He's been on a bit of a book tour recently and his name kept ringing a bell for me dimly every time I saw him pop up, and then one day it hit me, Rogoff is the economist who was found to have made a serious mistake in their paper about the effect of debts levels on GDP growth a decade and a half ago. The paper argued that the higher the levels of debt, the more gdp growth slowed down and reversed. This paper as used to support a lot of austerity policies in response to the GFC in the years following 2008. Some, at the time, grad students looked into though and found that there were lots of serious mistakes with the paper.
Leaving a comment for others just in case others are experiencing that same mis-connect. As far as the article goes, we'll see! I'm inclined to think that is true, that the US is retreating from the world stage and the dollar will follow, but whether that happens now, later or never, I couldn't say. Interesting times!
To be clear, the error caused a 'kink' in the graph which made it look like there was a 'tipping point' at a 90% debt-GDP ratio. Correcting this error did not change the overall result, which is that a 'high' debt/GDP ratio caused reduced growth.
It did change the overall result. The claim was that there was a tipping point when government debt went higher than annual GDP that would cause growth to suddenly plunge. Turned out here was no discontinuity, it was almost entirely an artifact of motivated reasoning and their failure to use Excel.
The pretend claim the debt police went with later is that the paper somehow proves debt is inversely related to growth in some way. This is not an interesting claim, and certainly not proved by showing that low-growth countries are often also high-debt countries.
edit: there is absolutely no reason to think that government debt is related to GDP. That's why they resort to making statistical, associative arguments. The balance of payments is the important number, and it's an accounting identity that if holding the balance of trade steady, when government debt goes down, private debt must go up. The only thing you can be sure of when government spending goes down is that systemic investments by governments are being neglected, in favor of individuals borrowing money for personal consumption. Hello Temu.
Yep. It lead to a decade of austerity measures across the EU, which caused most European nations to fall behind the US, despite being head-on-head economically in 2007.
I don't think that's correct. The "overall result" was originally a marked effect, and the one after correction was pretty much noise. Yes, it pointed in the same direction, but without a notable impact.
It's like trying to convince your parents to let you stay home by faking a temperature on the thermometer, then when caught repeating the measurement and shouting about how it actually shows 98.9°F and you really do have a fever!
Consensus was and remains that public debt and GDP growth correlate very poorly if at all, and the book that claimed the opposite was simply wrong.
> I'm inclined to think that is true, that the US is retreating from the world stage and the dollar will follow, but whether that happens now, later or never, I couldn't say.
I don't understand why or how that would be a goal. Doesn't the US get / consume something like 25% of the world's production while having about 5% of the population? If they're consuming 5x their share, the bottom is way, way further down than anyone can fathom, isn't it?
> Doesn't the US get / consume something like 25% of the world's production while having about 5% of the population?
It did this by running up an impossibly massive trade debt since Reagan. This is not something that can be done endlessly, unless you're going to "start" invading other countries for resources.
America is literally following Trump into isolation. Why trade using a reclusive countries currency? Would you expect Finland to do international trade using North Korean WON?
> Economics professor L. Randall Wray criticized Reinhart and Rogoff for combining data "across centuries, exchange rate regimes, public and private debt, and debt denominated in foreign currency as well as domestic currency," in addition to "statistical errors," and for lacking a "theory of sovereign currency".
> But then President Richard Nixon decided, in 1971, that we weren’t going to [give you gold for dollars on demand] anymore.
It wasn't a political decision to end Bretton Woods. Nixon had no choice, there was no agency, nobody decided. Gold standard will never come back. Bretton Woods was a flawed system, and one of its fatal flaws occurred. If we ever came back to Bretton Woods, it would blow up again. It doesn't work.
But governments do have the greatest power to create and destroy wealth! It is political. So it's so unfortunate that he chooses to make this point about Bretton Woods, where he's wrong, as opposed to say tariffs, where he'd be right.
And a forceful theter to gold for all major currencies/US partners would have just ended up in a state like the long depression of the 19th century, which would have probably killed the western block, so really the only choice was to let all money float.
I watched it and I found him less convincing than Dalio's Principles of a changing world order, which I found to be extremely intuitive although not at all rigorous.
Ezra gave Rogoff a lot of push back and Rogoff came off as a guy who intuitively understands things but doesn't rigorously understand them so he looked kind of foolish multiple times. Rhetorically he was poor and if I hadn't already gone in agreeing with his general consensus, I would probably have been left fairly unconvinced. Of course, the curse of knowing a lot is that your knowledge of what you don't know is much larger than other people's knowledge so it's harder to confidently present things because you can think of exceptions or why they might not be true or how things could be much worse or much better than what seems most likely.
The liberation day tariffs were definitely something. The tariff numbers themselves were chosen explicitly in reference to trade deficits. Trade deficits are an exact measurement of the strength of the US dollar as a reserve currency.
Reducing trade deficits to zero is exactly ending the dollar as a reserve currency since it implies that no country has dollars in reserve. There is a stated a goal of this ruling regime to return to the gold standard.
So who was being liberated? From what I could tell it was authoritarian countries from the consequences of the sanctions framework provided by SWIFT and trade predominately occurring via the dollar. Rogoff explicitly states that the dollar as reserve currency has incredible intelligence value and allowed for us to impose sanctions on other countries.
The number of ways to interpret liberation day in a dystopian way are large, and I can't really think of any American entity that directly benefits from liberation day "liberation" except potentially unskilled American labor who might be free to work sweatshop jobs that get re-homed, if they aren't automated or don't just disappear entirely.
> Treasury Secretary John Connally to meet with these leaders in Rome. They asked, “What do we do? Now that you’re not on gold, you can just inflate this stuff, and we’re stuck with it.” And Connally replied, “Well, it’s our dollar, but it’s your problem.”
Unrelated but this is John Connaly who was governor of Texas during the JFK assassination. One of the bullets -- possibly the one that killed Kennedy -- went through Connaly's wrist & ribs
If I am China I lend you money I would like get paid back in dollars because I can already print as many Yuan as a I want. Why should I lend to you in a currency I can turn the printing press on for. So it feels like the Dollar will be around for awhile as long as it is accepted, convertible, and the Government tries to slow down the printing press themselves.
It seems both backwards and perfectly sensible that the country with the biggest debts is also the country with the biggest stick. It’s backwards because it seems counterintuitive to any mafia-style arrangement where the guy with the big stick is collecting the money. But it’s sensible because the safest debtor is one that won’t default, and why would the country with the biggest stick ever want to default?
It’s almost like some twisted version of Mutually Assured Destruction mixed with economics and realpolitik. As long as you don’t try to collect your money, it’s safe and profitable to lend me more of it. Because of the implication…
my understanding is that yes it is, you cant make shoes in the US, but the power that comes from pretty much all finance flowing through the American pipes is a good trade off.
Red wings and Rancourt & Company, here, plus Mexican and Spanish manufacturers (most search engines are terrible at surfacing these, you need to specify the country to find them) when I can’t find what I want in my price bracket in the US. Alden’s a bit rich for my blood.
Frankly, sneaker prices are getting so damn high that for the last couple years “expensive” leather shoes and boots from manufacturers that have resisted big price hikes have been looking more and more like a bargain…
The USD as the world's reserve currency means, effectively, that other nations are lending the US money at the very low interest rates that Treasuries yield. Effectively, the US gets the best and biggest line of credit in the world, with which it had (until now) financed the most incredible expansion of industrial, financial and academic prowess the world has ever seen.
That's mixing up dominance with high value. In theory there could be a world with a lower value dollar that's still stable and used for international trade.
> It will still be first in global finance, because nothing is poised to fully replace it.
There are many countries with their own currencies, and all it takes is one of them to back it with gold, or a basket of commodities, and create infrastructure around it, and now there is something more attractive than the dollar to denominate debts in. That's all it takes. Everyone just wants to conduct business, get paid, buy food, etc. If the dollar is inflating away 10% every year, and there's something that fluctuates less than that, it's not exactly a hard choice. Especially if the choice is just a drop down in an app.
What may be more concerning, is it's not going to be a western democracy that sets up a stable-coin backed by commodities. They move too slowly, it's going to be an authoritarian regime that can move fast and wants to advance it's significance in the global economy.
Let's say some random country follows your advice and decides to go back to the gold standard – is that going to convince people globally to use their currency? Probably not.
Because even if the currency is on the gold standard today, what stops the country's government from switching back to fiat tomorrow and pocketing all the gold? Or, gradually doing so by introducing restrictions on gold redemption and slowly tightening them over time?
Whether a currency is fiat or backed, it is ultimately a statement that you trust the government which controls the currency to take good care of it – and in general, it is easier to have that trust with democracies than authoritarian regimes. And this is part of the argument for fiat currencies – if trust in the institutions ultimately counts for more than what the currency is backed by, why do we really need the backing?
Which is why replacing the USD is so hard. I think even if the US starts to go really downhill, people will be looking at currencies like the EUR, JPY, GBP as an alternative. If the IMF allowed private parties to use SDR as a currency – a move the US has always blocked as a threat to the USD, but in a global crisis the US might feel it has no choice but to change its mind – that might become a viable alternative global currency. CNY may become important in trade with China and its close allies, but who outside of China trusts the Chinese government enough to use CNY as a long-term store of value? Only as a riskier bet in a diversified portfolio including safer options.
The backing the US dollar has is the strength of the world's only superpower. It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. That means an entity strong enough to be fully independent, and governed by the rule of law, so that if you're holding a bunch of that currency you can be confident it'll be worth as much tomorrow as it is today.
It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war.
The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.
> It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability.
Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. It's a kind of social technology like a constitution or super-majority requirement that creates stability. It's a plus that the US is stable power, but you can bet that the dollar will inflate year over year. That is its own form of instability.
Though BRICS may seem insignificant atm, it is off to an impressive start.
Could the world have two competing currencies? Possibly.
But the one way to guarantee that adversaries (I don't care who your adversaries are, I'm using that as a non-denominational term) don't get the upper hand, is to use a currency they can't control or manipulate.
ATM the US dollar, can be manipulated by the Fed, but also by the collaboration of other countries, and holders of debt, as recently shown by the US bond activity.
I know many on HN are going to hate to hear this, but a single, global, trust-less currency cannot be manipulated against any single group. So bitcoin may just be the answer here.
I think this is the most incompetent administration USA has had in modern times, and it’s perhaps the second most authoritarian (next to WW2 era FDR). The current administration seems to be taking concrete steps to weaken USA’s financial dominance in a way that has not happened in the years since you were a teenager.
I suspect these forces will combine to significantly weaken the dollar.
The FDR administration two of the Treasury architects of Bretton Woods were Russian agents. One of them, FDR's chief economist, had his US passport and US citizenship revoked. He lived the remainder of his life in Columbia, presumably helping with their "monetary policy success".
Don't forget Nixon shock though. That was basically undoing Bretton Woods, but in an incompetent fashion that was amplified by low interest rate induced inflation, and produced "stagflation". https://en.wikipedia.org/wiki/Nixon_shock
The smartest guy we had was probably Lawrence Summers.
I sincerely question what you might mean by “heard forever” - much of what is being done here is so far beyond the pale of what has been done before that I can’t seriously understand how someone could look at it and say “ah this is the same as it’s always been, just standard partisan bickering”
If you sincerely question, then it should be easy for you to provide samples of what is "beyond the pale". There is no need for narrative building either, it serves no purpose other than aggravating the other person and making them smaller.
I think the “narrative building” is important here, since I am responding to an in-construction narrative.
Frankly I really struggle to see how someone who has been reasonably paying attention would need examples; they’re too many to mention.
Off the top of my head and in no particular order:
1.) Unilaterally and without the consent of congress invoking emergency powers to place broad tariffs on almost the entire world has never been done
2.) Frequently attacking and undermining the judicial branch, including by transparently punishing entire law firms that represent causes unpopular with the administration has never been done
3.) Brazenly abusing the office of the presidency to further personal financial gain by launching a meme cryptocurrency days before taking office has never been done
All previous administrations sold us down a river, I dont agree with Trump in how he has approached solving the problem, but atleast they are out there trying.
What exactly is the evidence of this? Debt/deficit? Seems like that's been going up and down forever. Because by every other metric the US economy was humming along until we decided to take a wrecking ball to it, to prevent future wreckage I guess?
Are they? None of the recent events point to any plan. It's pure and simple corruption. If by trying you mean trying anything without a clue, I can agree with that.
What do you think about the fact you can directly bribe the president through his memecoin or by buying dinners with him? That's "at least trying"?
Sometimes change for the sake of change gets you a circus on fire.
Enjoy your instant HN downvote for any hint of pro-Trump sentiment.
To support your statement, there was insanely unnecessary spending in last 4 years, raising the debt to unsustainable levels. And yes, Scott Bessent has clearly articulated what they are tying to do to improve the situation - agree with them or not.
2016: $19.57 trillion
2017: $20.24 trillion
2018: $21.52 trillion
2019: $22.72 trillion
2020: $27.75 trillion (COVID-19 pandemic, CARES Act, and other stimulus)
2021: $28.43 trillion
2022: $30.93 trillion
2023: $33.17 trillion
2024: $35.46 trillion (as of October 2024)
We were probably doomed to see a major public debt crisis eventually when we cut taxes going into two extremely-expensive long wars under W Bush, the “probably” was upgraded to an “almost certainly” when we cut taxes again under Trump, then Covid happening removed the “almost” from that.
Now we appear to be trying to move the timing of the crisis from 20+ years out, to less than a decade out.
Fewer than 50% of people who voted, voted for him. He won a plurality, not a majority. (Of course fewer than 50% of eligible voters voted for him, but I’m assuming that’s not what you intended)
Less than 50% of the vote went to Trump, and you’ll find that he did very poorly among the well educated.
This is the first I’ve heard of any banning, but the facts are clear and frankly it makes sense that an echo chamber opposed to the president’s policies forms wherever well reasoned discussion happens among educated people.
I don't know about incompetent - there's plenty of smart people around Trump. The big problem seems to be that they all kind of disagree with each other and Trump ends up doing what the guy who talks to him most recently advises him to do.
The current "plan" seems to be to leave behind the largely-defunct WTO once and for all and build a selective free-trade alliance specifically excluding China, much like GATT was. I don't think this would really make the US "richer" (or any participant in the alliance) - in fact it would probably make us all a bit poorer. But it would make China much poorer which at this point is kind of the goal.
Which "smart" person advised him to calculate tariffs based on trade imbalance for each country, including uninhabited islands? It's an utterly stupid idea that makes no sense at all.
If you read Miran's paper, the point of the tariffs is to bring US trade partners to the table to negotiate the alliance, so really they could be anything at all. It could have been 420% or 31.4159% or whatever, right across the board.
But the amounts are actually kind of clever and it reflects the fact that there's a more mature understand of trade barriers now vs when the WTO was negotiated.
How much do you know about trade barriers? Beyond tariffs, they're extraordinarily complicated and rely on regulations, trip-wires, and unequal application of rules.
Canada has "free trade" with dairy, but only on dairy imports up to a point, and after that heavy tariffs apply. But no one ever imports enough to incur those tariffs, so, that's free-trade, right? But actually, no one considers the Canadian dairy market worth the trouble without being able to import large amounts of dairy. So Canada can legitimately say that the trip-wire isn't applied, but it's a long ways from "free trade" because large importers are kept out.
China requires that foreign companies must partner with local companies to sell into the Chinese market. This effectively leads to a lot of technology transfers. It's not a tariff, but it's pretty clearly a "trade barrier" because companies that want to protect their IP are denied access.
In the 80's when US trade reps were negotiating with Japanese trade reps, the Americans would try to convince the Japanese that free trade was best for Japanese consumers. The Japanese reps would just respond, "how much do you want us to buy?"
The Japanese really didn't believe in free trade, and they were actively manipulating the value of the Yen at that point (it would be a few years still before the Plaza Accord), so they knew that just lowering tariffs wasn't going to make US goods sufficiently more competitive in Japan.
What's changed in 35 years is that the US doesn't really believe in "free trade" anymore either - not after all of the grief the WTO brought. The simple formulas are a no-bullshit approach to trade - the same ones that motivated those Japanese trade reps.
"I don't care how your trade barriers work - currency manipulation, tariffs, excess regulation, unequal rules - just fix your sh*t to reduce the trade imbalance."
> just fix your sh*t to reduce the trade imbalance
But why does each individual country's trade need to be perfectly balanced with the US? What are the odds of that happening for every single country? What are the odds of it working for every possible pair of countries?
I agree with you, but I also think you have this idea that trade is currently governed by largely linear and symmetric rules in Ricardian harmony, and that just isn’t the case.
Every industrialized exporting country in the world has optimized for exporting to the US, and there’s plenty of govt policy involved. Trade barriers are the norm, not the exception. If other countries optimize their trade rules, regulations, and money supply to optimize for a sizeable trade surplus with the US, they can change their policy to reduce the surplus.
The word “optimize” is being used a lot here, and I think it’s covering up the clear lack of a plan.
The USA exports plenty of goods, and in cases where there are these nebulous “trade barriers” being imposed, they should be investigated, discovered, publicized, and negotiated. That work was clearly not done here.
Read the Miran paper. It’s not about imbalances. It’s about negotiating leverage. Australia in particular is going to be the most interesting case in the world.
Strategically, Australia is more sympathetic to the US, but your trade with China is many multiples of your trade with the US. If you join the US you’ll have to raise tariffs against China and if you don’t you’ll naturally fall into China's orbit. Interesting times!
Give up your whole notion of “should”. There is no “should”. The formula is for aligning incentives. It’s no longer enough for other govts to claim compliance with abstract requirements while clandestinely working against them - they need to be committed to helping importers succeed.
Like I said, he takes the advice of the last person who talks to him. He’s very suggestible. The best parts of his presidency, so far, have been when he follows the plan in project 2025, which you may not agree with, but is at least sane and coherent. The worst bits are when he adlibs, like the stupid tariff escalation with China.
Ultimately the biggest problem with Miran’s plan is that now that Trump is tearing up these trade agreements, no one has any reason to believe that the new one is worth the paper it’s printed on. He has no integrity and no one signs agreements with people who have no integrity.
For the record, I'm not really sure how I feel about this plan. Free trade with China uplifted 700 million people (in China) from poverty.
OTOH, if you believe that China is basically Germany circa 1938 (and indeed, China in 2025 is the largest and most successful fascist state in all of history), then kneecapping China's economy makes plenty of strategic sense.
But we could always just keep buying Hitler's Volkswagens - that's the direction our incentive gradient points in. The US doesn't need to be the global police - we could always just let China have Taiwan, the Senkakus, the Ryukyus, etc...
I think what a lot of people miss when they talk about America being the “global police” is that almost always the law (so to speak) that the “global police” are enforcing is enforcing is the advancement of American interests.
This would be true if you left your $ in a vault or mattress ,which no one does. It also fails to take into account utility. How does one put a dollar value on a $10-30 GPT-4 pro subscription? Where does this fit in the 'dollar losing value' paradigm?
2030: “Well a loaf of bread is $50 but a loaf of mostly-sawdust is $10 so we’ll sub that in the basket of goods as equivalent; the median house is $2m but girlfriend chatbots are too cheap to meter. Looks like yet another year of low consumer price inflation!”
Everything has been in a headline at some point. Perhaps all that experience is hindering your ability to discern what really matters. Too much noise from your past.
Because this time is always different. There needs to be some accountability when pundits are wrong, just like in any other profession. I have read this prediction forever too. The dollar always has a recurring tendency of surging, typically when there is unrest or recession or any other reason, or even no reason.
Also, the dollar falling also does not make Americans poorer, as the implicit unit of wealth is the US dollar (e.g. the Forbes 400 list). Americans measure their net worth in dollar, not Euros. This would only matter if traveling oversea and purchasing power falls due to falling dollar. Otherwise, it does not matter.
We have an administration actively attempting to tank the US dollar as global reserve currency?
If you think this is a crazy thing to suggest, consider that there is a faction in the US that wants this to happen. They see a strong US dollar as harmful to manufacturing and the working class.
You're not alone, someone in ancient Rome probably read a clay tablet saying the denarius was doomed. Centuries later, a merchant in Spain might've heard whispers about the decline of the Spanish real, and a banker in London likely scoffed at predictions of the pound’s fall from grace. Empires always feel eternal, until they’re not. History doesn’t repeat, but it does hum the same tune. Maybe this time isn’t different, just... next.
My guess is that initially it will get eaten away by parties that currently trade in US dollar for convenience shifting to trading directly in their native currencies. It's a pure cost / risk equation for them that they have to manage this third variable in their dealings and if that outweighs the benefits of using a common currency they will make an agreement to trade directly. This will happen slowly over a long time and eventually a new default currency will emerge as a result of these decisions.
pretty much all economists and commentators state that the replacement will be a basket of currencies not a single currency, where each countries' basket will be weighted by the typical trade volume they have with other countries (more trade with Country X, then hold more of Country X's currency) plus some factor for stability/volatility/currency risk etc.
It literally says in the article that nothing is going to fully replace it. And the same way that it didn’t happen overnight for it to become the force that it’s today in the global economy, it won’t disappear overnight either.
America decided to politicize and weaponize the USD and so the rest of the world decided to reduce usage of USD in international trade. They can use currencies of their trade partners to trade, so that:
1. Currency flows are invisible to the Fed
2. US sanctions cannot ban mutual trade in other FX
these two are the major ones, so if Brazil wants to trade with China, they don't need to use USD, they can hold each other's FX as some reserve and use it for trade
By whom? If I wish to look up bitcoin exchange pricing, I look it up based on AUD. I wouldn't measure bitcoin in USD, that would hold no value to me or billions of others globally.
Something I think a lot of people miss in this discussion is that with computers and electronic markets dealing with currency conversions is fairly easy. In the past doing everything in USD vastly simplified everything, but today I think countries just trading with whatever currency works for a given market or transaction probably makes the most sense.
There is no other world currency that looks both large and stable enough to replace USD. Chinese Yuan/Renminbi is probably the closest but it's probably viewed by many as too easily manipulated. It's a pure fiat currency run by a single party state with little separation of powers.
A global currency has to have liquidity and availability and the Renminbi has none of those things. China doesn't seem willing to turn their country into a major importer (thus making the RMB more global) so I doubt it will replace the USD either. Probably all three USD/EUR/RMB will be around without a major takeover by a new entrant.
Computers and electronic markets don't solve currency conversion so easily because it's not just about doing math.
If say a Thai company wants to buy cocoa beans from Nigeria, the Nigerian exporter doesn't have any immediate use for Thai baht if they aren't planning to buy something from Thailand. If exports and imports between two countries aren't relatively balanced there won't be a liquid market between their currencies.
What if countries form networks? If Nigeria has no use for Thai Baht they swap it with another country for US dollars, Euros, Rinminbi, whatever. It could all be done automatically in near real time.
My view is that the primary purpose of money is to enable balanced exchange of useful goods and services, and with that premise, "money" could be replaced by large information systems. In fact, that transition is long underway. Who uses cash anymore?
Can capitalism buy it's own goods it produces without inflation? I heard someone claim that the only way the system balances is by printing money. Workers are paid less than the value they produce, and they're most of the consumers. So governments encourages workers to borrow money from banks (home loans, car loans, credit cards, and so on) to buy the goods they produce. But in the end the government still needs to purchase the excess through deficit spending. Like we saw for example during covid. In Canada government doubled its debt. To keep things from falling apart. And inflation is the only way they made it go on. But it's not sustainable, because now good chunk of taxes go to paying previous government's debt, and citizens get less services in return for more taxes. Clearly this loop is not sustainable too many times.
Anything might be happening. Does anyone ever collect statements like this and see if they turn out to be true or not? Predictions like this show up in the news all the time and they’re pretty meaningless. They just slide out of public consciousness in a few days and nobody ever knows if they were right or wrong.
One of the grosser things the cryptocurrency mania did was convince people that you can only criticize things if you have a financial interest that aligns with your commentary. This is at odds with the very basics of journalistic ethics. Just patently absurd.
I'm actually converting to believing in bitcoin, and that usa politicians/financiers have used the dollar as a way to side step wide ranging problems in the USA, at the expense of currency devaluation. Bitcoin is a backstop, a way to step outside manipulated currency.
Just remember, the same things that make Bitcoin attractive are what make it really easy to steal. Namely that it has no "men with guns" to back it up and no government bank to make you whole.
Bitcoin is not treated like a currency anymore, given recent trends. It's acted upon more like an equity. In short, it's seemed to tend to follow the stock market. Whatever that means to you, YMMV.
It drives me nuts how many people support crypto for the right reason, and then miss the last step and support Bitcoin instead of Ethereum. Bitcoin is an enormous resource sink, on the scale of fiat system inflation. It doesn't have to be! The system works without it!
How are we supporting or encouraging theft? When the state increases inflation and the supply of money on a whim, they directly steal value from the little people and funnel it to the big people.
People frequently lose a significant amount of money due to hacking, fraud, or extortion with no legal recourse. This is not where you want your grandparents parking their life’s savings.
That's just ignorance. In crypto "little people" is literally everybody, the "currency" is run by a handful of whales (largely quasi-criminal exchanges and casino mobsters), who have a track record of colluding to manipulate the market and hike up fees. And no, you cannot vote those people out of office. How is that _any_ better?
Crypto just has pump and dump schemes on a practically regular basis, but I guess that's completely different because the way it funnels value is slightly different.
USD Stablecoins could be driving real demand for USD, no?
"The total transaction volume for USD-pegged stablecoins in 2024 was approximately $27.6 trillion, based on industry reports from CEX.IO and other sources."
I thought the reason we are able to borrow cheaply, and ratings, is basically due to credit-worthiness, and not dollar as a reserve dominance. After all, during the debt ceiling crises, that's when our credit worthiness and ratings were downgraded, but it had nothing to do with the actual currency.
It has everything to do with the actual currency, if people weren't buying dollars at the rate they do to do commerce the US could never run the debt it does, it would have crushed any other country.
It also means Americans get to buy stuff from all over the world cheaper than anyone else, the moment this goes away inflation for imported goods will eat into people's salaries, there will be less investment as it will be risky to invest in a country in a debt crisis and folks will find out what it is like to live in Argentina for the past few decades.
The quality of life loss in the country if this happens will likely get people to stop talking about the great depression.
Knowing you will get paid back (i.e. credit worthiness) is part of it, but another part is that the currency holds its value, and the global demand for dollars is an important part of that. If the global demand for dollars decreases, then borrowing is more expensive because you need to offer a higher interest rate to entice people to purchase bonds, because they have other more attractive options to store/grow their money than US bonds.
One way to think of it is that the US benefits from the current world order by essentially taxing the rest of the world to pay for its spending by devaluing their currencies relative to the dollar.
Yes and no. US can just print more dollars and pay its debt, which it is doing since Nixon. It doesn't need to default on its debt ever, as long as USD is the reserve currency. Of course the rate rhis happens is a delicate thing. Too quick devaluation would upset the debtors. Though they own so much of US debt (like China owns 2 trillion dollars or sth) that they are incentivizes to play along.
At the end of the day, somebody out there has to have a US Dollar and feel comfortable lending it to the US Government. The reserve currency status of the dollar means more people need it, which means there’s more supply of dollars to borrow without causing currency collapse.
As it turns out, when every country holds US dollars for use in global finance, it makes it very easy for them to park US dollars in American financial assets
Also, the primacy of the American banking system allows the US to use it as a cudgel against foreign countries to make them do do all sorts of things. If some other currency is the global reserve, we lose a fair bit of soft power.
There are a lot of reasons we like being in the position we’re in, and I don’t think we know how bad losing it will be, if we do, but I think it’s unlikely to be positive. (Clearly our economists have largely agreed or we’d have gotten here sooner.)
Where else would they park it? The stock market is being automatically pumped by 401k auto purchases and similar investment strategies that amount to basically a tax with lipstick to subsidize the market. I don’t think any other nation is pumping their own assets to this scale. Maybe china but they don’t exactly let in outsiders to milk a good cash cow I wouldn’t think.
The people who are blowing it up are doing it for a reason. You can disagree with them (I largely do) but there will likely be some upsides. I don’t know if they’ll be worth it, but all the economists said the trade war with China was a bad idea in Trump’s first term but has come around to it by the time Biden got into office.
I wouldn’t say I’m optimistic but it’s possible it may work.
> Stablecoins are in some respects similar to Eurodollars, a financial innovation that helped to create the financial plumbing used to implement sanctions. Both stablecoins and Eurodollars are U.S. dollar-based liabilities that had their origins outside the regulated banking system. U.S. policymakers initially paid little attention to Eurodollars because the market was small. But it quickly grew, and—luckily for policymakers—Eurodollars ultimately helped cement the international role of the dollar. It is the global dominance of the dollar, coupled with the role of U.S. banks in facilitating dollar payments, that gives the U.S. its tremendous financial leverage.
He's been on a bit of a book tour recently and his name kept ringing a bell for me dimly every time I saw him pop up, and then one day it hit me, Rogoff is the economist who was found to have made a serious mistake in their paper about the effect of debts levels on GDP growth a decade and a half ago. The paper argued that the higher the levels of debt, the more gdp growth slowed down and reversed. This paper as used to support a lot of austerity policies in response to the GFC in the years following 2008. Some, at the time, grad students looked into though and found that there were lots of serious mistakes with the paper.
https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt
Leaving a comment for others just in case others are experiencing that same mis-connect. As far as the article goes, we'll see! I'm inclined to think that is true, that the US is retreating from the world stage and the dollar will follow, but whether that happens now, later or never, I couldn't say. Interesting times!
To be clear, the error caused a 'kink' in the graph which made it look like there was a 'tipping point' at a 90% debt-GDP ratio. Correcting this error did not change the overall result, which is that a 'high' debt/GDP ratio caused reduced growth.
Given that it doesn’t change the overall result, is it really a “serious” error?
It did change the overall result. The claim was that there was a tipping point when government debt went higher than annual GDP that would cause growth to suddenly plunge. Turned out here was no discontinuity, it was almost entirely an artifact of motivated reasoning and their failure to use Excel.
The pretend claim the debt police went with later is that the paper somehow proves debt is inversely related to growth in some way. This is not an interesting claim, and certainly not proved by showing that low-growth countries are often also high-debt countries.
edit: there is absolutely no reason to think that government debt is related to GDP. That's why they resort to making statistical, associative arguments. The balance of payments is the important number, and it's an accounting identity that if holding the balance of trade steady, when government debt goes down, private debt must go up. The only thing you can be sure of when government spending goes down is that systemic investments by governments are being neglected, in favor of individuals borrowing money for personal consumption. Hello Temu.
Yep. It lead to a decade of austerity measures across the EU, which caused most European nations to fall behind the US, despite being head-on-head economically in 2007.
Yes.
I don't think that's correct. The "overall result" was originally a marked effect, and the one after correction was pretty much noise. Yes, it pointed in the same direction, but without a notable impact.
It's like trying to convince your parents to let you stay home by faking a temperature on the thermometer, then when caught repeating the measurement and shouting about how it actually shows 98.9°F and you really do have a fever!
Consensus was and remains that public debt and GDP growth correlate very poorly if at all, and the book that claimed the opposite was simply wrong.
> I'm inclined to think that is true, that the US is retreating from the world stage and the dollar will follow, but whether that happens now, later or never, I couldn't say.
I don't understand why or how that would be a goal. Doesn't the US get / consume something like 25% of the world's production while having about 5% of the population? If they're consuming 5x their share, the bottom is way, way further down than anyone can fathom, isn't it?
> Doesn't the US get / consume something like 25% of the world's production while having about 5% of the population?
It did this by running up an impossibly massive trade debt since Reagan. This is not something that can be done endlessly, unless you're going to "start" invading other countries for resources.
Most of us don't really understand why, but that is apparently the goal of this administration.
I'm honestly not sure there's any grand design or even inkling of a plan. It's happening and we have to deal with the consequences
America is literally following Trump into isolation. Why trade using a reclusive countries currency? Would you expect Finland to do international trade using North Korean WON?
Thanks -- thus quote seems on the mark:
> Economics professor L. Randall Wray criticized Reinhart and Rogoff for combining data "across centuries, exchange rate regimes, public and private debt, and debt denominated in foreign currency as well as domestic currency," in addition to "statistical errors," and for lacking a "theory of sovereign currency".
Thanks for the link. My memory from that time had it as "merely" excel issues, but as described it is a fair bit worse than that.
I stopped reading at:
> But then President Richard Nixon decided, in 1971, that we weren’t going to [give you gold for dollars on demand] anymore.
It wasn't a political decision to end Bretton Woods. Nixon had no choice, there was no agency, nobody decided. Gold standard will never come back. Bretton Woods was a flawed system, and one of its fatal flaws occurred. If we ever came back to Bretton Woods, it would blow up again. It doesn't work.
But governments do have the greatest power to create and destroy wealth! It is political. So it's so unfortunate that he chooses to make this point about Bretton Woods, where he's wrong, as opposed to say tariffs, where he'd be right.
And a forceful theter to gold for all major currencies/US partners would have just ended up in a state like the long depression of the 19th century, which would have probably killed the western block, so really the only choice was to let all money float.
Ezra Klein had an interesting interview[1] with Kenneth Rogoff (the author) about this topic recently. It's worth a listen.
1. https://www.nytimes.com/2025/05/02/opinion/ezra-klein-podcas...
I watched it and I found him less convincing than Dalio's Principles of a changing world order, which I found to be extremely intuitive although not at all rigorous.
Ezra gave Rogoff a lot of push back and Rogoff came off as a guy who intuitively understands things but doesn't rigorously understand them so he looked kind of foolish multiple times. Rhetorically he was poor and if I hadn't already gone in agreeing with his general consensus, I would probably have been left fairly unconvinced. Of course, the curse of knowing a lot is that your knowledge of what you don't know is much larger than other people's knowledge so it's harder to confidently present things because you can think of exceptions or why they might not be true or how things could be much worse or much better than what seems most likely.
The liberation day tariffs were definitely something. The tariff numbers themselves were chosen explicitly in reference to trade deficits. Trade deficits are an exact measurement of the strength of the US dollar as a reserve currency.
Reducing trade deficits to zero is exactly ending the dollar as a reserve currency since it implies that no country has dollars in reserve. There is a stated a goal of this ruling regime to return to the gold standard.
So who was being liberated? From what I could tell it was authoritarian countries from the consequences of the sanctions framework provided by SWIFT and trade predominately occurring via the dollar. Rogoff explicitly states that the dollar as reserve currency has incredible intelligence value and allowed for us to impose sanctions on other countries.
The number of ways to interpret liberation day in a dystopian way are large, and I can't really think of any American entity that directly benefits from liberation day "liberation" except potentially unskilled American labor who might be free to work sweatshop jobs that get re-homed, if they aren't automated or don't just disappear entirely.
> Treasury Secretary John Connally to meet with these leaders in Rome. They asked, “What do we do? Now that you’re not on gold, you can just inflate this stuff, and we’re stuck with it.” And Connally replied, “Well, it’s our dollar, but it’s your problem.”
Unrelated but this is John Connaly who was governor of Texas during the JFK assassination. One of the bullets -- possibly the one that killed Kennedy -- went through Connaly's wrist & ribs
If I am China I lend you money I would like get paid back in dollars because I can already print as many Yuan as a I want. Why should I lend to you in a currency I can turn the printing press on for. So it feels like the Dollar will be around for awhile as long as it is accepted, convertible, and the Government tries to slow down the printing press themselves.
You know… there are other alternatives to the Yuan, but your response makes it sound like USD is the only choice
Shortly after JFK: https://wtfhappenedin1971.com
https://en.wikipedia.org/wiki/Bretton_Woods_system
It was the end of the bretton woods system/the gold backed US dollar.
Isn’t the dollar dominance a bit of a blessing and a curse? Labor rate in U.S. is very high compared to other countries.
It inevitably brings us many benefits, but it does feel like the U.S. and other western countries are being hollowed out.
Maybe this is more of cost disease than dollar dominance. Maybe they are related in some ways?
Yes, this is the Triffin Trap or the Triffin Dilemma
https://en.wikipedia.org/wiki/Triffin_dilemma
It seems both backwards and perfectly sensible that the country with the biggest debts is also the country with the biggest stick. It’s backwards because it seems counterintuitive to any mafia-style arrangement where the guy with the big stick is collecting the money. But it’s sensible because the safest debtor is one that won’t default, and why would the country with the biggest stick ever want to default?
It’s almost like some twisted version of Mutually Assured Destruction mixed with economics and realpolitik. As long as you don’t try to collect your money, it’s safe and profitable to lend me more of it. Because of the implication…
my understanding is that yes it is, you cant make shoes in the US, but the power that comes from pretty much all finance flowing through the American pipes is a good trade off.
> my understanding is that yes it is, you cant make shoes in the US
I love my US made RedWings and Aldens, just not cheap. :)
(and I’m not American)
Red wings and Rancourt & Company, here, plus Mexican and Spanish manufacturers (most search engines are terrible at surfacing these, you need to specify the country to find them) when I can’t find what I want in my price bracket in the US. Alden’s a bit rich for my blood.
Frankly, sneaker prices are getting so damn high that for the last couple years “expensive” leather shoes and boots from manufacturers that have resisted big price hikes have been looking more and more like a bargain…
Good quality comes with a price tag.
The USD as the world's reserve currency means, effectively, that other nations are lending the US money at the very low interest rates that Treasuries yield. Effectively, the US gets the best and biggest line of credit in the world, with which it had (until now) financed the most incredible expansion of industrial, financial and academic prowess the world has ever seen.
That's mixing up dominance with high value. In theory there could be a world with a lower value dollar that's still stable and used for international trade.
> are being hollowed out.
What does this mean?
Rust belt. Many places where opportunity had dried up. Not just the north east, but even Tennessee. It’s low wage jobs or selling drugs, or both.
> It will still be first in global finance, because nothing is poised to fully replace it.
There are many countries with their own currencies, and all it takes is one of them to back it with gold, or a basket of commodities, and create infrastructure around it, and now there is something more attractive than the dollar to denominate debts in. That's all it takes. Everyone just wants to conduct business, get paid, buy food, etc. If the dollar is inflating away 10% every year, and there's something that fluctuates less than that, it's not exactly a hard choice. Especially if the choice is just a drop down in an app.
What may be more concerning, is it's not going to be a western democracy that sets up a stable-coin backed by commodities. They move too slowly, it's going to be an authoritarian regime that can move fast and wants to advance it's significance in the global economy.
Let's say some random country follows your advice and decides to go back to the gold standard – is that going to convince people globally to use their currency? Probably not.
Because even if the currency is on the gold standard today, what stops the country's government from switching back to fiat tomorrow and pocketing all the gold? Or, gradually doing so by introducing restrictions on gold redemption and slowly tightening them over time?
Whether a currency is fiat or backed, it is ultimately a statement that you trust the government which controls the currency to take good care of it – and in general, it is easier to have that trust with democracies than authoritarian regimes. And this is part of the argument for fiat currencies – if trust in the institutions ultimately counts for more than what the currency is backed by, why do we really need the backing?
Which is why replacing the USD is so hard. I think even if the US starts to go really downhill, people will be looking at currencies like the EUR, JPY, GBP as an alternative. If the IMF allowed private parties to use SDR as a currency – a move the US has always blocked as a threat to the USD, but in a global crisis the US might feel it has no choice but to change its mind – that might become a viable alternative global currency. CNY may become important in trade with China and its close allies, but who outside of China trusts the Chinese government enough to use CNY as a long-term store of value? Only as a riskier bet in a diversified portfolio including safer options.
The backing the US dollar has is the strength of the world's only superpower. It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. That means an entity strong enough to be fully independent, and governed by the rule of law, so that if you're holding a bunch of that currency you can be confident it'll be worth as much tomorrow as it is today.
It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war.
The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.
> It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability.
Commodity backing is a mechanism by which a country can ensure the stability of its currency across different political administrations. It's a kind of social technology like a constitution or super-majority requirement that creates stability. It's a plus that the US is stable power, but you can bet that the dollar will inflate year over year. That is its own form of instability.
> no one trusts them keep the currency market-stable, because they're autocracies.
Oh boy, I have some news about US and its trust. China seems more trustworthy right now, which is kind of achievement in the US side.
USA cant be trusted to ve stable nor to keep its contracts. Whether Euro collapses into the same state remains to be seen.
This is the logical conclusion, the rest of the whole debate about US monetary policy today is window dressing.
Though BRICS may seem insignificant atm, it is off to an impressive start.
Could the world have two competing currencies? Possibly.
But the one way to guarantee that adversaries (I don't care who your adversaries are, I'm using that as a non-denominational term) don't get the upper hand, is to use a currency they can't control or manipulate.
ATM the US dollar, can be manipulated by the Fed, but also by the collaboration of other countries, and holders of debt, as recently shown by the US bond activity.
I know many on HN are going to hate to hear this, but a single, global, trust-less currency cannot be manipulated against any single group. So bitcoin may just be the answer here.
Bitcoin is so concentrated in the hands of so few that its probably the simplest thing in the world to be manipulated
I've been reading this news headline since I was a teenager. I am over 50 now. Why is this time different?
I think this is the most incompetent administration USA has had in modern times, and it’s perhaps the second most authoritarian (next to WW2 era FDR). The current administration seems to be taking concrete steps to weaken USA’s financial dominance in a way that has not happened in the years since you were a teenager.
I suspect these forces will combine to significantly weaken the dollar.
The FDR administration two of the Treasury architects of Bretton Woods were Russian agents. One of them, FDR's chief economist, had his US passport and US citizenship revoked. He lived the remainder of his life in Columbia, presumably helping with their "monetary policy success".
Don't forget Nixon shock though. That was basically undoing Bretton Woods, but in an incompetent fashion that was amplified by low interest rate induced inflation, and produced "stagflation". https://en.wikipedia.org/wiki/Nixon_shock
The smartest guy we had was probably Lawrence Summers.
This too I’ve heard forever. Usually it’s voiced by alternating view points depending on if their guy is the occupant of the White House or not.
I sincerely question what you might mean by “heard forever” - much of what is being done here is so far beyond the pale of what has been done before that I can’t seriously understand how someone could look at it and say “ah this is the same as it’s always been, just standard partisan bickering”
If you sincerely question, then it should be easy for you to provide samples of what is "beyond the pale". There is no need for narrative building either, it serves no purpose other than aggravating the other person and making them smaller.
I think the “narrative building” is important here, since I am responding to an in-construction narrative.
Frankly I really struggle to see how someone who has been reasonably paying attention would need examples; they’re too many to mention.
Off the top of my head and in no particular order:
1.) Unilaterally and without the consent of congress invoking emergency powers to place broad tariffs on almost the entire world has never been done
2.) Frequently attacking and undermining the judicial branch, including by transparently punishing entire law firms that represent causes unpopular with the administration has never been done
3.) Brazenly abusing the office of the presidency to further personal financial gain by launching a meme cryptocurrency days before taking office has never been done
Except this is not true, unless you was reading some really weird far right stuff.
All previous administrations sold us down a river, I dont agree with Trump in how he has approached solving the problem, but atleast they are out there trying.
I don’t think that “Sold us down a river” is not an appropriate summary of 100 yers of American executive governance.
Further, I don’t think there is any evidence that they are sincerely “trying.”
What exactly is the evidence of this? Debt/deficit? Seems like that's been going up and down forever. Because by every other metric the US economy was humming along until we decided to take a wrecking ball to it, to prevent future wreckage I guess?
Are they? None of the recent events point to any plan. It's pure and simple corruption. If by trying you mean trying anything without a clue, I can agree with that.
What do you think about the fact you can directly bribe the president through his memecoin or by buying dinners with him? That's "at least trying"?
Sometimes change for the sake of change gets you a circus on fire.
Trying to do what exactly?
Enrich themselves and punish their perceived enemies? After all, isn't that what government is supposed to be about?
Enjoy your instant HN downvote for any hint of pro-Trump sentiment.
To support your statement, there was insanely unnecessary spending in last 4 years, raising the debt to unsustainable levels. And yes, Scott Bessent has clearly articulated what they are tying to do to improve the situation - agree with them or not.
2016: $19.57 trillion 2017: $20.24 trillion 2018: $21.52 trillion 2019: $22.72 trillion 2020: $27.75 trillion (COVID-19 pandemic, CARES Act, and other stimulus) 2021: $28.43 trillion 2022: $30.93 trillion 2023: $33.17 trillion 2024: $35.46 trillion (as of October 2024)
I don’t see how someone could draw a parallel between “pro-trump” and “anti-defecit.”
His administrations have overseen deficits balloon.
We were probably doomed to see a major public debt crisis eventually when we cut taxes going into two extremely-expensive long wars under W Bush, the “probably” was upgraded to an “almost certainly” when we cut taxes again under Trump, then Covid happening removed the “almost” from that.
Now we appear to be trying to move the timing of the crisis from 20+ years out, to less than a decade out.
Pity hn has become a redditesque echo chamber of late. More than 50% voted for him and support him, though anyone on hn saying so gets banned.
Fewer than 50% of people who voted, voted for him. He won a plurality, not a majority. (Of course fewer than 50% of eligible voters voted for him, but I’m assuming that’s not what you intended)
Less than 50% of the vote went to Trump, and you’ll find that he did very poorly among the well educated.
This is the first I’ve heard of any banning, but the facts are clear and frankly it makes sense that an echo chamber opposed to the president’s policies forms wherever well reasoned discussion happens among educated people.
Not true, I was saying conservatives in general wanted this and support this and no one banned me.
Some tho tried to argue with me, trying to make them sound innocent
I don't know about incompetent - there's plenty of smart people around Trump. The big problem seems to be that they all kind of disagree with each other and Trump ends up doing what the guy who talks to him most recently advises him to do.
The current "plan" seems to be to leave behind the largely-defunct WTO once and for all and build a selective free-trade alliance specifically excluding China, much like GATT was. I don't think this would really make the US "richer" (or any participant in the alliance) - in fact it would probably make us all a bit poorer. But it would make China much poorer which at this point is kind of the goal.
https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese...
But that's just today. Next week someone else might get Trump's ear before he speaks to the press.
Which "smart" person advised him to calculate tariffs based on trade imbalance for each country, including uninhabited islands? It's an utterly stupid idea that makes no sense at all.
If you read Miran's paper, the point of the tariffs is to bring US trade partners to the table to negotiate the alliance, so really they could be anything at all. It could have been 420% or 31.4159% or whatever, right across the board.
But the amounts are actually kind of clever and it reflects the fact that there's a more mature understand of trade barriers now vs when the WTO was negotiated.
How much do you know about trade barriers? Beyond tariffs, they're extraordinarily complicated and rely on regulations, trip-wires, and unequal application of rules.
Canada has "free trade" with dairy, but only on dairy imports up to a point, and after that heavy tariffs apply. But no one ever imports enough to incur those tariffs, so, that's free-trade, right? But actually, no one considers the Canadian dairy market worth the trouble without being able to import large amounts of dairy. So Canada can legitimately say that the trip-wire isn't applied, but it's a long ways from "free trade" because large importers are kept out.
China requires that foreign companies must partner with local companies to sell into the Chinese market. This effectively leads to a lot of technology transfers. It's not a tariff, but it's pretty clearly a "trade barrier" because companies that want to protect their IP are denied access.
In the 80's when US trade reps were negotiating with Japanese trade reps, the Americans would try to convince the Japanese that free trade was best for Japanese consumers. The Japanese reps would just respond, "how much do you want us to buy?"
The Japanese really didn't believe in free trade, and they were actively manipulating the value of the Yen at that point (it would be a few years still before the Plaza Accord), so they knew that just lowering tariffs wasn't going to make US goods sufficiently more competitive in Japan.
What's changed in 35 years is that the US doesn't really believe in "free trade" anymore either - not after all of the grief the WTO brought. The simple formulas are a no-bullshit approach to trade - the same ones that motivated those Japanese trade reps.
"I don't care how your trade barriers work - currency manipulation, tariffs, excess regulation, unequal rules - just fix your sh*t to reduce the trade imbalance."
> just fix your sh*t to reduce the trade imbalance
But why does each individual country's trade need to be perfectly balanced with the US? What are the odds of that happening for every single country? What are the odds of it working for every possible pair of countries?
I agree with you, but I also think you have this idea that trade is currently governed by largely linear and symmetric rules in Ricardian harmony, and that just isn’t the case.
Every industrialized exporting country in the world has optimized for exporting to the US, and there’s plenty of govt policy involved. Trade barriers are the norm, not the exception. If other countries optimize their trade rules, regulations, and money supply to optimize for a sizeable trade surplus with the US, they can change their policy to reduce the surplus.
The word “optimize” is being used a lot here, and I think it’s covering up the clear lack of a plan.
The USA exports plenty of goods, and in cases where there are these nebulous “trade barriers” being imposed, they should be investigated, discovered, publicized, and negotiated. That work was clearly not done here.
There is a surplus trade between the US and Australia and, yet our beef industry was called out as being imbalanced towards US beef.
… it was never about imbalances but protectionism and racketeering
Read the Miran paper. It’s not about imbalances. It’s about negotiating leverage. Australia in particular is going to be the most interesting case in the world.
Strategically, Australia is more sympathetic to the US, but your trade with China is many multiples of your trade with the US. If you join the US you’ll have to raise tariffs against China and if you don’t you’ll naturally fall into China's orbit. Interesting times!
The thought that there should be bilateral trade balance is ridiculous on the face of it. Vietnam and the USA _should_ have a trade imbalance.
That’s why all this talk of “forcing them to the negotiating table” is absurd.
Give up your whole notion of “should”. There is no “should”. The formula is for aligning incentives. It’s no longer enough for other govts to claim compliance with abstract requirements while clandestinely working against them - they need to be committed to helping importers succeed.
There is absolutely a “should.”
The only world where USA has a trade balance with Vietnam is one where USA isn’t importing as much as they “should” from Vietnam.
Why did he tare up his own trade agreements that he signed himself during his first term?
Because Trump himself isn’t really that smart?
Like I said, he takes the advice of the last person who talks to him. He’s very suggestible. The best parts of his presidency, so far, have been when he follows the plan in project 2025, which you may not agree with, but is at least sane and coherent. The worst bits are when he adlibs, like the stupid tariff escalation with China.
Ultimately the biggest problem with Miran’s plan is that now that Trump is tearing up these trade agreements, no one has any reason to believe that the new one is worth the paper it’s printed on. He has no integrity and no one signs agreements with people who have no integrity.
For the record, I'm not really sure how I feel about this plan. Free trade with China uplifted 700 million people (in China) from poverty.
OTOH, if you believe that China is basically Germany circa 1938 (and indeed, China in 2025 is the largest and most successful fascist state in all of history), then kneecapping China's economy makes plenty of strategic sense.
But we could always just keep buying Hitler's Volkswagens - that's the direction our incentive gradient points in. The US doesn't need to be the global police - we could always just let China have Taiwan, the Senkakus, the Ryukyus, etc...
I think what a lot of people miss when they talk about America being the “global police” is that almost always the law (so to speak) that the “global police” are enforcing is enforcing is the advancement of American interests.
And yet the near-term interest is to keep buying Volkswagens from Hitler.
If Trump’s anti-trade policies were targeted at China and China alone, this analogy would be applicable.
Read Miran’s paper.
The bond market, and blasé attitude towards national debt and default.
In the last 35 years, the US dollar has lost 60% of its purchasing power.
https://www.bls.gov/cpi/factsheets/purchasing-power-constant...
How does that compare to other major currencies?
This would be true if you left your $ in a vault or mattress ,which no one does. It also fails to take into account utility. How does one put a dollar value on a $10-30 GPT-4 pro subscription? Where does this fit in the 'dollar losing value' paradigm?
> How does one put a dollar value on a $10-30 GPT-4 pro subscription?
I’d estimate it at somewhere in the region of $10–$30, personally.
Exactly.
Modest inflation is good because it encourages investment.
Japan suffered fifteen years of deflation starting in the early 1990s. It wasn’t an economy anyone should envy.
Right, a burger and fries is $15 but a ChatGPT pro subscription is only $10, life is good!
2030: “Well a loaf of bread is $50 but a loaf of mostly-sawdust is $10 so we’ll sub that in the basket of goods as equivalent; the median house is $2m but girlfriend chatbots are too cheap to meter. Looks like yet another year of low consumer price inflation!”
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Gold. Which qualifies as a tier 1 asset in our Banking System.
Asset and commodity, not a currency today.
This time it isn't we will fail in our efforts to maintain a strong dollar. It's, US policy is no longer attempting to maintain a strong dollar.
Perhaps you’ve also followed politics since, oh, about 2016 or so?
Everything has been in a headline at some point. Perhaps all that experience is hindering your ability to discern what really matters. Too much noise from your past.
Because this time is always different. There needs to be some accountability when pundits are wrong, just like in any other profession. I have read this prediction forever too. The dollar always has a recurring tendency of surging, typically when there is unrest or recession or any other reason, or even no reason.
Also, the dollar falling also does not make Americans poorer, as the implicit unit of wealth is the US dollar (e.g. the Forbes 400 list). Americans measure their net worth in dollar, not Euros. This would only matter if traveling oversea and purchasing power falls due to falling dollar. Otherwise, it does not matter.
We have an administration actively attempting to tank the US dollar as global reserve currency?
If you think this is a crazy thing to suggest, consider that there is a faction in the US that wants this to happen. They see a strong US dollar as harmful to manufacturing and the working class.
Great, Europe can use the yuan instead
You're not alone, someone in ancient Rome probably read a clay tablet saying the denarius was doomed. Centuries later, a merchant in Spain might've heard whispers about the decline of the Spanish real, and a banker in London likely scoffed at predictions of the pound’s fall from grace. Empires always feel eternal, until they’re not. History doesn’t repeat, but it does hum the same tune. Maybe this time isn’t different, just... next.
what's going to replace it?
My guess is that initially it will get eaten away by parties that currently trade in US dollar for convenience shifting to trading directly in their native currencies. It's a pure cost / risk equation for them that they have to manage this third variable in their dealings and if that outweighs the benefits of using a common currency they will make an agreement to trade directly. This will happen slowly over a long time and eventually a new default currency will emerge as a result of these decisions.
pretty much all economists and commentators state that the replacement will be a basket of currencies not a single currency, where each countries' basket will be weighted by the typical trade volume they have with other countries (more trade with Country X, then hold more of Country X's currency) plus some factor for stability/volatility/currency risk etc.
This, incidentally, is exactly how the value of the Singapore dollar is managed.
It literally says in the article that nothing is going to fully replace it. And the same way that it didn’t happen overnight for it to become the force that it’s today in the global economy, it won’t disappear overnight either.
America decided to politicize and weaponize the USD and so the rest of the world decided to reduce usage of USD in international trade. They can use currencies of their trade partners to trade, so that:
these two are the major ones, so if Brazil wants to trade with China, they don't need to use USD, they can hold each other's FX as some reserve and use it for tradenational currencies of other countries, which are backed by gold and their national reserves.
Nothing. Even the price of bitcoin is measured in dollars.
By whom? If I wish to look up bitcoin exchange pricing, I look it up based on AUD. I wouldn't measure bitcoin in USD, that would hold no value to me or billions of others globally.
There is a whole subset of the crypto community that says 1 bitcoin = 1 bitcoin.
What does it take to go from bitcoin being measured in US dollars to US dollars being measured in bitcoin.
I doubt it will be a single currency.
Something I think a lot of people miss in this discussion is that with computers and electronic markets dealing with currency conversions is fairly easy. In the past doing everything in USD vastly simplified everything, but today I think countries just trading with whatever currency works for a given market or transaction probably makes the most sense.
There is no other world currency that looks both large and stable enough to replace USD. Chinese Yuan/Renminbi is probably the closest but it's probably viewed by many as too easily manipulated. It's a pure fiat currency run by a single party state with little separation of powers.
A global currency has to have liquidity and availability and the Renminbi has none of those things. China doesn't seem willing to turn their country into a major importer (thus making the RMB more global) so I doubt it will replace the USD either. Probably all three USD/EUR/RMB will be around without a major takeover by a new entrant.
China is a major importer.Isnt 3 trillion dollars a year in imports "major" to you ?
China pays for their imports using dollars.
It's a much much big exporter.
Computers and electronic markets don't solve currency conversion so easily because it's not just about doing math.
If say a Thai company wants to buy cocoa beans from Nigeria, the Nigerian exporter doesn't have any immediate use for Thai baht if they aren't planning to buy something from Thailand. If exports and imports between two countries aren't relatively balanced there won't be a liquid market between their currencies.
What if countries form networks? If Nigeria has no use for Thai Baht they swap it with another country for US dollars, Euros, Rinminbi, whatever. It could all be done automatically in near real time.
My view is that the primary purpose of money is to enable balanced exchange of useful goods and services, and with that premise, "money" could be replaced by large information systems. In fact, that transition is long underway. Who uses cash anymore?
Hummus.
Arguably more useful than gold. But unfortunately perishable.
Can capitalism buy it's own goods it produces without inflation? I heard someone claim that the only way the system balances is by printing money. Workers are paid less than the value they produce, and they're most of the consumers. So governments encourages workers to borrow money from banks (home loans, car loans, credit cards, and so on) to buy the goods they produce. But in the end the government still needs to purchase the excess through deficit spending. Like we saw for example during covid. In Canada government doubled its debt. To keep things from falling apart. And inflation is the only way they made it go on. But it's not sustainable, because now good chunk of taxes go to paying previous government's debt, and citizens get less services in return for more taxes. Clearly this loop is not sustainable too many times.
Anything might be happening. Does anyone ever collect statements like this and see if they turn out to be true or not? Predictions like this show up in the news all the time and they’re pretty meaningless. They just slide out of public consciousness in a few days and nobody ever knows if they were right or wrong.
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You mean like the US President?
Aka a conflict of interest?
One of the grosser things the cryptocurrency mania did was convince people that you can only criticize things if you have a financial interest that aligns with your commentary. This is at odds with the very basics of journalistic ethics. Just patently absurd.
The era of bitcoin should be coming right
Hasn't BTCs value always been strongly correlated with the strength of the U.S. economy?
I'm actually converting to believing in bitcoin, and that usa politicians/financiers have used the dollar as a way to side step wide ranging problems in the USA, at the expense of currency devaluation. Bitcoin is a backstop, a way to step outside manipulated currency.
Just remember, the same things that make Bitcoin attractive are what make it really easy to steal. Namely that it has no "men with guns" to back it up and no government bank to make you whole.
It's also easy to declare it illegal, which will stop it being used for anything most people want to use currency for.
Bitcoin is not treated like a currency anymore, given recent trends. It's acted upon more like an equity. In short, it's seemed to tend to follow the stock market. Whatever that means to you, YMMV.
It drives me nuts how many people support crypto for the right reason, and then miss the last step and support Bitcoin instead of Ethereum. Bitcoin is an enormous resource sink, on the scale of fiat system inflation. It doesn't have to be! The system works without it!
Bitcoin is a backstop, a way to step outside manipulated currency.
This seems like a phenomenally ironic claim to me. You're giving up government manipulation in favor of rampant individual manipulation and theft.
How are we supporting or encouraging theft? When the state increases inflation and the supply of money on a whim, they directly steal value from the little people and funnel it to the big people.
That's not possible with crypto.
People frequently lose a significant amount of money due to hacking, fraud, or extortion with no legal recourse. This is not where you want your grandparents parking their life’s savings.
If someone said literally the same thing op said, but about cash, would you have the same response?
That's just ignorance. In crypto "little people" is literally everybody, the "currency" is run by a handful of whales (largely quasi-criminal exchanges and casino mobsters), who have a track record of colluding to manipulate the market and hike up fees. And no, you cannot vote those people out of office. How is that _any_ better?
Crypto just has pump and dump schemes on a practically regular basis, but I guess that's completely different because the way it funnels value is slightly different.
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Crypto is the new dollar, and it is very dollar-centric.
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USD Stablecoins could be driving real demand for USD, no?
"The total transaction volume for USD-pegged stablecoins in 2024 was approximately $27.6 trillion, based on industry reports from CEX.IO and other sources."
Why does this really matter so much?
I think what matters more is national wealth, wealth per capita, and their growth rates. This is an interesting list: https://en.wikipedia.org/wiki/List_of_countries_by_total_wea...
It matters because it’s the main reason why the US is able to borrow money so cheaply and why the US doesn’t get a junk bond rating.
I thought the reason we are able to borrow cheaply, and ratings, is basically due to credit-worthiness, and not dollar as a reserve dominance. After all, during the debt ceiling crises, that's when our credit worthiness and ratings were downgraded, but it had nothing to do with the actual currency.
It has everything to do with the actual currency, if people weren't buying dollars at the rate they do to do commerce the US could never run the debt it does, it would have crushed any other country.
It also means Americans get to buy stuff from all over the world cheaper than anyone else, the moment this goes away inflation for imported goods will eat into people's salaries, there will be less investment as it will be risky to invest in a country in a debt crisis and folks will find out what it is like to live in Argentina for the past few decades.
The quality of life loss in the country if this happens will likely get people to stop talking about the great depression.
Knowing you will get paid back (i.e. credit worthiness) is part of it, but another part is that the currency holds its value, and the global demand for dollars is an important part of that. If the global demand for dollars decreases, then borrowing is more expensive because you need to offer a higher interest rate to entice people to purchase bonds, because they have other more attractive options to store/grow their money than US bonds.
One way to think of it is that the US benefits from the current world order by essentially taxing the rest of the world to pay for its spending by devaluing their currencies relative to the dollar.
Yes and no. US can just print more dollars and pay its debt, which it is doing since Nixon. It doesn't need to default on its debt ever, as long as USD is the reserve currency. Of course the rate rhis happens is a delicate thing. Too quick devaluation would upset the debtors. Though they own so much of US debt (like China owns 2 trillion dollars or sth) that they are incentivizes to play along.
At the end of the day, somebody out there has to have a US Dollar and feel comfortable lending it to the US Government. The reserve currency status of the dollar means more people need it, which means there’s more supply of dollars to borrow without causing currency collapse.
As it turns out, when every country holds US dollars for use in global finance, it makes it very easy for them to park US dollars in American financial assets
Also, the primacy of the American banking system allows the US to use it as a cudgel against foreign countries to make them do do all sorts of things. If some other currency is the global reserve, we lose a fair bit of soft power.
There are a lot of reasons we like being in the position we’re in, and I don’t think we know how bad losing it will be, if we do, but I think it’s unlikely to be positive. (Clearly our economists have largely agreed or we’d have gotten here sooner.)
Where else would they park it? The stock market is being automatically pumped by 401k auto purchases and similar investment strategies that amount to basically a tax with lipstick to subsidize the market. I don’t think any other nation is pumping their own assets to this scale. Maybe china but they don’t exactly let in outsiders to milk a good cash cow I wouldn’t think.
The controller of dollars gets to mint new dollars, making existing dollars less valuable.
Other countries who use dollars do not have that privilege.
That is effectively a 2% annual tax on the entire world, paid to the controller of the dollar.
And we're going to blow it all up for no reason.
The people who are blowing it up are doing it for a reason. You can disagree with them (I largely do) but there will likely be some upsides. I don’t know if they’ll be worth it, but all the economists said the trade war with China was a bad idea in Trump’s first term but has come around to it by the time Biden got into office.
I wouldn’t say I’m optimistic but it’s possible it may work.
> wealth per capita
It matters a lot to those of us among the capita who hold our wealth in US dollars.
It doesn’t matter, it’s just a clickbait headline.
Interview did not cover eurodollars and potential successor, stablecoins.
https://www.brookings.edu/articles/stablecoins-and-national-...
> Stablecoins are in some respects similar to Eurodollars, a financial innovation that helped to create the financial plumbing used to implement sanctions. Both stablecoins and Eurodollars are U.S. dollar-based liabilities that had their origins outside the regulated banking system. U.S. policymakers initially paid little attention to Eurodollars because the market was small. But it quickly grew, and—luckily for policymakers—Eurodollars ultimately helped cement the international role of the dollar. It is the global dominance of the dollar, coupled with the role of U.S. banks in facilitating dollar payments, that gives the U.S. its tremendous financial leverage.