR's banning private ownership of gold and then changing the value of the dollar from around $20 and ounce to $35 and ounce.
The USD didn't really become the world reserve currency until after WWII when the European empires fell apart and the US was a clear superpower.
This. The US Dollar could have crises and be flaky because Sterling was the global reserve currency (and everyone on the gold standard, obviously).
It'll be interesting to see what happens now. I suspect the Russians will play silly buggers because they seem to enjoy that. And they have significant oil to play silly buggers with.
There's an active de-dollarization effort from BRICS. Unsure how effective it'll be with the LIO
How active and serious that effort is?
https://www.noahpinion.blog/p/brics-is-fake
Brazil, India, and South Africa seem odd bedfellows with increasingly authoritarian China and Russia.
I have no doubts they'll all increase trade together, including military hardware, but establishing a reserve currency requires trust and dependency.
Those seem heavy loads for the ties of pragmatism and convenience that bind BRICS together.
No you’re right. I neglected to mention them because I think it goes both ways and it acts as a test.
In the end, after the shock, it went back to business as usual.
It’s like despite the Jan 6 riots, everything still is business as usual.
It’s like the old adage about investing in the S&P 500 over any 10 year period… you will make money, but it doesn’t mean it will have made money the entire time during those 10 years. But if you expect that you will be around at least 10 years, then it makes sense.
Yes and no. What you're not comsidering is the obligation of The US Federal Reserve (aka The Fed). While dollars are international, The Fed's only concern is the US and US citizens. That is, often enough The Fed makes decisions that achieve this ends, but screws the rest of the world. Such decisions become self-serving to the USA's power, influence, etc. That decision undermines other countries, economies, etc.
So yeah, the USD is stabler, and The Fed helps to see to that.
any other country would do the same, in the same position.
The point is that this happens less, and with less severity in the US than other countries.
Perhaps. I'm simply pointing out the "flaw" in metaphorical breaking someone's kneecaps and then staring down your nose over the top of your glasses, waving a finger, and mocking them for not being able to walk, not able to help themselves, etc.
The Fed and petrodollars have made the US stronger and plenty of others weaker, is the US leadership - gov and private - prepared for a shift in that balance of power? And might there be some looking for revenge, so to speak?
Hint: Correct answers are no and yes, in that order.
The availability of US treasuries is also a big appeal of the dollar. There really aren’t many places where you can safely park a few billion or even a few ten billion in USD equivalent. The US government is basically a debtor of last resort.
This is how it will play out in the next 20-30 years you are thinking about
they aren’t buying a lot of new American bonds and keeping the bond market strong with private buyers. It is why the fed buying treasury bills in the quantities they do is troubling.
Interest rates aren’t going to back zero, they will drop from the current highs but interest will remain positive.
The debt to GDP ratio has jumped massively in last 40 years from 30 % to 60% in 2000s and now 120%, that is an impressive amount of spending considering how large the US economy is . [1]
At some point the either spending on programs have to be cut or taxation has to increased, or inflation has to be allowed to increase significantly to service it.
The policy paralysis in Washington almost by design will not allow for either of the first two solutions to happen which would be internal to the country, so likely in next 20-30 years we are looking at runaway inflation .
At the point dominoes will be too late to control, if dollar no longer is a strong reserve currency , interest rates will go up , either we default or massively rebalance the economy after getting a bail out (! No country or institution like IMF is large enough to remotely even attempt bailing out America ) .
The pain will be global of course , but nobody will be able to do anything about it.
[1] In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously , but now after 30 years of weird economics they are slowly being forced to raise interest rates positive or face the yen falling and it will be costly either way
Another doomerism that will fail to materialize, I suspect. Sometimes too many people are almost eager for the other shoe to drop. But if America is too big and powerful to bail out, then maybe they won't need to get bailed out on...wait for it...debt denominated in their own currency. Fiat is powerful that way.
No, I think the way to continued prosperity are the old principles: Free Markets, Liberal governance, Property Rights, Fighting corruption, and Ensuring robust multilevel competition in the marketplace.
The world won’t fail , but the impacts are real when economic systems change .
We are already facing that , asset inflation is already run away , generational wealth is only way millennials can buy a house , the economic prosperity of boomers is long gone .
The cost of having children has gone up , that is changing demographics today.
It is not black and white between economic collapse and we go to trading cigarettes or everything is awesome , it is spectrum and we already feeling the real economic pain and nothing is indicating it will get better just worse
Millenial. Own a house. No generational wealth helped with that, just being incredibly fucking lucky in Silicon Valley. Roll again.
Practically none of this has to do with the U.S. dollar as a reserve currency (minus deïndustrialisation, which we're starting to reverse).
A handful of people win the lottery. That's not proof of anything and doesn't change the overall trend.
60% of Millenials are homeowners, only a few percent lower than boomers at that stage.
https://www.redfin.com/news/gen-z-millennial-homeownership-r...
Maybe, but starting at a later age I bet.
Of course it has. The slow but certain financialization of the economy since the 70’s has lead to all of this, including the deindustrialization you mention.
Don't forget accepting immigrants and makin babies.
"take care of the pennies and the pounds will take care of themselves"
That's what electing the 270 this November is going to decide
In terms of economic policy not much , increased deficit spending is the platform for both parties , whether by tax cuts or welfare is just about who gets the benefits of the spending.
Spending itself is not going to change between both parties
Because they’re deficit spending.
This is irrelevant for this. They are deficit spending in their local currency. Their US dollars are going to a massive frenzy of commodities import. They are just diversifying their reserves, less US bonds, more physical goods like copper, coal, gold, etc.
It's incredibly relevant for balance of payments [1]! This is international banking 101.
If they want a stable currency while deficit spending and maintaining monetary sovereignty, they need to sell assets and/or clamp down on capital flows [2].
If selling, it will mostly be dollars, because that's what folks want and what they have. That's what they're doing.
No, their reserves are going down. They are also diversifying. But anything other than them net selling dollar assets would be incrediby weird.
[1] https://en.wikipedia.org/wiki/Balance_of_payments
[2] https://en.wikipedia.org/wiki/Impossible_trinity
Of course they're net reducing the dollar assets they hold. But you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them. That way there's no big selloff to spook the market.
They're selling like $18bn a month [1]. That is 2% of the daily trading volume [2]. Until recently, the Fed was running off 4x as much [3]. (It's still, at $40bn per month, $25bn of which are Treasuries, running off more than China is selling.)
China is diversifying. But they're doing so about as cautiously as one could.
[1] https://www.bloomberg.com/news/articles/2024-05-16/china-sel...
[2] https://www.sifma.org/resources/research/us-treasury-securit...
[3] https://www.reuters.com/markets/us/fed-announces-reduction-b...
One of my missions-for-fun on HN is to figure out why anyone cares about Japan's debt:GDP ratio. The country is a net creditor [0]. The US is the worlds largest debtor by an order of magnitude in absolute terms, and up there with just outside the beyond-hopeless tier of debtors. Superficially the two countries seem to be incomparable. Japan's credit position is almost an anti-US on net, relative to GDP. Why would we look at a creditor to figure out how a debtor's default would work?
[0] https://en.wikipedia.org/wiki/Net_international_investment_p...
It was a footnote, to illustrate that even countries like Japan which are on the other end of spectrum are not immune to ratio affecting them , not a direct comparison
Perhaps I should have elaborated, this was not a technical presentation of the argument, just a picture everyone can understand.
When you print the world's reserve currency, and currency can only be issued as debt, if the world economy grows faster than currency expansion, you'll have real goods/services deflation. It's a weird catch 22, the only way for the $ to remain the reserve currency is for it to continue being issued at a global growth rate, faster than a mature economy like the US can grow. International debts in $ can only be paid back in the same and that's part of the reason for rehypothecation, central bank swaps, and all sorts of other shenanigans. In turn that keeps US long rates artificially low.
The old adage holds true though, it's your problem when you owe the bank a little money. It's the banks problem, if you owe a lot of money. The same is true of inward investment into the US (or Russia or China). Who will end up owning that investment, if relations go south? The country where it exists not the investor, but debt is a negative investment. The Treasury can start issuing unsterilized currency (the trillion $ coin) and debase the currency any time there's a big enough issue, or simply not repay certain bonds. By the time that happens though, the international economy will already be a shambles. Markets end run this sort of stuff.
Milkshake theory is one way it plays out. https://liquidity-provider.com/articles/the-dollar-milkshake...
If it really happens quickly, owning lead (or uranium) will be more important than owning gold. Hopefully, it's gradual and we eek through another few decades of global growth before it does.
If they would at least use most of the deficit spending for things with positive ROI that would be reasonably ok..
I am highly uneducated in this realm, but would this even be possible as the Yuan is a nonconvertible currency?
As far as I am aware, the Yuan (essentially a unit quantity of currency) is fully convertible and can be traded, but the Renminbi (the currency itself) is not. It's a bit weird that these are not the same thing. It may not be possible to use the Yuan for everything you need without also moving some Renminbi around. However, you can use the Yuan as the unit on which the trade balance of a country is counted - $1 billion Yuan of oil against $1 billion of silicon chip for example - without any Renminbi changing hands.
is that not just bartering with more steps?
Money is sort of just bartering with extra steps.
You can record balances of Yuan, but I assume those can't technically be settled in cash without using renminbi. So just don't settle the account.
The point of US dollars is that there are more people who accept US dollars for their trades, and therefore settling in US dollars is safe - you will always find someone else to trade with holding US dollars.
Barter, on the other hand, even if using yuan as the unit of accounting, has the drawback that you can only trade with people who accept yuan and is willing to barter with you (or you find a willing set of trade partners to chain barter with).
Transferring and settling balances are different. You can also transfer Yuan without settling in Renminbi. This is very confusing to deal with, but think about transferring balances as bank account numbers and settling as moving cash. You can do a lot more than just barter without using cash.
I am talking informally. The Yuan is not fully convertible, but yet, it can and it is used for trading goods and services. It is not attractive as a reserve currency or as an investment, but on bi-lateral and tri-lateral trade it is perfectly usable. And as china is the biggest manufacturer in the world, for a lot of countries it may make sense to trade in yuans. Sell some copper to China in Yuans, buy some SU-35s from Russia using Yuans, then Russia buys chips from China with those Yuans.
They created a convertible market in hong kong. The currencies are the same but can be de-pegged (CNY and CNH). Overall, I think china will prefer to do managed big deal one-on-one with other countries. This might not cover all of their trade but probably a large (50%+) of it.
How, exactly? We have spent the last two years building a watertight legal justification for doing so. Nothing was arbitrarily taken, and they are still earning interest on that balance. But if you break international law, you will face international legal consequences, under due process of the law that you agreed to abide by through taking part in our system.
That is cool and all; but if the US is going to seize assets after building a watertight legal case then countries can't just by default leave their sovereign assets in places where the US can seize them. A country's bankers are not interested in taking that sort of risk needlessly, there needs to be something in it for them.
Of course the international finance system is complicated so maybe there still is enough of a payoff to holding US dollars, we're seeing something of an exploratory process here as China, Russia and probably India start testing the system. It might hold.
There is. The Fed's 5% rate (along with 3% inflation) is the envy of the entire world right now. Where else on earth are you going to get that, with the only stipulation being "don't violently invade your neighboring countries"? There's simply no alternative, unless you trust China more than the US Government.
There's no such stipulation. The stipulation is: don't challenge our power.
There is no “international law”. It’s just some term western politicians made to give them legitimacy. The world also doesn’t care since all countries have border disputes and potential conflicts. Freezing/seizing the money is seen as a serious risk now.
Indeed all law is just some terms made up by politicians. Yet it is given power by those who enter into contracts willingly to abide by them, as you do when transacting business with the west. They knew the rules, and decided that deliberately breaking them was worth the consequences. We will see if that pans out for them.
Well, you could be right and yet, the economic consequences would be the same. Contrary to what you say, the freezing of said assets and their confiscation is on legally murky waters, and even if it was clearly allowed by Charter of the United Nations, of course it would require a voting on the security council or at least on the general assembly not just a gentleman agreement between the NATO countries, bypassing the only real source of international law: the UN.
The thing is. Does it matter? Can the US and its partners really enforce it? How do you expect other countries that are not in the western club to react? As I said in other comments, we no longer live in the world where the US is the single biggest commercial partner of every country in the world, we don't live anymore in a world where the US alone is 40% of the global GDP. Those days are over.
It also seems the Fed can just absorb whatever it needs to. And it's not like Japan needed to be a global reserve currency to sustain massive debt. De-dolarization seems unlikely to cost much aside from prestige.
Japan is a massive exporter, while the US is a massive net importer. American industrial production depends heavily on global supply chains, and thus, american prosperity requires a healthy global demand of US dollars.
The supply chains create the international demand for dollars and dollar-denominated assets. That then reinforces the supply chains. But causation starts with America being a massive producer and consumer.
Way less of a producer and more of a consumer.
And no, the biggest driver for the US Dollars demand nowadays it is status as the global currency of trade.
We're the second-largest exporter in the world [1]. (But yes, more consumer.)
Who do you think does most of the trading? If America weren't the world's largest importer and second-largest exporter, the dollar wouldn't be the global currency of trade.
You're correct that our financial system reinforces that relationship. But it's reinforcing, not underwriting. (China isn't challenging us in our financial services, it's challenging us on trade.)
[1] https://en.wikipedia.org/wiki/List_of_countries_by_exports
Absolutely no, Japan imports far more than they export.
https://asia.nikkei.com/Economy/Japanese-exports-hit-record-...
Wealth and power are hard to distinguish at this scale. Suppose PRC were to a) instigate a global crash of USA Treasury assets and b) offer to swap USA debt for PRC debt for preferred clients. Rather than watch their UST holdings evaporate, most global wealth managers would take the deal. And then RMB does become #1 reserve currency overnight...
Yes it would be terribly "expensive" for PRC in nominal terms, but what is the price of global financial hegemony?
China probably doesn’t want the RMB to become the world reserve currency. The advantages are not a free lunch. Look up the net investment position of the USA and how it degraded after 1970s. All these printed and circulating dollars are a debt to the “US economy”.
Those aren't necessary outcomes, those were policy decisions made by the US/Western elite. They chose to deregulate and let global capitalists do whatever they wanted.
USD has been primary global reserve currency since more or less the 1970s (end of Bretton Woods period), but the tendency for plutocracy goes much deeper and has not abated in the last half-century.
China has a lot more tradition and experience running a long-term civilization that doesn't rely on endless conquest and growth, and they have fresh memory of how USA/Britain fumbled the bag. Expect them to repeat the same mistakes at your own peril.
The price of financial global hegemony is the price paid by the US:
- Deindustrialization
- Massive Wealth Concentration
- A housing crisis due to asset inflation
- Unemployment and/or subemployment.
China is still a bit communist. The government rules their wall street, not the other way around.
Do you agree this is yet another tactical or strategic setback meaning it's only more critical to get our debt spending in order since we can less depend on outside investing on t bills?
Of course! Not only is essential that the US starts tackling its debt, but also it needs to be aware that the massive trade debt days where the US imports the industrial output of the world in exchange for treasure YOUs will someday come to an end.
Re-shoring industry is essential for the US to keep itself as a major player in the future multi-polar world.
The question I have is - what is the alternative currency to hold?
Yuan which is held to a fixed exchange rate that could change at any time? Not to mention the capital controls.
Euro? Yen? Australian dollar?
USD doesn’t have to have some special agreements to make it the safest currency to hold.
For now, and probably the next 20 years? I'd still bet on the dollar. Those changes are coming, but they will take decades.
There is a deal under way to make sure that they will still use the USD and loosen their ties with China.
https://www.reuters.com/world/us-saudi-arabia-close-finalizi...
This just strikes me as sharp elbowed negotiation by the Saudis. I bet good odds that this particular story about the Saudi treaty expiring will have proven to be a nothingburger a year from now (even if de-dollarization and multi-polarity in general continues to be a story).
It is also good to check with number examples about the interest of operating in USD, it is like the interest of using USB Type C or other standard plugs instead of a custom one. The US stocks market cap is USD ~54T [1]. The China one is less of 1/4 of the US one. The bond market capitalization [2] is different but 62% is composed by US, China, and Japan.
[1] https://en.wikipedia.org/wiki/List_of_countries_by_stock_mar...
[2] https://www.icmagroup.org/market-practice-and-regulatory-pol...
It’s the beginning of the end. The end is always super slow, then suddenly fast.
Also the US can leverage another countries reserves against them
If anything, this is another of many shots across the bow that Pax Americana is, in fact, on notice.
It's our (the west's) era to lose.
But the Europeans would prefer the Euro and the Japanese the Yen,[1] because it is beneficial for their own economies.
In the past period of energy price inflaction one could observe quite for awhile that the exchange rates favoured the US-dollar over the euro although inflation in the USA was higher than in the EU. The best explanation I came across for this phenomenon was the petrodollar: Importers from the EU needed to exchange a lot of euro into dollars to pay for oil. As a result, the exchange rate shifted increasingly against the euro, which made energy costs within the EU even more expensive, which gave the USA a competitive advantage.
Importing countries therefore have a great incentive to conduct oil transactions in their own currency. This will not lead to the dollar losing its supremacy in oil trading overnight. But I expect its share of trading volume to gradually decline.
[1] Some import figures of oil from Saudi Arabia from 2022 for context: EU 25.8B US$ and Japan 39.8B US$, which together was almost the same as China 65.0B US$. (However, the figures fluctuate considerably from year to year.) Source: https://tradingeconomics.com/european-union/imports/saudi-ar... https://tradingeconomics.com/japan/imports/saudi-arabia/crud... https://tradingeconomics.com/china/imports/saudi-arabia/crud...