I get more than a little bit worried when I look at the American political circus. The soft power the US once held has now been eroded by the steady stream of WTFs coming out of the country. I think that what most Americans don't realise is that when people threaten to shut down the American government over women's healthcare - the craziness shakes up the risk calculus of the world and people start searching for alternatives. This is bad for America and it's bad for the world.
For the longest time, we've been under a hegemony that was originally far more stable than the world before it. This has helped to bring an unprecedented era of prosperity. The American empire is perhaps the first empire in history where people want to be under its banner as opposed to out in the cold.† But current antics threaten that very tenuous stability that was fought over for so many centuries. It is not without any faults, but out of all the alternatives out there - this is the most peaceful one.
Yes, there are arguments that broadening the base of support will help not hinder stability.ß The fact remains that this is the best system we have found so far and it does actually work. We might even someday have something far more stable than this, but the transition to that is not going to be easy. In fact, I think that on the existential risks meter of the world - stabilising American hegemony should be a priority. It is vital that this system is maintained until a better one emerges to take its place.
People might disagree, but it really is a tragedy that countries and groups now want to overthrow the American hegemony largely due to political missteps at home and a steady disconnect between what it means to be hegemon and the day-to-day of American politics. They've forgotten that their alliances were built upon shaky ground and need upkeep to maintain. And that even the firmest of empires do fall.
The risk you talk about does not seem to exist in the real markets. If the US were viewed as unstable like you suggest, it would be priced into US bonds, which are trading near all time highs. If there is a risk in there, it's nearly negligible.
Internet stocks were trading at all-time highs in 1999. Housing was doing great in 2006. Any asset being at all-time highs doesn't mean there are negligible risks only that the majority of the market currently thinks there is (they might be right and they might be wrong).
Perhaps, but isn't it also true that the US government itself now constitutes a very large part of the bond market? Rarely do I ever hear the term bond vigilantes any more, maybe because there no longer is such a thing, except perhaps under extreme circumstances.
I'm not 100% sure how to answer the first question. Yes, in a way, but those aren't tradable instruments any more - they're part of the Fed balance sheet. And technically, the Fed isn't government.
Yeah, I know....
This is the point - no more bond vigilantes as in days of yore. Bonds are smooth sailing on calm seas. This signals that everybody's on board with the low rates.
So this signals a lack of concern without deficits/debt.
If you look at what the bond markets did in the period preceding World War I, you see that they did not predict it. Thinking that markets value risk correctly leads to disaster.
You would see a collapse in the prices. People with USD would stop buying them as well and would start buying gold/silver/other currencies. You are confusing currency with bonds.
What I think would be more likely is a collapse in demand for US bonds, which would cause a collapse in USD because less people have to transfer their local currency to USD to buy US bonds, therefore decreasing demand of USD, thus lowering it's price.
US government bonds would need higher interest rates to convince people to hold their wealth in dollars. Higher interest rates means the price of bonds would go down.
US bonds are priced in percent growth, just like all bonds. If the markets expect that the US is going print money to pay off bonds then the interest rates on US bonds would go up, since the future exchange rate is expected to go down.
At least US bonds being priced in USD does reflect the risk and demand associated with them.
What I wonder is, how is inflation being calculated in terms of the CPI, which is essentially prices in dollars? After all, what exactly is being measured by this? If dollars the very currency which is being printed, how does measuring prices account for how much M0 money there is?
"I think that what most Americans don't realise is that when people threaten to shut down the American government over women's healthcare - the craziness shakes up the risk calculus of the world and people start searching for alternatives. This is bad for America and it's bad for the world."
Great point, but I think Americans would mostly fall into two camps.
- Those who realize how bad it is, and are eternally frustrated at our politicians.
- Those who don't care about the world at large. (my feeling is due to lack of education, but that is my own bias)
But I really agree with you, political circus is the perfect way to put it.
>> The American empire is perhaps the first empire in history where people want to be under its banner as opposed to out in the cold.
This kind of thing has happened before in some cases. Malta wanted to be part of the British Empire when the French left in the early 19th century. Of course "wanted" might need to be taken with a pinch of salt, given that representative democracy and polling were not established procedures at the time.
I have read (not sure) that Lee Kuan Yew wanted Singapore to become a British protectorate. In his calculation it was a waste to spend money on a military when it was in short supply.
> I think that what most Americans don't realise is that when people threaten to shut down the American government over women's healthcare - the craziness shakes up the risk calculus of the world and people start searching for alternatives.
That's a pretty poor summary of the controversy. It's not like the U.S. is debating whether women should have Pap smears every two years or every three years. If that's how the international media is presenting the controversy, it wouldn't surprise me that the U.S. would come across poorly.
> It's not like the U.S. is debating whether women should have Pap smears every two years or every three years.
As an American, that sounds like an fairly accurate summary to me. A sizable number of US elected officials are fighting to defund/shutdown the largest women's healthcare provider in the nation.
But regardless of any opinions on that specific issue -- It seems completely rational to me that the international community might consider American currency "higher risk", when we're increasingly threatening to shut down our federal government over reasonably-straightforward issues that most developed nations resolved decades ago (like healthcare).
I assume our multiple recent debt-ceiling crises probably add to that risk profile too.
There's a fight to stop providing public funds for abortion-providers, especially given recent discoveries about, to put it charitably, gaffes and ethical lapses on the part of Planned Parenthood, an organization that exists, both in philosophy and financially, due to the abortions it provides.
Congress is wholly empowered to pass any budget it likes. If President Obama wants to veto a budget to cater to a special interest group, I suppose that's his right, too. We obviously don't want that, but the White House and Congress aren't exactly looking for joint action on this.
The frustrating thing about this whole controversy is that there are compromises here (like bringing late-term abortion restrictions in line with international norms), but entrenched special interests are pushing nuclear options since nobody can stomach understanding their opponents.
As a community heavier in skeptics and rationalists than the general public, I would hope HN and the tech community to be good examples in promoting understanding and finding compromise.
>Congress is wholly empowered to pass any budget it likes.
Yes, and the international community is wholly empowered to consider Congress a risk to the financial stability of the United States if it takes decisions that look like they're risking the financial stability of the United States. Congress has no power to dictate how other people view them; quite the opposite, they're supposed to be held accountable to others' view of them!
>As a community heavier in skeptics and rationalists than the general public, I would hope HN and the tech community to be good examples in promoting understanding and finding compromise.
Skepticism and rationality are about arriving to correct conclusions, not about pouring on the Fallacy of the Golden Mean until suddenly "compromising" on a policy that annual government shutdowns are a "reasonable" way to maintain currency values.
> There's a fight to stop providing public funds for abortion-providers, especially given recent discoveries about, to put it charitably, gaffes and ethical lapses on the part of Planned Parenthood, an organization that exists, both in philosophy and financially, due to the abortions it provides.
Planned Parenthood exists to provide healthcare services to women, full stop. Abortions are only a very small part of those services, legal services I might add.
Progress, as usual, occurs one funeral at a time (old people dying with their no-longer-relevant views).
Planned Parenthood does over 300k abortions per year. The 3% number comes from a dubious counting of 1 abortion being the same thing as handing out 1 bottle of birth control pills or performing one STD test. On the contrary, about 94% of pregnancy cases handled by PP end in abortions.
It's kind of a weird argument to act like abortion isn't core to Planned Parenthood. If it weren't that important, PP could spin abortion services into a separate organization. And then the conscientious objectors out there would have much less to complain about.
> It's kind of a weird argument to act like abortion isn't core to Planned Parenthood.
No, the weird argument is "We shouldn't fund Planned Parenthood because they provide a legal service we don't like."
Same sex marriage got here eventually, the legalization of marijuana will come to pass across the entire country in the next 3-6 years, and abortion too won't be fought over as soon as more conservative voters pass on (which no longer necessitates a republican party that must cater to its extremists).
Conservative talking points and beliefs are almost like zombies; dead, just not knowing it.
Scientifically, we really don't know when a fetus becomes a person - although we all probably agree that it does happen sometime between conception and birth - and since this question will likely never be conclusively answered, there will probably always be a fair number of people opposed to unfettered abortion.
I'm not sure personhood is a scientific question, but there are scientific findings with respect to the properties of a fetus (REM activity, organ development, pain sensitivity) that should inform our culture and ethics.
Very true, but I see even that leading the abortion debate to mirror our current debate on the death penalty - a camp emerges taking the position that a single unintentional death renders the whole practice immoral.
What on earth is weird about not wanting to have government founds go to groups you don't like?
I agree in principle, but abortion is a really stupid place to draw the line. I recognize that legal abortion makes my country a far better place, and likely a far safer one if the theories about the decline in violent crime being partially due to a decline in unwanted children hold any water. I don't have to "like" or "dislike" abortion to recognize the ROI in sound public policy.
When it comes to abortion and contraception, social conservatives want all of the authority and none of the responsibility. I don't want them to have either.
There is probably also a huge ROI in killing homeless and severely mentally ill and disabled people, but we don't because we recognize them as people, who have rights.
We don't have to agree with our opponents to be able to see the arguments from their side.
But fetuses aren't people, and in any event, a vast proportion of pregnancies terminate naturally anyway. Nobody howls in outrage at those, attempts to pass laws to stop them, or composes absurd analogies to compare failed pregnancies to the mass murder of homeless people.
There is no objective basis for a moral judgment here, and in government, objectivity is a requirement for (good) lawmaking.
My problem is not with using politics to fight for what you believe and agree in. My problem is with threatening to shutdown the government if you don't get your way. There's democracy, and then there's being a child and throwing a tantrum. We should expect more from representatives then that.
@humanrebar, you seem to be a a single issue, anti-abortion commenter. The videos against P.P. were clearly edited to put them in the most unfair, dishonest light. I don't believe abortion is that core to PP. Is porn crucial to amazon? You can certainly find porn there but it's not a large part of their business.
> about 94% of pregnancy cases handled by PP end in abortions.
humanrebar, stop lying[1].
In another comment, you praised sceptics and expressed interest in promoting understanding and finding compromise, yet you post lies and cite bogus sources to support your lies. Shameful.
I can buy that the 95% number is overstating things. But please focus on my original point; it's disingenuous to imply that abortion is not at the core of Planned Parenthood's mission. Even the fact-checking article (a little light on new facts, but I can understand its point) you posted says:
"Not all of Planned Parenthood approximately 700 clinics offer prenatal services because prenatal care is not Planned Parenthood's focus."
That's the point behind the number. If even simple prenatal care (vitamins, education, referrals) were part of the focus of Planned Parenthood, they would be tracked and we would see them in the metrics. Even the PoliFact article doesn't address the underlying point... that abortion is a (if not 'the') core part of Planned Parenthood's mission.
Is it so important to have a single reserve currency? Couldn't these problems be largely offset with better diversification and less friction in currency trading.
For example, lets say some banks got together and defined a meta-currency called Euro-Dollars, which is a mixture of 55% Euros and 45% USD. I could take out a loan in Euro-Dollars from a bank. I could buy and sell goods internationally in Euro-Dollars. I could hold my personal savings in Euro-Dollars. I could buy on Ebay, Amazon and Alibaba with Euro-Dollars because the sellers know that it's a good idea to diversify their currency holdings, they can buy other goods and services with Euro-Dollars and currency trading is relatively frictionless.
Or, perhaps, we could go further and create a currency that's a mix of the top 10 most traded in some suitable ratio. Rather like an index fund, wouldn't this insulate from the relative fluctuations of the individual economies and help facilitate international trade?
On another note, this would help insulate individuals from currency fluctuations in a global economy. I happen to be in Australia and my personal accounts are in AUD. Since 2011 AUD has dropped about 40% relative to USD. If I now want to buy something from a company in the US, I am 40% poorer. If my money had been split into a mix of major currencies, I would be in much the same position whether I now wanted to buy domestic or international goods. Some banks offer multi-currency accounts for personal use, but it's far from the norm. Wouldn't it make more sense if my bank automatically diversified my currency holdings to insulate me from international fluctuations?
The system you described would be beneficial for all but USA :)
The last two people that wanted to challenge US dollar dominance in the world financial markets were Saddam Hussein (wanted to trade oil for Euros instead of USD) and Muammar Kadafi (wanted to trade oil for gold). We all know how that ended for both of them - their countries were invaded in under 6 months after they announced their plans.
Now, the only country powerful enough to force switch from USD to currency basket is China, and their recent initiatives, like creating AIIB bank, or devaluating juan are aimed at exactly that.
It has never been clear to me that the US has any actual gain from being "the reserve currency." The usual story is "goods are cheaper; vacations are cheaper" and meanwhile goods and vacations are extremely cheap already.
Since all currencies are fungible, you're only a multiplication-by-the-exchange-rate away from any other currency.
The status quo advantages: a (relatively) stable and strong currency, meaning net importers are helped. Of course, that means our exporters are conversely harmed when selling to a location with a weaker currency (as our goods become more expensive). A vacation abroad is similar to a net import. You consume something in a foreign locale paid for with US currency.
The confusion I have is your argument of "that can't be the reserve currency advantage, because it's already true", which seems to ignore the (strong?_) probability that it's already true because of being the reserve currency.
I just suspect that I shouldn't really care what the reserve currency is. If anything, it probably has minor annoyances for Americans.
I meant that vacations for people who live in non-dollar places are cheap, goods are cheap. I recall that trips from Canada cost pretty much the same as from the US, taxes notwithstanding.
The main complaint I hear about goods is VAT and import duty where applicable.
Not only is the US dollar the reserve currency but oil is also sold exclusively for US dollars by OPEC. This forces most countries to hold vast reserves of US dollars. The US benefits because they are able to print a ton of dollars which get absorbed by other countries instead of causing inflation.
This allows the US to import goods for 'free' (in exchange for printed money). This is especially true for institutions which are close to the printing presses (the gov., big gov. contractors). This is what allows the US to have such an extravagant military spending.
I've not been able to figure out the benefits. Stability by increasing the stakeholders in the value of the dollar? It gives people more reason to buy dollars => raises the value of dollars => and makes US exports less competitive => makes the US poorer.
#1 Very nice from the Zanzibar beach I'm sitting on, but I doubt it's a big motivator!
#2 Sounds like something significant. Do you know of a way to quantify it?
#3 As far as I know, the threat is to shut financial institutions out of the US market. I don't think the US government has much control over a dollar once it's leaves the country.
#4 The Chinese have a similar ability to print massive amounts of money without inflation. I wonder if it's a property of sufficiently large economies. The article also mentions a downside that the Fed has had to print money to keep foreign institutions afloat.
A strong dollar means they can import raw materials very cheaply, so that's how they balance out any risk of being "less competitive". And many American products compete on quality and brand recognition (see e.g Apple's iPhone) not on price.
Tragic that the US destroyed two more or less functioning nation states and left civil wars in their wake. Iraq would have been better off under Saddam, Libya under Gaddafi.
> that US foreign policy is so willing to snuff out such visionary leaders.
You're kidding, right? Economic views aside, these men were monsters who, combined, were responsible for the deaths of hundreds of thousands, if not millions of people. These were not great men. They were monsters. I'm not going to call Charles Manson "charitable" and "soft-hearted" because his social views are liberal, the guy is still a monster. That's what he is, first and foremost.
Devaluing Yuan had more subtle reason: Just recently China started to sell US Treasury bonds (they have about $2 bln of them to sell)
And if you sell bonds for yuans that causes the yuan's value to raise which hurts Chinese exporters. So, devaluating it first was a way of neutralizing that effect, protecting China's economy.
Bond sale itself was a way of putting mild pressure on US in the ongoing negotiations about making Yuan part of world's reserve system.
> Just recently China started to sell US Treasury bonds (they have about $2 bln of them to sell)
China didn't just "start selling US treasury bonds". You're implying that they're offloading their bonds, they are far from it. China sold off an insignificant portion of their holdings for liquidity to bail out themselves. They were facing an economic crash and they were trying to stave it off. They needed cash to do that, hence, they sold a very specific amount of their bonds for that specific purpose.
If they sold all of their treasury bonds, it would be economic suicide because there would be so much unstableness in the global economy that every market would crash, including Chinas. They would probably fall the hardest, too.
Devaluing the Yuan has set any hopes of it being a reserve currency back by a decade at least. It was a move of weakness and has accelerated capital outflow from China as well as causing some head scratching about the competence of party leaders, because it seems unduly drastic, unless things are worse than they seem.
What you are saying is true, but won't matter anyway, because switch from USD to SDR won't be a free market decision, it would be forced upon us once US and China agree on that.
For many years the Russian Ruble was pegged against a basket of 55% USD and 45% EUR. So at the time you could have had your wish by buying RUB. Until it devalued.
In the 90s the Polish zloty was pegged against a basket of 4 or 5 currencies, I forget, which included marks, dollars, yen, and swiss francs if I recall.
Today, the Singapore Dollar has one of the lowest aggregate volatilities, precisely because it is tightly controlled against a basket of global currencies.
The motivation is exactly what you point out: reducing exposure to a single currency's fluctuations, and trying to match a country's balance of payments more accurately. Often, unfortunately, because baskets go together with pegs (crawling or not, with bands or not), they encourage speculative attack at some stage or another.
You mention your consumption basket in AUD has become more expensive. Your country is highly exposed to commodities which have dropped about 37% in the past 3 years, as measured by the CRB. Thus your nation's income is declining, and you're unfortunately unavoidably exposed to that if you don't hedge your foreign consumption currency basket, because recognizing Australia's commodity links, the market has depreciated the AUD against the dollar by 28%, and by 15% against the EUR in the same 3 year period. That, by the way, keeps commodity prices denominated in AUD, more stable, and dampens the blow to the Australian economy. But it makes foreign goods more expensive (as it is supposed to given Australia's economic circumstances).
You could have hedged yourself quite well by simply going to a broker and selling an AUDUSD futures contract for example, and these contracts are available in "retail" size, or even smaller if you're prepared to get into the index betting sites. Essentially the option is open to you at very reasonable cost, to create your own exposure basket, and that basket, by the way, could also include commodities themselves. Indeed I would argue that currently, as we move towards higher risks of political/policy upheaval globally, hedging is more important than ever. But not putting all your eggs in one basket has always been good advice, as you point out ;-) My point is that you can do that with your liabilities as well as your assets, quite easily.
> For many years the Russian Ruble was pegged against a basket of 55% USD and 45% EUR
Minor point: Pegging is not equivalent to being backed by 55% EUR + 45% USD, and nothing else. The RUB had risks associated with it independent of those other currencies, whereas a true basket currency would not (or at least not to the same extent).
>* Wouldn't it make more sense if my bank automatically diversified my currency holdings to insulate me from international fluctuations?*
Sure. You can do this. But why would you rely on or expect your bank to do so, unless you wanted to pay for the service?
>that's a mix of the top 10 most traded in some suitable ratio.
The problem is there is no "suitable ratio". You're always speculating on the future value of currencies in the basket. Sure, the diversification will likely dampen the fluctuations, but you're equally likely to miss out on upside as downside.
But again, countries are free to do this right now if they want to. In discussions like this, there's always some implication that the US is asserting some authority to force countries to use the dollar, and if they could somehow just get off it, everything would be grand. In reality, it's a conscious economic decision to use or peg to the US dollar. Sometimes it's great, other times (like now, with the EMs hurting and the US economy relatively strong) it isn't.
> Is it so important to have a single reserve currency? Couldn't these problems be largely offset with better diversification and less friction in currency trading.
Trade between countries otherwise degrades into complicated barters, which is the problem currencies tried to resolve on tribe/state level.
> Despite talk of the yuan’s rise, the primacy of the greenback is unchallenged.
And it is just that, talk. People forget, as the Yuan rises, so does the dollar. The real question is, how much ground is the Yuan gaining on the dollar? And the answer? None. If anything, it's taken a couple steps back.
You see all these articles over the last few years about how the Yuan is starting to do well but for some reason, people think that the U.S dollar just stands still the entire time and is letting it catch up. It doesn't work like that. If the yuan was to ever replace the dollar, it would be several decades, likely much more, before it's even remotely close to replacing the dollar as the world's currency. If it happens, it almost certainly won't happen in your lifetime unless some asteroid drops of the sky, destroying most of the U.S.
Even in that unlikely event, they would still have to do something about their rampant corruption before countries start pegging their currency to the Yuan. They rank 127th on the global corruption index. No country is going to willingly sign up for that, a country that tightly controls it's own currency and where politics, business and corruption are all one in the same. It's just not happening.
Like it or not, the U.S dollar is simply the lesser of all the evils. And it's not even close, we're talking orders of magnitude. It also has a fortitude that is unrivaled by anything before in world history.
"do something about their rampant corruption before countries start pegging their currency to the Yuan."
Exactly. Reserve currency is as much about trust, political stability and transparency as it is transaction frequency and liquidity. China is a wonderful country, great people and an admirable success story. It also has the wrong political system and current value structure to rise to reserve currency status anytime soon.
"Rule of law" means that the law is above the government; the government is constrained by the law. This means that there is a common understanding about what the government can and cannot do. China has "rule by law"; that is, the government is above the law. But if the law is arbitrary, how can anyone trust you?
Rule OF law means that, at some level, I protect your interests (because I am forced to by the law). Rule BY law means I do whatever I want. You can't fully trust someone who is only committed to their own interests. Trust happens when I know that you will look out for my interests. Deep trust happens when I know you will look out for my interests even if it costs you.
If China's rulers think it will keep the Party in power, they won't hesitate to devalue their currency, or set an arbitrary exchange rate, or limit the amount of money foreigners can exchange, or any numbers of other things that could cause problems for a company holding a large amount of RMB. Imagine you sold $100 million of goods in RMB, and you have $95 million in expenses in USD. Great, convert RMB -> USD, collect $5 million in profit! But one day, you wake up to discover that the currency is worth 10% less than yesterday, or now there is a rule that you can only take $500 out of the country per day. In the first case you now have a $5 million loss, in the second case you have a cash flow problem. Not the kind of thing I look for in a reserve currency.
Is the US any better? There are so many vague, complicated, broad and contradictory laws that the government can do anything it has decided and find justification for it SOMEWHERE.
Edit: Talking strictly about constraints put on the government.
It is not static, hence why it is linked to being a level of trust. While this can happen in the US, its rare to happen at the federal level without some sort of check/balance. On the other side, arbitrary application of law is the routine system of governing at all levels in China. One type you can mostly trust, especially if history tells you how the pattern plays out. The other side there cannot be any trust.
SDRs are an alternative. That's if they can be implemented in time. The US would have done better to give China a seat at the IMF table, but by locking them out it has created a monetary adversary that stands against the SDRs adoption as a global reserve currency.
Although people inside and outside the U.S. decry the capriciousness of the US government and political process, as long as there is no better (or even comparable) alternative, the US dollar will retain its position of prominence.
I think that's a pretty misleading TLDR (as it suggests nothing will change which isn't at all what the article claims); The title is a better summary of the message.
The article is about as meaningful as you'd expect one that suggested "Democracy's primacy looks unsustainable", and is full of examples of things that don't mean anything.
> In recent months the prospect of even a tiny rate
> rise in America has sucked capital from emerging
> markets, battering currencies and share prices.
Sucking capital from emerging markets is not an attribute of a currency that's fading, so much as one whose primacy is in fact increasing after a lull...
> Foreigners own 20-50% of local-currency government
> bonds in places like Indonesia, Malaysia, Mexico,
> South Africa and Turkey: they are more likely to
> abandon emerging markets when American rates rise.
And for what will they abandon it? It has a $ in the name.
> America increasingly uses its financial clout as a
> political tool
There used to be a great quote on Wikipedia's page about the Economist pointing out it's largely written by early-20s Oxford graduates. If they think America's use of its financial clout is increasing, it would seem their view of history starts circa 2001.
> All this suggests that the global monetary and
> financial system will not smoothly or quickly wean
> itself off the greenback
Oh look, even the article suggests the title is wrong!
This has been suggested for decades, that the dollar would lose its global reserve currency status in the near future.
The Japanese Yen would rise to be the dominant currency, with Japan eventually becoming the top economy. Then it was the Euro that would inevitably conquer the dollar in importance. Then it was the Yuan that would of course conquer the dollar, with China becoming the dominant global economy - that prediction is also going to fall flat.
The dollar primacy is stronger today than it has been in 10 to 15 years and it's gathering strength - pulling trillions in capital away from the rest of the world, and crushing emerging markets in the process - even before the Fed has raised interest rates. So long as the US avoids going on any more massive spending binges that blow out the budget (2000-2010), and avoids starting any new trillion dollar wars, the dollar will continue to gain in dominance rather than lose it over the coming decade.
There are certainly parallels with the "unstoppable rise of Japan" articles that I remember reading back in the 1980s.
I read an article recently about urban Chinese youth being only interested in money and clothes and not work, that almost exactly paralleled an article I remember reading in about 1990, except s/Chinese/Japanese/g.
If the position of the US dollar as the world's main reserve currency is so secure, why did John Kerry feel the need to talk up the financial importance of the recent deal with Iran (who had started to sell their oil in Euros before the deal)?
>why did John Kerry feel the need to talk up the financial importance of the recent deal with Iran
Because politics?
Again, what is the alternative to the dollar? It's completely reasonable that the global community diversifies away from the USD. But any specific basket they come up with is going to be heavily titled towards the strongest currency of the biggest economy on the planet. Otherwise, it's useless.
I wonder what was the basis for Japan becoming the top economy given that they have twice as much unsustainable debt that the US plus they have a population problem.
It's a common theory certainly, that the so-called petro dollar is the reason the USD is dominant.
However the US had the world's largest economy by about 1890 or so. At that point it was already significantly far ahead of the classic (and much older) powers France and Germany. It didn't require the global petro dollar to accomplish that.
Oil has become less important in the last 40 years, while the dollar has remained stubbornly in place as the reserve standard. We're now within ~20 years of a large scale switch to electric vehicles for instance, and the dollar is doing the opposite of quaking in its boots.
Possessing ~45% of all global wealth is far more powerful as a lever, than having the petro dollar. The US has the world's richest corporations, its richest citizens, the world's largest middle class, the #2 manufacturing economy, the top universities, the highest total scientific and invention output, and remains extremely innovative with a high level of productivity - while having 320 million citizens generating a massive tax base and GDP.
I understand the arguments about the importance of the petro dollar. I don't agree that it's nearly as important as supporters of that theory project.
> The US has the world's richest corporations, its richest citizens, the world's largest middle class
For the richest corporations, citizens and the rest I agree but I'm not sure the middle class is as good as it was before, the american middle class has been quite destroyed recently. It's more that the richest got richer, the poor got poorer and the middle class sort of disapeared in the middle.
But I have an impression that it's a trend with a lot of things in the US. Sure the top US universities are the best in the world but if you pick one school at random, I'm pretty sure that it's not as good as its european counterpart. (But this does not affect your argument anyway).
> The US has the world's richest corporations, its richest citizens
I do wonder how quickly those would "flag out" if ever the tide turned. Damn it, likely many of them already have wealth stuffed away in offshore accounts.
None, that theory makes no sense because if neither the seller nor the buyer of the oil want USD, it's a zero sum for the value of the USD. If either of them want to keep money in USD, then that is demand completely separate from the oil.
Strange that the emergence of non-State digital cryptocurrencies was not even mentioned in this article. Is it that radical to envision that perhaps one day the successor to the U.S. dollar might not be fiat currency backed by any single state?
>on-State digital cryptocurrencies was not even mentioned in this article.
I'm probably in the minority on these boards, so call me crazy: I want my currency backed by the economic and military might of the state.
To me, "money" is a means of performing transactions and acquiring real assets. I don't need a hunk of metal or a fancy digital wallet that is "unreproducible" to do that. Being able to print money is a feature of the system, not a detriment. The current system works well enough for me, for now.
> I want my currency backed by the economic and military might of the state
You realize that this means you're actively supporting murder, surveillance, and debt slavery built on the backs of the unborn, right? Sure it's easier to just go with the status quo currency flow, but that doesn't make it the most ethical or moral choice.
That's true. But it is also true that, in the specific case of the US dollar, it's backed by US hegemony. That hegemony is brittle, and supported by an outsize military that was misused in a way that almost broke the nation in combination with a derivatives crash that could easily have caused a global depression. The US's ability to get away with ZIRP, QE(n), etc. rests on "You and what army?" and on a hegemony where vassal states have no decision-making autonomy and submit themselves to US surveillance.
We're only partway out of that crisis, and it could come roaring back. Chest-thumping about "Where else ya gonna go?" is unproductive.
I don't see US hegemony as good or evil, except if you call brittleness that could lead to a very deep unprecedented crisis "evil."
You can survive by using a cryptocurrency as long as you're poor, or as long as you exist on the margins.
If you have a job, the government will mandate that you get paid in "real money" and it will demand its not-inconsiderable cut in taxes. You want to buy some food? Ok, buy it in bitcoin, but give us our 8% sales tax in "real money". Property tax on your house? That's 3% of assessed value, "real money" only. Etc.
As one pundit tweeted: "You know what's cooler than a million dollars? Virtual currency backed by nothing and nobody."
Yes, it is that radical. Some parts of the Internet like HN are extremely pro-cryptocurrency, but this is not in any way reflective of the world at large.
In the rest of the world, most people don't know about Bitcoin, most of the people who know don't care, and a fraction that I won't try to estimate care but dislike it.
It makes no sense to expect a mention of cryptocurrency in every article about currency.
Well, it's regular mean reversion. China's treasuries and others will eventually grow as reserve instruments. Also, the primacy of high US salaries / income relative to the rest of the world also looks unsustainable.
What high salaries? The entire country is built on a house of cards where the bottom layer stands in various degrees of minimum wage poverty that in some cases make being a European feudal serf in the Middle Ages look like an improvement.
Good. Maybe capitalism will be allowed to work, the dollar will weaken, and the US will stop running half trillion dollar trade deficits every year. Trade deficit = public debt + private debt.
Ah yes. Land. Until it's confiscated. Or taxed (window tax? Second home tax? Landlord tax?). Do you own the land? Or do you own a piece of paper from the government that says you own the land? A piece of paper whose credibility depends on the credibilty of the issuing powers, just like fiat currency.
Would you really want to bet your investment on a piece of land when you could instead bet on the US continuing to exist as a sovereign state? The only place you'd possibly bet on land would be London, maybe. Otherwise, I'd rather have my money in Treasuries.
A land grab by a stable government is not very likely.
Furthermore, unlike land that can give you valuable goods even if you can't sell it, US treasuries are worthless if you can't sell them.
I heard the following story recently, though I haven't checked if it's true... Back when the dollar was a gold backed currency, multiple foreign governments traded some of their gold in for US treasuries. It became clear to these governments that the US was issuing more treasuries than they had gold deposits for, so these countries tried to get their gold back. IIRC France was one of these countries. The US government stalled the sale of the treasuries then switched away from the gold standard.
If the above was true, France and the other foreign governments lost money in this deal. Who's to say what other adjustments could come in the future. So you see, US treasuries can potentially be a bad investment regardless of whether the US continues to exist as sovereign state.
Not likely, the US is on the rise again after suffering a decade plus of weakness.
The strong dollar is powering the US economy ahead while most of the world is struggling to stay above water. Americans gained roughly 20-25% in purchasing power against the rest of the world in just the last 18 months. US households have paid down a vast amount of debt in five years, significantly improving their debt to income ratio (while much of the world has done the opposite). Full-time job openings are at 15 year highs. The US share of all global wealth remains above 45%. The US median income remains among the highest of any nation, with no indication of erosion inbound. US economic competitiveness is among the highest, and total US manufacturing output is the highest it has ever been. Economically the US has been persistently getting better the last three to four years. The US is also about to enter a significant wage increase cycle that will see the standard of living move upward for the first time since the late 1990s.
By comparison, China is a disaster; Japan is stuck in the same hole it has been in for 25 years with 'deflation' (debt) continuing to eat away at their economy; Europe hasn't seen net GDP expansion since roughly 2007, with the Eurozone having twice the unemployment rate of the US, and with the Eurozone QE program failing to boost growth meaningfully.
Further, US neighbors Canada and Mexico both have done tremendously well over the last decade and will continue to, which will act as a multiplier for the US economy.
- all sorts of debts (check out the student loan debt, in particular, it has exceeded the credit-card debt and has currently a 17% deadbeat rate)
- the number of people not in labor force (95 million, the highest in 30 years).
The fact that the US is (for now) in better shape than Greece or Brazil does not mean it is doing great. And the direction things are going in is down, not up.
If you want a long period of constant wars between nations, yes, please go ahead and ask for taking away the primacy of the US.
In simplest terms, gang wars break out when there's no strong leader on top. When a strong leader is killed/arrested, others will try to muscle their way to the top. Same story will take place if US loses the primacy.
A small group of industrialized countries are responsible for holding together what we call Western Civilization. Lose that and the world economy collapses by at least 90%.
When the world economy collapses, the world population will also collapse. The world goes back to tribalism. That's OK for places like Afghanistan, that haven't really advanced past tribalism. But not so good for first world countries. E.g. about 99% of the jobs of HN readers will no longer exist.
For the longest time, we've been under a hegemony that was originally far more stable than the world before it. This has helped to bring an unprecedented era of prosperity. The American empire is perhaps the first empire in history where people want to be under its banner as opposed to out in the cold.† But current antics threaten that very tenuous stability that was fought over for so many centuries. It is not without any faults, but out of all the alternatives out there - this is the most peaceful one.
Yes, there are arguments that broadening the base of support will help not hinder stability.ß The fact remains that this is the best system we have found so far and it does actually work. We might even someday have something far more stable than this, but the transition to that is not going to be easy. In fact, I think that on the existential risks meter of the world - stabilising American hegemony should be a priority. It is vital that this system is maintained until a better one emerges to take its place.
People might disagree, but it really is a tragedy that countries and groups now want to overthrow the American hegemony largely due to political missteps at home and a steady disconnect between what it means to be hegemon and the day-to-day of American politics. They've forgotten that their alliances were built upon shaky ground and need upkeep to maintain. And that even the firmest of empires do fall.
† http://www.middlebury.edu/media/view/214721/original/OdomPap... ß http://www.economist.com/blogs/democracyinamerica/2012/02/wo...