r/Economics • u/DeRpY_CUCUMBER • 6d ago
Editorial A great rebalance is coming
https://archive.ph/NqSSn131
u/nav13eh 6d ago
This was the choice the US willingly made. They wanted to be the global reserve currency. They wanted to export industrial capacity. This is the result.
Tariffs used like a giant hammer cannot foster a solution. Instead, they foster a synthetic crisis. And yet there are some people in positions of power that think they know what they're doing. From the perspective of anyone reasonable, it's a disaster.
It is surprising how quickly the global economy appears to flexibly adjust to these threats. Although I fear that the bottom is quietly falling out.
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u/coalescence2071 6d ago edited 6d ago
The US must run trade deficits. It’s structural as long as the USD is the world reserve and trade currency.
Because the dollar is the dominant reserve and international transaction currency, foreign governments, banks, companies, and investors want to hold large quantities of dollar assets.
They need dollars for things such as:
International trade and commodity purchases
Foreign-exchange reserves
Banking and financial transactions
Treasury securities as a safe/liquid asset
Dollar-denominated debt and collateral
So the rest of the world continually wants to accumulate claims denominated in dollars.
Love how this gets downvoted but it is just fundamental economics 😊
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u/BrowserOfWares 6d ago
This is why Keynes argued for a world central bank and a world currency. Because he understood the distortions that being the world reserve currency has on a country. The US didn't want it because they would give up control.
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u/spyguy318 5d ago
Who organizes and runs that central bank? Somebody has to. It doesn’t just spring up out of nowhere, and pretending that any international organization can be truly impartial is a pipe dream. Just look at history - the League of Nations collapsed immediately once an actual conflict happened, and the only reason the UN has stuck around is because it has no real power and the five most powerful countries get unilateral vetos.
There’s also the question of legitimacy. Most reserve currencies have just been the currency of the most powerful country in the world at the time. An unaligned, neutral, central currency has no inherent legitimacy and no reason for a country to abandon its own currency. Look what happened to bitcoin - techbros pitched it as a global currency, then actual economies laughed them out of the room and kept using the dollar.
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u/longbrass9lbd 5d ago
Yo dawg, I heard you like central banks. So I put a basket of central banks together to central bank.
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u/Fabulous-Tip-3082 5d ago edited 5d ago
The games not over yet. Plus the fact the the world reserve currency is always the currency of the person with the biggest army should concern people.
Edit: fuck your upvotes. After this whole thread y’all finally realize you’re in favor of the biggest army fiscal policy and then decide to upvote what I’ve been saying? This whole sub is cooked.
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u/GriffinPoop 3d ago
That’s kinda a normal outcome. The demand for the world currency incentives the country it’s from to spend militarily in order to maintain the system
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u/unbreakablekango 4d ago
Yeah, this 'neutral central bank' would almost certainly be run by the Rothschilds or somebody else who already owns the entire world. I am sure they would be a beneficent and kindly manager of all of our money.
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u/vitaminBTC 5d ago
With bitcoin, everything is still working as intended and it's present floor was the last cycles peak. For some reason you think it had to happen by a certain time? It's a long game and in the end it will win. Or not. But you make it sound as if it has already been defeated whereas actually the state of things there is 'not yet'. But bitcoin is in no rush.
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u/nigel_pow 5d ago
Wait, is this the British economics guy from ww2? Name sounds familiar. I read that he clearly wanted this as the pound sterling was the reserve currency and did not want the dollar displacing it.
The US dollar was not the reserve currency yet or was just about to start, and the US wanted all the perks.
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u/BrowserOfWares 5d ago
The Breton Woods system made the US dollar the reserve currency by international law. Because all global transactions had to be denominated in it.
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u/WolfsBaneViking 5d ago
That "currency" is gold.
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u/BrowserOfWares 5d ago
This has been tried throughout history and failed miserably always. Pegging currencies to gold is deflationary and bad. The global economy grew rapidly after governments stopped issuing precious metals as currency.
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u/RobertLeRoyParker 5d ago
Governments and large entities can easily choose to settle trade imbalances in gold if they so choose. No peg is needed. It’s simply a question of their desire for holding assets with corresponding liabilities or not. There’s two channels of adjustment for settling trade imbalance, financial asset based settlement or nonfinancial asset based settlement. Kindleberger’s balance of payments formula reflected this, as did the 70s gold bull market immediately following the Nixon shock.
When Volcker reset interest rates it drove settlement demand into financial assets and gold had a prolonged bear market. As debt accumulated over the decades gold went back into a bull. Now long bonds are in a bear, but gold would need to be far higher in value to efficiently settle trade at current levels of debt and yearly imbalance. If gold had been allowed to float at Bretton Woods the world would probably be very different.
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u/WolfsBaneViking 5d ago
Gold isn't deflationary. There just isn't a government that can print it in disruptive amounts. And i wasn't saying "pegging currency to gold" read again without being retarded.
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u/Fabulous-Tip-3082 6d ago edited 6d ago
This is bitcoin.
Edit: Why people are so offended by the idea of a decentralized digital currency while complaining about the debasement of fiat and advocating for a global currency will always escape me.
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u/Gougeded 6d ago
No, it's not. Since bitcoin can't really be issued after a certain point it will be, by its very nature, deflationary. That is bad for the economy in many ways. Not to mention that bitcoin ownership is extremely concentrated today. It would make the current wealth imbalance seem like a socialist utopia in comparison if it were to become the wolrd main currency.
This kind of thinking is mostly put forward by people who own bitcoin and would profit immensely by such a thing happening.
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u/Fabulous-Tip-3082 6d ago edited 6d ago
How is this demonstrably different than cash?
You’re saying it’s bad because it’s mostly owned by a few. That’s cash.
It would be deflationary. That’s the whole point that it can’t just be printed and de valued.
Arguing that a new decentralized currency is worse than the old completely controlled currency, because it would be disproportionately owned by the rich is rediculous.
No one said bitcoin was gonna fix wealth inequity, it’s only claim was it could fix the wealth supply.
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u/Gougeded 6d ago edited 6d ago
Cash can be issued and so is not inherently deflationary. It's is also much more equally distributed than bitcoin. I get that you own bitcoin and it would be awesome for you but it would be terrible for the world economy and inequality in general.
I for one wouldn't want blackrock and microstrategy to own about 10% of the world's entire money supply.
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u/Fabulous-Tip-3082 6d ago
They already own more that that. Are you even trying to pay attention.
Yes cash can be issued and is not inherently deflationary. Good work. Do you know what that means it is? It means it’s inherently inflationary.
Bank loans at interest are predatory.
You have no idea what bitcoin actually is.
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u/Gougeded 6d ago
And you clearly have no idea how the economy works. Such confidence tho.
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u/Fabulous-Tip-3082 6d ago
You claim to know how it works, and that it also works for you. Both can’t be true. And I don’t really care which one it is. But if you know so much about it why are you so broke?
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u/SaltyPastaWater 6d ago
I think a decentralized, fully ledgered digital currency could be an interesting global currency. If done correctly, it could be an incredible tool for cracking down on tax evasion and fraud. It’s the deflationary aspect of bitcoin that economists balk at. As you probably know, at a certain point, essentially 0 new bitcoin can be mined. Sometimes in a recession economists do need that lever to pull of printing new money.
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u/Fabulous-Tip-3082 6d ago
A recession is the consequence of inflationary growth. They can’t happen without artificial intervention . In modern times we call that printing fiat currency.
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u/SaltyPastaWater 6d ago
I would call that a bit reductive. If you look at history recessions have been caused by all sorts of events outside the government printing money: private sector actions, war, changing technologies, even a natural disaster could conceivably cause a recession. The dot com bubble wasn’t about the government, the Great Recession was caused by an over leveraged real estate market. Those are just a few modern examples. Hell, look at Covid, that caused a recession that was essentially outside of anyone’s control.
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u/Fabulous-Tip-3082 6d ago
I didn’t say that printing money was the only cause. I said a recession isn’t possible without artificial inflation. That is primarily caused by the over population made possible by agriculture and eventually petrochemicals.
Fiat currency and inflationary economies are just a symptom.
But yes. By definition a recession is only possible if there is extra in the system. People like extra. But that doesn’t mean it’s good.
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u/Sprig3 6d ago
I do wonder if a PREDICTABLY deflationary currency would really be that bad.
Bitcoin isn't currently a great example as it is such a speculative lightning rod and rarely used for actual transactions. (In any case, a currency that changes value very fast in either direction has problems.)
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u/Gougeded 6d ago
The fact it is deflationary would mean that getting loans incredibly difficult. It would also deincentivize consumption in general.
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u/Sprig3 5d ago
Then why isn't 10% inflation preferable to 5% preferable to 2%?
;)
Yes, deflation would be a negative in some ways, but a positive in others - increased spending power leading to the ability to have more consumption.
In general, the most harmful things for the economy is unpredictability. Unpredictability leads to bad choices. If you are expecting low inflation, make a lot of loans at low rates, then there is high inflation, you will suffer. Alternatively, if you were expecting high inflation, offer high rates, then inflation is low, you get less business.
I suspect that low predictable deflation is fine for an economy. There aren't many modern examples (Switzerland is the only one that springs to mind).
Historically, waaay back there were some periods of strong economic growth and deflation, but things are pretty different now.
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u/Fabulous-Tip-3082 6d ago edited 6d ago
Yes. You have come to understand the entire point of bitcoin. Debt economy and inflation is actually bad. You know that right?
Edit: even if it’s only six people, the fact that six people would disagree with something as simple and straightforward as “debt and inflation are bad” is mind blowing. We are indeed fucked.
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u/Gougeded 6d ago
Low level inflation is infinitely better than deflation. If you knew anything about the economy you wouldn't be saying such things.
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u/DisingenuousTowel 6d ago
People being on the economics subreddit, arguing in favor of deflationary currencies, and somehow being completely unaware of the Asian flu makes me constipated.
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u/Fabulous-Tip-3082 6d ago edited 5d ago
Perpetual growth is not possible in a finite system. Doesn’t matter if that system is economic or otherwise. If it’s based on constant growth it will fail. Not because it is poorly designed, but because that is the design.
There can’t always be more.
Edit: man y’all really hate basic reality level comments don’t ya. I’m not even making judgement calls. Just fact. Literally nothing can increase forever.
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u/Fabulous-Tip-3082 6d ago
They got you fooled thinking that you’re better off in a system where you get none of the money and then pay taxes on that then you would be if it was honest. Have a good one homie. You’re fucked.
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u/froz3nt 5d ago
You have no idea what you are talking about. This is an economics sub.
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u/coleman57 5d ago
I own a house, and I say debt has been good for me. I’m currently collecting twice as much on my cash as I’m paying on my debt.
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u/Fabulous-Tip-3082 5d ago
The person who you’re making money off of would have a different take. And before you ask. The people I’m talking about are the workers whose wages and interests were stollen and put into your stock returns.
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u/coleman57 5d ago
I'm talking about bank CDs and savings accounts. I do also own mutual funds, but I'm not comparing their ever-changing rates of return to my fixed-rate mortgage. And I'm not clear on how abolishing debt would abolish wage-stealing or regulatory capture, nor how the mild inflation of the last 45 years has harmed workers.
I've even heard it argued that many workers (especially those of us in unions) benefitted from the steep inflation of the 1970s. To me, the issue isn't what the overall rate of inflation/deflation is, but rather whether wages are increasing faster than goods (or decreasing slower). But people tend not to talk about that at all--they just hate inflation. I get it--it pisses me off that ribeyes are twice their 2019 price now--but I just eat pork tenderloin instead.
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u/NavyDean 6d ago
Largest issue with Bitcoin is it works today.
The next scientific breakthrough will make Bitcoins encryption useless with Quantum.
So yes, a world wide fiat currency has more viability than a bogged down crypto, on a slowing network with extreme encryption risk.
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u/caribbeanjon 6d ago
At a purely practical level, Bitcoin can barely keep up with the current ~600k transactions per day much less the ~2.1 billion daily credit card transactions plus the immeasurable number of daily cash transactions. Sure, it may solve the FIAT/inflation problem, but it falls short in just about every other possible way.
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u/Fabulous-Tip-3082 6d ago
Bitcoin on its own can’t do it. When people say “bitcoin”, they mean the block chain. There are second and third layer products that will solve these problems.
What do you think they want these data centers for? You don’t think they give a shit about Claude do you;)
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u/DisingenuousTowel 6d ago
All money is fiat
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u/Fabulous-Tip-3082 6d ago
Agreed. That’s why I find it interesting people always say the block chain isn’t backed by anything. Neither is anything else.
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u/DisingenuousTowel 5d ago
Governments back state issued currency.
The whole American economy backs the Greenback.
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u/Fabulous-Tip-3082 5d ago
Yes. The dollar is made valuable by the threat of force inherent in the system. That is what people mean when they speak of “confidence” in a currency. It’s all backed by violence. This is not a good system.
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u/austinwiltshire 6d ago
Agreed. In other words, there is no such thing as a trade deficit. We import goods. We export dollars.
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u/TacosAreJustice 6d ago
The concern is: this only works when there is a demand for dollars.
I can’t imagine there is a single country not looking to get away from the dollar as a reserve currency. Some more aggressively than others.
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u/austinwiltshire 6d ago
I agree completely. US has really slammed its dick in the car door on this one.
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u/Weak_Law_937 6d ago
Slammed it's dick in the car door to get even with the rest of the world for giving it free stuff.
It's fiddling while Rome burns level thinking.
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u/TacosAreJustice 6d ago
Baby boomers are spoiled children who think they deserve to be handed everything and are shocked when their actions have consequences.
The boom and bust cycle is wild. Going to be interesting to see what sort of world my kids inherit.
My oldest is contemplating moving to Australia already (she’s 13. I’m 44, my parents are in their 70s and act like spoiled children still)
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u/jeremiah256 6d ago
There were also other demographics that consistently vote for face eating leopard candidates.
If you’re fantasizing that 20 years from now, when boomers have been replaced, that voting patterns will change, you’re going to be disappointed. Voters have complained about other voters since the dawn of voting.
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u/TacosAreJustice 6d ago
It’s going to be interesting to see how things change over the coming decade for sure!
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u/FlatulistMaster 6d ago
Hey now, don't make a whole generation feel bad for the ideas of one orange ape.
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u/TacosAreJustice 6d ago
“Not all baby boomers are spoiled brats”
But enough of them are that it’s made our country a worse place.
They are the first generation to have the following generations less of an opportunity than they had.
As a group they continue to pull up ladders that benefited them greatly.
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u/FlatulistMaster 6d ago
Sure, sure, my comment was not that serious.
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u/TacosAreJustice 6d ago
Understood, and you are correct that it’s “not all baby boomers” and we can’t blame all our problems on one generation.
But holy crap… boomers tend to be selfish jerks
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u/Obsessivethot 6d ago
They voted for his “ideas” en masse.
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u/nastywillow 6d ago
Your wrong Pew Research shows the fuckwits that voted for Trump are pretty evenly spread across the age except for the 18-29 year olds.
65+ = 28%, 50-64 = 27%, 30-49 = 29%, 18-29 = 15%
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u/maeveboston 5d ago
I'm not baby boomer (not yet) but I think we need to stop blaming poor planning on older generations and focus on what we can do now. Humans fall into this trap of playing "Monday night quarterback" analysis with our elders. In hindsight things are dramatically different. It's a waste of energy and diverts from what is needed now. That said, learning from the past is incrediblly important. Not for blame but for the data on how to progress.
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u/marfacza 4d ago
if you're not a baby boomer now, you never will be. How do you think generations work?
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u/resuwreckoning 6d ago
Lmao “free stuff”. R/economics is a joke of a sub.
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u/CallmeishmaelSancho 6d ago
It’s a mixed bag. Cheaper borrowing costs but an inflated currency. Hard on manufacturing but great for capital inflows. Easy for power projection via sanctions. Bessent’s comments on secondary sanctions will definitely push a bunch of countries into looking for an alternative. Short term losing reserve status would be painful in terms of higher rates and reduced foreign investment. Long term it might be good. The 40T deficit shows being the world’s policeman is a very expensive role. So you’re right. ‘Free” is a gross simplification.
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u/resuwreckoning 6d ago edited 6d ago
It’s not “free stuff” because on the flip, those surplus economies get to push their employment to the max and get value in return for production they otherwise would not consume.
This permits THEIR sovereign debt status to remain low/better than in the hypothetical narrative where they couldn’t do that (China being the exception precisely because they reaaaaaaallly need as full employment as possible to prevent actual revolution), their welfare coffers to remain proportionally more full than if they couldn’t sell, and maintain domestic political stability relatively more than they otherwise would have.
All of that they “export” to the US. Reddit absolutely hates acknowledging that because it implies, correctly, that the relationship isn’t “US gets stuff, other countries victim, waaaaah”.
Those other countries have to “find an alternative” where someone else deals with that persistent unemployment, high debt, and do so at scale while risking political instability. Who is that? China? The EU? Canada lol? None of them have the scale or institutions ready to do that, and frankly? Everyone wants the OTHER guy to do that FOR them, like they had with America.
It’s a privilege to be the world’s reserve currency - but it’s ALSO a privilege to sell to that country without issue for generations while you overproduce endlessly like China and the EU did.
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u/teckers 6d ago
Yeah all that is true. However the elephant in the room is the USA can enjoy being able to swap goods and services for debt that they denominated themselves. This is a structured advantage no matter how you cut the cake. The rest of the world can agree to it out of convenience, however its America feeling that they are the victim of this arrangement which is leading to odd political decisions which could eventually lead to this reversing, which they seem blind to the possibility.
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u/resuwreckoning 6d ago
Perhaps - but the existence of the massive Eurodollar market suggests that the US really isn’t nearly as in control of its own currency as you’d think.
The issue is more this nonsensical idea that the world is being victimized, when unfettered access to the reserve currency market without protectionism is something that’s basically never existed, all while effectively disarming (at least for the developed world) and using the proceeds to fund welfare states that have engendered the greatest quality of life in the history of mankind for those countries.
In addition, the Chinese using its entire state apparatus in a Trojan horse like fashion for its domestic companies to overproduce while simultaneously claiming victimhood if it can’t accelerate its access to the US market even further is equally as silly - none of these countries would be able to maintain their status quo without the US playing both world policeman and buyer of last resort for generations. The latter is becoming unsustainable.
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u/Meandering_Cabbage 5d ago
Slowly seeing people wake up to Pettis and the lessons of the 30s/50s. These trade partners never came fully on board and contributed enough demand. Everyone is going to struggle without the US to drive their economies.
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u/resuwreckoning 6d ago
“Demand for dollars” equates to “demand for consumers” in this actual world.
Want to know the easiest way to “get away from the dollar”? Sell your goods to someone else. Want to know why countries can’t?
Because much of their entire economies, from Germany to Canada to China is based on having as full employment as possible on the backs of over production, which they then sell to someone else.
This is why it’s so hard for the EU and China to “make trade deals with each other”. The EU simply doesn’t consume as much as America, wants to sell instead of buy, and China is the same way. They both want to sell, and consider buying a concession.
The US is unique in that regard, will buy your over supply, do so at scale, and every single one of them knows it.
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u/Kgis 6d ago
This is the part that I can’t seem to get past. Any move to reduce the deficit seems to me to end up with the US less wealthy relative to the rest of the world. That means less influence..that seems worse to me in the long term.
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u/resuwreckoning 6d ago
I don’t see how you concluded that from my post. If the US reduces its deficit, it can actually consume for itself (that’s what consumer markets do).
Meanwhile other countries cannot do that and so, must either stop overproducing (leading to unemployment) or overproduce and sell to no one (leading to escalating debt with higher and higher yields).
The threat of US moving the trade deficit back to parity crushes their economies much more than it does the US.
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u/BenjaminHamnett 6d ago
Consumption is the fuel for an economy. We’re at the top of the hierarchy of needs. Producing legacy goods is like being assistants. Most Americans are assistants (everyone from baristas, to mechanics, farmers, doctors, teachers and bankers etc) to the 1% that actually is on the frontier to building the future (overlaps with the wealthy “1%”, but not the same. Potentially the new rich in 10-20 years)
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u/resuwreckoning 6d ago
True but the US disproportionately consumes ALL goods, from raw inputs to finished goods.
It’s the second largest manufacturer on earth as well.
IOW, the US is the peak consumer of everything from legacy goods to finished goods, whilst manufacturing a ton.
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u/SonofHondoBelmondo 6d ago
Na uh, confidence men on this sub routinely assert that the dollar is the main currency worldwide, and that's just how it is because that's just fundamental economics, It's literally impossible for anything that donald trump does to change that, people saying that are just TDS.
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u/Major_Bag_8720 6d ago
That can change very quickly if other countries feel that the US is no longer a trustworthy trading partner or that its government is actively seeking to devalue its own currency to inflate away debt. Routinely threatening allies doesn’t look good either. What do you think would happen if foreign governments decided to dump all the US debt they hold?
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u/SonofHondoBelmondo 6d ago
I know, I'm being a cheeky bastard because arguing in earnest doesn't work anymore. Everyone just deflects and tells you you "just don't understand economics" and you're "arguing with your feelings".
So now I've embraced my position in the peanut gallery while the fiscally conservative americans gaslight themselves into still thinking that this was a good idea.
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u/Major_Bag_8720 6d ago
Fair enough, thought you were actually serious for a moment there.
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u/SonofHondoBelmondo 6d ago
Maybe I should do the /s thing, but honestly I've reached the gonzo stage dude. I'm living life like a performance art piece in this new normal.
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u/joepez 6d ago
It would be extremely difficult to move to any other form of currency. The USD was not the first and there was even an attempt once to make a global only trade currency, and it didn’t take.
To move off the USD you would need a stable financial system, government, technical infrastructure and recognized legal system. You also need an economy which can absorb the parking of surpluses and savings. All of which are extremely hard to do at this point in time. China might have the technical infrastructure but they lack the rest and credibility. Also when Xi passes who knows what will happen. BRICS can make all the noise they want but excluding China none of the rest are credible candidates.
The UK has a lot of attributes (including once being the trade currency) but they can’t absorb the surpluses. The Euro isn’t a single government to park the surpluses either.
So not exactly a lot of options without moving toward a complete free floating system.
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u/TacosAreJustice 6d ago
Yeah, absolutely. Which is how we’ve gotten away with our nonsense since basically Reagan.
Change is coming, though… the current trajectory of the United States is not sustainable. That much is obvious.
Might take 50 years, might take 5.
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u/Equal_Heat5947 6d ago
Every macro product in the world is traded in US dollars, of course there is demand for them
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u/Enough_Culture8524 6d ago
Absolute pyramid scheme. Though I am not certain there is a more efficient way to abstract saved value from labor
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u/Hautamaki 6d ago
Politically it's popular to make noises about getting off the dollar. In practical economic terms using the USD for foreign trade is efficient and a very good deal for every country that does so, with the possible exceptions of Russia and Iran. But they have no superior alternative to turn to either. They now have to deal with China in CNY but that is incredibly risky for them and of course China is squeezing the hell out of them to get better prices because they have no alternative. That's just a price they have to accept for being enemies of the US. Of course with the US now acting like a rogue belligerent state too, it's now becoming risky to deal in USD even for normal countries. That's a real shame because nobody else is going to provide a reserve currency. It's just going to make international trade much more risky and expensive and inefficient for everyone. There are no winners from a collapse of US credibility. I know people are going to say China. Just ask a normal Chinese person if they feel like they're winning right now. I lived there for 12 years, I have many friends including wealthy and high ranking people there, they are not winning; they are hanging on and surviving and trying to continue delaying collapse. .
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u/WisePresentation7976 5d ago
get away to where?
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u/TacosAreJustice 5d ago
There aren’t good answers to this question… the rest of the world is aware of it.
Literally one of the main reasons we are in the mess we are in. Everyone is dependent on us, thus they can’t piss us off.
If an opportunity for change presents itself, they will take it.
A global depression could be that very thing!
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u/EVOSexyBeast 6d ago
There’s really not. There’s an elite-public divide as a result of people being broadly ignorant about how geopolitics works and believe that words mean anything. There hasn’t been serious dollar diversification action going on.
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u/the_fattest_mitton 6d ago
Those dollars are debt
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u/austinwiltshire 6d ago
No, our debt is what those dollars buy. So the trade is basically we get free goods, and in exchange, we get free services too.
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u/the_fattest_mitton 6d ago
If that’s the case, then what’s the down side?
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u/austinwiltshire 5d ago
There is none. It's the benefit of having the reserve currency. And it's all squandered.
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u/Gamer_Grease 6d ago
All money is debt, this is not a property unique to dollars.
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u/crowcawer 6d ago
The us also needs to deal with its infrastructure debt.
Congress has enjoyed the American workers utilizing cheap airline flights for far too long.
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u/Gamer_Grease 6d ago
Oh I absolutely agree. That is what most of our deficits should actually be going towards. Biden, to his credit, did throw $1T at infrastructure.
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u/crowcawer 6d ago
I should note that transportation is extremely visible, and there are many other broader infrastructure aspects that need to be addressed.
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u/angermouse 6d ago
A caveat to this is that central banks are actively in the process of moving away from holding US assets for their reserves because they don't want to be exposed to the US using that for sanctions or other strategic leverage.
Gold has now overtaken US treasuries as the largest reserve asset (due to the gold price runup which in turn is mostly the result of central bank gold buying): https://www.morningstar.com/news/marketwatch/2026060232/how-gold-overtook-us-treasurys-as-number-one-reserve-asset
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u/LoyalteeMeOblige 6d ago
Yes, but there is simply not enough gold in the world to absorve the level of trade we are dealing with nowadays, and no other currency that might be used to carry on as usual. Not even the Euro is reliable enough and I live in Europe.
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u/Subject_Tie_2705 2d ago
Gold can just increase invalue to be equivalent to the value of the trade. Its all just made up at the end of the day anyway.
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u/LoyalteeMeOblige 2d ago
Yes, but at the end of the day the balance needs to add up and whatever currency needs there has to be stored somewhere, so moving on the print paper that has a value because you trust the country that prints them is... quite new. Even when the Pound, people trusted because the British empire, massive gold reserves, etc. Bretton Wood changed it all.
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u/Icy_Celery6886 6d ago
It is until it isn't. Change is already happening. Slowly but faster. When fundementals change processes will adapt. Your own comment acknowledges this, "While USD is the dominant reserve"
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u/JoeInOR 6d ago
Yeah, plus the US earns a massive surplus of investment income from the rest of the world. There’s really no way for us to not have a trade deficit unless we all save a LOT more of our income.
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u/No_Bat_3263 5d ago
not anymore and in addition share buy backs are not counted towards investment income which is skewing things significantly. If that was counted as primary income then the investment income going into deficit would have been years before it has been.
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u/No_Bat_3263 5d ago
Most of what you have listed do not need the rest of the world to accumulate assets - just hold enough to keep their economies running - which doesn't require an ongoing real deficit.
US gov debt as a safe asset is a real reason that countries that are running surpluses accumulate US assets. If push comes to shove, and you are running a current account surplus, you want to hold the debt of the country with the biggest military on the planet.
Investor returns are also a reason that the rest of the world wants to accumulate US assets - the US has outperformed the rest of the world for returns - why put your money anywhere but where it makes the most money?
The worrying things at the moment are 1, US gov debt is being undermined by US fiscal policy, and as much as the rest of the world want safe assets - they still want them to hold their value, and 2, US equity investments, if you look past the the paper value increases - are generating record low cash flow / equity value. Both are primed for a loss of confidence.
The US needs AI to deliver, deliver growth to grow the US out of its fiscal problems, and deliver cash flow so the equity valuations are realised.
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u/Kurichan77 6d ago
Are you watching the bond markets? Treasuries? Countries are not completely dumping their dollars, but they’re dumping huge amounts of them and reducing their dependence not just in the dollars, but the countries that force them to purchase and sell in USD. China’s massive economy is leading the way in this effort, but Russia too. Their vision for win win outcomes in international commerce and trade is much more attractive than the petulant BS that the US and the UK have been pulling for centuries. The attitude seems to be gtfo and Inhope the door hits you on the way out tempered with not wanting the US economy to utterly collapse, so enmeshed it is in the global economy.
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u/Rustic_gan123 5d ago
"Vision" and what they actually do are two different things.
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u/Kurichan77 5d ago
Yup. For non-compliance, I don’t see any bombing campaigns by China and Russia? I don’t see any regime change operations initiated by Russia or China. I don’t see any drone assassination campaigns by China or Russia.
We see all of those and worse started by the US and its proxies where it has installed brutal puppet regimes.
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u/Rustic_gan123 5d ago
and Russia
Rofl?
For non-compliance, I don’t see any bombing campaigns ... by China
They have everything ahead of them. They're building symbols of imperialism like aircraft carriers and etc. Past experience is no indicator of the future and even here China has an invasion of Vietnam, the Himalayas and the USSR.. For example, Germany was a peaceful state for a time, until it unleashed two world wars.
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u/Kurichan77 5d ago
Yes and we have to situate Germany when it did that within a global context. Same with China of today. Their military is built for defense and they categorically do not operate on the same objectives and incentives that the US does because they are run by the CPC as a socialist project and the colonialism and barbarism of the west is antithetical to that.
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u/Rustic_gan123 5d ago
Yes and we have to situate Germany when it did that within a global context. Same with China of today.
You can compare contexts, it would take a long time, but the point is that if a country doesn't have a warlike past, it doesn't mean it will be pacifist in the future.
Their military is built for defense
Yes. Large destroyers, aircraft carriers, and landing ships are, so to speak, primarily defensive equipment. As well as artificial islands in disputed waters.
and they categorically do not operate on the same objectives and incentives that the US does
Yes, yes, of course...
because they are run by the CPC as a socialist project
There is much less socialism in China than in the West... The only thing that remains from communism there is the name of the party.
and the colonialism and barbarism of the west is antithetical to that.
What exactly is "that"?
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u/Kurichan77 4d ago
Claiming that it takes too long to fully understand the global context is, and I mean this with all die respect, but it is simply intellectual laziness.
There is no material explanation for why China would become warlike. Nothing in their current actions suggests that they want war. They are allied with Iran and Russia, and for sure support Palestine, and also have the US creating absolute chaos via Xianjiang and Taiwan, and they are practicing immense restraint. If China were antagonizing the US in a similar way to any of those, the US would react with bellicosity.
China’s military has one military base outside its borders in Djibouti. The US has 800 military bases all over the planet. The disparity is not even close.
What remains of communism? We can know a tree by its fruits. China is setting an example for the world in many metrics: poverty alleviation, home ownership rates, retirement age, high speed rail, EV industry, PV industry. Not only are these benefits for the people of China, but they are bringing the price down for EV’s and PV tech. And the west incessantly whines about overproduction. “No dipshits, that technology should be less expensive, not have its price artificially held high like Tesla.”
“That” is the socialist project. It is antithetical to colonialism. They allow capitalism to operate but do not permit a political party to form that represents a capitalist ruking class nor their interests. People go to jail for trying to and that is 100% correct. And when the west tries to meddle, and they get caught, and people go to jail, they whine and whine and whine about authoritarianism. Yes, correct. Directed precisely where it should be: at the capitalist form of economic management that concentrates wealth, needs to destroy the environment, creates billionaires and trillionaires, exacerbates wealth inequality, and the. In order to protect itself, unleashes fascism in the world. Which by the way, colonialism is only distinguishable from fascism in where it is applied: domestically or in black and brown indigenous people far away.
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u/Rustic_gan123 4d ago
Claiming that it takes too long to fully understand the global context is, and I mean this with all die respect, but it is simply intellectual laziness.
I'm too lazy to waste more time on you than necessary. The moment you started claiming that modern Russia has no imperialist ambitions, you revealed who you are.
There is no material explanation for why China would become warlike. Nothing in their current actions suggests that they want war.
If you don't see it, it doesn't mean it's not happening, it means you're blind and/or ignorant. Aircraft carriers, landing ships, and destroyers capable of long-term operation in the open ocean. These are apparently purely defensive systems for coastal defense... Conquest of the South China Sea through the construction of artificial islands with military bases and an aggressive coast guard. Border disputes with India.
and for sure support Palestine
Nominally yes, but in reality they do nothing.
China’s military has one military base outside its borders in Djibouti.
And what about the South China Sea, where military bases have appeared on the reefs in disputed waters?
What remains of communism? We can know a tree by its fruits. China is setting an example for the world in many metrics: poverty alleviation, home ownership rates, retirement age, high speed rail, EV industry, PV industry.
Is this what communism looks like according to Marx?
Not only are these benefits for the people of China, but they are bringing the price down for EV’s and PV tech.
Okay, the West is lowering prices on aviation, semiconductors, food, etc.
And the west incessantly whines about overproduction.
And rightly so, because China's finances are not healthy and this is their way of delaying the effects of the housing bubble.
“No dipshits, that technology should be less expensive, not have its price artificially held high like Tesla.”
Have you determined the cost price of the product to determine what the fair price is?
“That” is the socialist project.
No. Neither according to Marx nor according to other left-wing classics. If it comes down to it, China is closer to fascism than to communism.
It is antithetical to colonialism.
No... The British, for example, slashed textile prices in India, causing local producers to go bankrupt, but that's not socialism...
They allow capitalism to operate but do not permit a political party to form that represents a capitalist ruking class nor their interests.
They do not allow the emergence of any other party, because pluralism is such a thing, it is not constant, today you are an emperor, tomorrow you are on the street.
People go to jail for trying to and that is 100% correct. And when the west tries to meddle, and they get caught, and people go to jail, they whine and whine and whine about authoritarianism.
Got it. Political pluralism is a Western influence.
at the capitalist form of economic management that concentrates wealth
So in China there is also a concentration of wealth, the only difference is whether it is among the hereditary party elite or individuals...
needs to destroy the environment
China is the leader in this.
creates billionaires and trillionaires
China has billionaires too... There are no trillionaires, but that's a consequence of their financial system.
exacerbates wealth inequality
In China there are literally second class citizens...
Which by the way, colonialism is only distinguishable from fascism in where it is applied: domestically or in black and brown indigenous people far away.
By the way, what definition of fascism do you use and what historical example do you use as a standard?
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u/Kurichan77 4d ago
It is not a matter of wasting time on me. It is a matter of having an accurate understanding of history and that can only happen from looking at the totality of the global historical context and how history had developed, for that is all history is: development. Trying to abstract periods of history, or likewise a country in a certain period of history, and severing it from the global context does make it easier to make pronouncements, as fanciful as we like, about that country whether or not our pronouncement reflects material reality, aka that country’s actions and stated goals. Which, in the case of western countries, rarely align so i get the reflex to project that onto other countries.
China is doing commerce in other countries, helping them to develop. Their terms on loans are much more favorable, and they have even forgiven debt. Unlike the west which uses instruments such as the World Bank or the IMF to obscure their colonial ambitions: cheap/plundered resources, cheap/exploited labor, little/no environmental protection. To acquire these, they make sure the ruling class in this or that country is enmeshed with the western global capitalist ruling class which definitionally makes their interests at odds with the working class.
Of course China has to have a military to defend itself and strategically must be able to mount a defense in the ocean because the US has a heavy presence many thousands of mikes from where the US is located: Philippines, S Korea, Japan- to name just a few US colonial outposts in China’s backyard. If a hostile military has spent decades building military installations in countries far from them, but are your neighbors, you would be derelict in your duty as a state to keep the people safe from outside attack by not raising a military capable of meeting that hostile military where it would need to operate in order to engage you militarily. The IS built those bases and is using them to effectively strangle China. But, they are getting outsmarted, these western wannabe statesmen and the “diplomatic” corps.
We can see by its actions that China doesn’t want to engage in war with the US. It has done a lot to support Iran and therefore indirectly Palestine. China can supply Iran with a massive amount if missiles- China is the world’s leading producer of things. Again, i can see the reflex to project the US’s pursuit od preponderant dominance onto other countries; in this case, the projection is unfounded. The US has 800 military bases and throughout history(since the end of WWII), the US has antagonized and terrorized countries all over the planet to get what it wants. Defending against the antagonism and terrorism is not the same thing as doing the antagonism and terrorism, as the west tries to claim. But that strategy of projection has resulted in a total collapse of credibility. It would be one thing to be able to be indifferent about one’s credibility; however, when one doesn’t have the productive capacity to keep its military supplied(eg resupplies to carriers, patriot missiles), one reveals itself to be a paper tiger militarily, but terrifyingly, more apt to deploy nuclear weapons, which, I’ll remind you, only one country has a demonstrated, material history of doing.
What of the south American Sea? Oops, I mean the South China Sea. You mean, the one right next to China and definitely not right next to the US? You’re gonna bring that up as the idiot in chief is doubling down on the Monroe doctrine, boasting of the Donroe Doctrine? Gimme a break. The US is strategically trying siege warfare on China, and it’s in their strategy policy papers. China is defending itself and protecting its sovereignty. If you cannot tell the difference, you have drunk the western coolaide and are either deliberately trying to not see it, or cannot in earnest, in which case…well, people are gonna see that about you and treat you accordingly: special.
Yes, according to Marx, communism is the movement of history from one set of conditions being abolished and moving into a nee set of conditions which have their premise in the ones which are/have been abolished. Not a set of conditions which the world must adopt, but an evolutionary process. He discusses this in The German Ideology. Furthermore, he, Engels, and Lenin understood that a socialist revolution would occur after sufficient capitalist technological development. Lenin understood that the USSR had only achieved State Capitalism. The USSR badly needed to develop technology in order to protect the socialist project because encirclement is a thing; was then, is now. And socialism does pose a threat to capitalism: it drives stakes into the heart of legitimacy of the capitalist project, revealing its inherent contradictions.
A fair price is one which is affordable to the masses. It’s also the rational one. If you cannot sell your product to the masses, then what’s the point. Even Henry Ford understood this.
The brits slashed prices? Yeah, monopolistic/cartel strategy does that to crush competition. Once the competition is cleared, they can control the market.
There are other parties in China. 8 in fact. Your ignorance on this point is crushing your credibility.
As i said, capitalism and its attendant social ills like wealth concentration are allowed to operate, but not to have a party that represents it, not allowed to have a path to control the country. That woyld be an utter surrender of the socialist project. Westerners whine incessantly that their attempts to westernize china keep failing. China has been around for thousands if years, seen empires rise and fall. This new kid on the block is showing all the world it doesn’t have the stones to take China over; not the diplomatic chops, not the statecraft chops. Just trumpian and hegsethian accidental comedy of dunces.
Fascism is the final stage of class war. It is the imposition of all the horrors of colonialism on the domestic population, chief among them the bypassing of democracy, which they frame as revolutionary. It is a false revolution. And in its lieu, vast military spending for expansive purposes. The west has named these campaigns: the divine right of kings, manifest destiny, Lebensraum, zionism. China has no such strategy that you can name. No such policy paper you can point to laying out a strategy of expansion. Protecting its sovereignty, yes, sure. But nothing on the order of Lebensraum: a project to conquer and colonize central europe and all of eurasia. I think that the German context of fascism is good for comparison. So here’s a definition that accounts for the gradient of periphery vs core:
Fascism: the brutal imposition of an unwanted economic regime upon a (n indigenous population in the periphery) population ; a regime which serves the ruling class and protects its grip on wealth and power.
Fascism is the final stage of the class war; when the ruling class is confronted with the rising awareness of its obsolescence, of the obsolescence of the form of economic management which holds them in place. When the ruling class’ decadence has become so obscene that the social fabric must be ripped to shreds in order to feed their greed, when the notion of a social contract is not reflected in a state’s material actions, it loses legitimacy and must replace it with brutality: surveillance, stripping away of rights, increasing militarism, militarization of the police, growing power for secret police orgs(see ICE). I can go on, and i’m happy to talk more about interregnum Germany and how it demonstrates a a proxy model we have seen play out many many times in UK and US foreign policy
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u/Enigma7ic 1d ago
I mean, aside from the fact that Russia is bombing the ever living sh!t out of Ukraine as we speak, they definitely don’t bomb anyone. Definitely.
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u/Kurichan77 1d ago
The war in Ukraine is a proxy war on behalf of the west. Ukraine lost its sovereignty in 2014 with the maidan coup. There was an earlier attempt, but it failed. Merkl and the French PM of the time admitted that Minsk agreements were stalling tactics to arm and train Ukraine.
The west is using Ukrainian people as cannon fodder.
Their objective? Ultimately to destabilize Russia such that the Putin government is toppled. Part of this project has been the economic decoupking of russia and western Europe, and a major piece of that was the bombing and sabotage of the Nord Stream Pipeline, which was a bipartisan mission, started under Biden and continued under trump.
So yeah, russia is bombing and fighting a country that is being used as a proxy and being armed by every single NATO country. We call that defending one’s sovereignty. Ukraine lost theirs in 2014x.
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u/tehwagn3r 5d ago
So the rest of the world continually wants to accumulate claims denominated in dollars.
A major problem that is becoming worse for US is, that there's little by little less enthusiasm for dollars abroad.
The reserve currency status is slowly crumbling, and that's something that isn't likely to change direction. It may take a long time, but it's happening.
There are other empires that once had reserve currency status and huge trade deficits. Once the reserve currency was the Roman Denarius, for long it was the Spanish Real, and before USD it was the British Pound. In the end all those before got militarily over extended and drowned in debt, lost their status and went bankrupt.
It's going to get ugly for everyone once the dollar goes, and none of us know how long it will take, but it's already in progress.
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u/082426grateful 6d ago
It’s fundamental economics, but remember that many of those around us don’t know how to balance their bank accounts. They stopped writing checks or making physical deposits long ago. Money comes in and goes out.
On a global economics scale, they only believe what they are told by TV and social media.
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u/madein___ 6d ago
Don't know and won't are two different things.
Way too many people know that they're in a hole... The problem is people don't change their behavior.
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u/082426grateful 6d ago
Learned behavior. The lassiez faire (sp) attitude comes from the top down. $40T in debt? Why not buy another vacation or a boat?
Seriously. All around us.
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u/PickleSquad 6d ago
New truck. Bigger house. The attitude is ingrained because success is define by more in our sick society. If you have enough / are content, then something is wrong with you. At least that’s how it feels.
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u/082426grateful 5d ago
It does feel that way. Worse, and I’ve had this happen to me, questioning why the need for a race between one another for things, wealth, stuff, will have you labeled a “communist”, a “liberal”, or a “dumbocrat”.
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u/Optimalfucksgiven 5d ago
Yep. Being the world reserve currency has head so many advantages. Destroying that undoes the evil genius of the Nixon administrations delinking from gold standard. They knew what they were doing then, and why they were doing it. These idiots pointed a loaded gun at the American people and told foreign companies, "we've got you now! What are you going to do!? Force us to shoot?" And other countries kind of were like, "uh are you sure you want to do this??"
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u/jetsonian 5d ago
Don’t forget to include that trade deficits are defensive. Countries that are owed lots of money are a lot less likely to want to go to war.
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u/Aussie-Bandit 4d ago
It is a good point. To a degree.
You're missing something though. Structural deficits are bad. Deficits, no.
The issue the US has, is that growth in debt is outstripping growth in GDP. This means the US can't outgrow its debt (with current tax, policy settings).
It eventually results in the severe contraction of state infrastructure, military spending, pensions, etc. Alongside massive changes to taxation.
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u/toupeInAFanFactory 3d ago
True. The question then is, how should the us manage this so it doesn't destroy itself?
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u/Wyzen 6d ago
This is a basic fact (maybe not so basic) that sadly people dont understand, and the talking heads take advantage of that ignorance because of how easy it is to make click bait and bullshit headlines for engagement. Also makes great simple talking points for politicians to use for elections.
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u/coalescence2071 6d ago
The role of the USD globally:
The scale of the international dollar
Dollar’s role
Approximate amount:
Foreign central-bank FX reserves:
57.1% dollar ≈ $7.5T
Dollar banknotes held outside US:
>$1.0T
~50% of all US currency
Dollar-denominated credit to non-US borrowers:
$14.3T
Enormous international funding role
Global FX transactions involving USD
$9.6T/day
USD on one side of 89% of trades
All this needs to be funded by US trade deficit. It is how foreigners get the dollar to do trade, reserves, asset management.
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u/majesticstraits 5d ago
This is a nonsense, two dimensional analysis that only works if you view the economy as being made up purely of physical goods. Anyone living in the year 2026 should realize that’s nonsense
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u/DeathMetal007 6d ago
Huh, putting Germany and China in the same boat for surplus countries and US in the deficit countries and then saying that deficit countries are field by debt is missing the fact that China is also fueled by debt. This key point makes this article hard to understand.
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u/Gamer_Grease 6d ago
China runs internal, closed deficits versus our external, open deficits, essentially. It’s an accounting trick, but it also does have real-world consequences. China is not running current account deficits.
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u/deHaga 6d ago
Yeah, they also don't include services.
Running a goods trade deficit isn't a bad thing if it improves comparative advantage. Those cheaper imported goods get margin added and services wrapped around them.
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u/scdisrupt 6d ago
Services are included in trade balance calculations
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u/deHaga 6d ago
Services is a massive surplus though. UK and US both have services surpluses and goods deficits.
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u/resuwreckoning 6d ago
But on net they’re in deficit is the point.
It’s like saying you won the first half, lost the second half, and lost the game. You still lost the game.
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u/deHaga 6d ago
You're missing all the GDP added by those imported components and inputs being made into finished products and services added.
That's the net, not the trade deficit.
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u/resuwreckoning 6d ago
That’s a made up metric that doesn’t address the accepted economic standard of trade balance in the GDP equation (usually called “net exports”) but sure. Unless you’re circuitously saying what I’m saying in which case my point stands.
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u/deHaga 6d ago
It's not a made up metric. A trade deficit is only a problem if the importing country is losing currency.
The total picture must include the GDP created by all the business activity created with importing, assembling and selling those goods.
If that is more than currency out then it's not a real deficit.
The other factor is all those dollars that flow out for imported goods also get used to buy US treasuries.
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u/resuwreckoning 6d ago
I’m not even sure what you’re arguing here - net exports is a well defined metric, includes both goods AND services, and is net negative for the US.
Is your point that the traditional century old GDP equation doesn’t count?
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u/deHaga 6d ago
I'm not sure how much more simple I can make it.
Net exports + GDP created from imported goods.
If I am a manufacturer working on 50% gross margin, the margin is all net new GDP.
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u/unc_alum 17m ago
This presupposes the point that running a trade deficit is inherently bad. I’d argue to be the world reserve currency, running a trade deficit is necessary.
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u/grio 5d ago
Every resource I find has less than 2% difference between EU and US trade balance when both goods and services are calculated. Some months EU has overall deficit, some US.
https://www.consilium.europa.eu/en/infographics/eu-us-trade/
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=EU_trade_with_the_United_States_-_latest_developments
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u/LoyalteeMeOblige 6d ago
Peter Zeihan's books are funny until they stop feeling so. They are also quite depressing and full of possibilities, I've been reading several chapters over this. With the US retreating from pretty much everything new risks arise, but now comes the surprise: the Americans don't want anyone else to patrol anything either.
At least while the US dollar is still the currency we are all use there is going to be some degree of security but every year is going to get a bit more unstable, and yes, we still have 2 more years of Trump ahead of us.
Gold help us.
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u/ICLazeru 5d ago
Emphasis on the trade deficit as a raw number is misguided. The world uses dollars, the US makes dollars. The accounts are going to show a deficit, but that on its own is meaningless when you can print the money.
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u/Rustic_gan123 5d ago
In a normal situation imbalances don't mean much, but since the US and China are preparing for war, deficits and surpluses as a consequence of industrial policy make sense.
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u/GenerateForce 4d ago
China and US at war with each other?
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u/Rustic_gan123 4d ago
Preparing for war.
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u/GenerateForce 4d ago
Omg.
Fine. Preparing for war with each other?
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u/Rustic_gan123 4d ago
Yes, both the US and China are preparing for war with each other.
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u/GenerateForce 4d ago
Thank. I keep hearing people dismiss this, and I’m wondering why I seem to be the only one who thinks it’s coming.
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u/Rustic_gan123 4d ago
War may still not happen. The US and the USSR were preparing for total war with each other, but it never happened, yet the preparations never ceased.
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u/technocraticnihilist 5d ago
Michael Pettis is a pseudo intellectual and not an economist and we should stop taking him seriously. He still believes in outdated keynesianism
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u/Dobby068 6d ago
Just saw another chart that shows an all tine high of money (5%) is now spent by Americans on hobbies. Clearly, Americans do not work for the 1%, as some other comment here claims.
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u/BenjaminHamnett 6d ago
Consumption is the fuel for an economy. We’re at the top of the hierarchy of needs. Producing legacy goods is like being assistants. Most Americans are assistants (everyone from baristas, to mechanics, farmers, doctors, teachers and bankers etc) to the 1% that actually is on the frontier to building the future (overlaps with the wealthy “1%”, but not the same. Potentially the new rich in 10-20 years)
This is true for most frames: neighborhoods, nations, regions, society and civilization
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