"Instead of drawing down our gold reserves, however, we gradually draw down our domestic manufacturing base and it gets replaced piece-by-piece in foreign countries."<p>To me, this is the money shot. I hadn't seen this expressed before and it makes perfect sense. I'm baffled that we (the US) <i>caused</i> this to happen to the US. I'm (unhappily) registered Republican but I argued vociferously to a Dem friend in 2000 that our inability to manufacture critical components was going to kill us. Kind of literally: AFAIK, the last LCD panel manufacturer in the US closed around then and we could no longer manufacture LCD for our military vehicles... (Even if this anecdote is untrue, the point remains valid...) I argued that, even in the presence of free trade, a country should have the ability to tariff imports to the extent that that country could maintain a 25% (or something) domestic market share.
Before spending the rest of the day reading articles on this site, I have to say this is a comprehensive and easily understood history for how the U.S. got to this point financially.<p>Being a cynic, I've studied many aspects of this system for some time. I have to say I'm shocked how obvious the PR has been for some of this stuff.<p>A favorite example is the Iraq war. Clearly a mafioso protection racket type of move. Nice country you got here, quit using Dollars and see what happens...<p>The 1970s in can be almost explained in the sense of a 1930s style run on the bank, except this time it's allies and foreign countries after their gold.
The Saudi benefit from attacking Iraq probably even mirrored what France thought it was getting in "French Indonesia and French Vietnam". You can almost imagine a scene playing out between French and U.S. diplomats where the French ask for their gold and the U.S. goes, "well... here's the thing about your gold, tell you what let us call it even and we will spend a decade or more at war for you? Deal?"<p>The entire thing is absolutely crazy and the way it is taught to average people is complete bullshit.
> <i>At this stage, instead of just blue-collar labor in America being hurt by the system, the geopolitical ambitions of United States hegemony are also subverted. As far as Americans were concerned, for 40+ years the petrodollar system used to work for the top half of the income spectrum but not really the bottom half, and now it neither particularly works for the top half nor the bottom half. It’s now a system without a purpose.</i><p>This is the article’s key insight. Dollar hegemony no longer works for anyone.<p>The Fed needs to support international payments in multiple currencies
and build its non-dollar reserves. Congress should prioritise domestic manufacturing and wage growth.
> More troublesome, the inherent flaw of having the global reserve currency, in a theme that goes back to economist Robert Triffin from over half a century ago, is that in order to maintain the global reserve currency, the country must supply the world with its currency via structural deficits in one form or another.<p>That "structural deficit" means allowing manufacturing to move overseas.<p>The trade war is a distraction. Trade imbalances with the rest of the world could be solved very quickly by making it clear the the dollar is going down in flames and that policies will be put in place to make that happen:<p>1. massive federal budget deficit spending<p>2. purchase of all the debt by the Federal Reserve (yield curve control)<p>Holders of bonds would be absolutely wrecked. That's a lot of institutions and wealthy individuals.<p>The only question is whether the political will to do this can be mustered. So far it hasn't.
Lyn Alden has become my favorite macroeconomist through the Covid crisis. I bought a bunch of puts in February 2020, they went way up in March till the Fed stepped in and then went down. I went looking for answers on how to understand macroeconomics and Alden has had a lot of interesting takes on it.
The collapse of the dollars strength and rise of crypto being thought of as 'a store of wealth' may lead to the next financial revolution.<p>Imagine a world where etheruem has enough market cap where it's volatility decreases, smart contracts for services are wide spread, everyone works free-lance giving the economy a inherent conflict of interest problem that rockets innovation forward while at the same time of having the effect of directly capturing some of the wealth you create by charging on a 'free-lance' model.<p>No need for the dollar, but it does change the inventives built into the system and will have radical effects on globalism.
>This article places an emphasis on where the bottlenecks and problems have been forming in the system, explains why a continued weak dollar over a 3-5 year period remains my base case, and shows why some of these growing pains seem to be leading to a new re-ordering of the global monetary system over this decade.<p>3-5 years isn't really saying much especially given that the US dollar does not have much movement, and that this is effectively the same as being bullish on the Euro and Pound and Yen, which are the biggest competing currencies. I do not see any reason why those currencies will see a sudden inflow. That last time that happened was in 2002-2008, but that was when there are much more interest in foreign assets , whereas today foreign assets are shunned in favor of domestic assets and tech. Pensions, hedge funds seek safe US assets such as investment-grade corporates bonds and treasury bonds, not riskier foreign assets.<p>I do not expect any sort of fraying of the US dollar as the global reserve currency system though.<p>Some of the conclusions the author draws are wrong or dubious, such as the purported inverse relationship between the US dollar and corporates profits. The dollar surged in 2014 but corporates profits did not fall.
Economists writing about the end of the dollar as a reserve currency is not a new thing. With the Fed printing money tho at record rates this would be the time for a shift to happen.<p>The problem is there is no alternative. The Euro has it's own structural issues and as we saw in March when folks got scared they sold alternatives like Bitcoin down hard. In short, there is no alternative without international cooperation to make a change which doesn't appear likely any time soonish.
Peter Thiel bet against the US dollar and lost big.<p>> Subsequent down years have reduced the fund's assets under management to $681 million as of December 2010.[4] Clarium Capital Management was reported to have had big losses in 2010.[14] The firm has continued to struggle with bets that it made on inflation and the US dollar.<p><a href="https://en.wikipedia.org/wiki/Clarium_Capital" rel="nofollow">https://en.wikipedia.org/wiki/Clarium_Capital</a>
"From there, paper currency and credit was added as a more convenient layer onto gold."<p>It's not a universally accepted opinion but I take Martin Felix's view, articulated in "Money," that credit predates coinage.<p>It's turned me off the article and as a consequence I can't read any more.
Are macro-economic forecasts generally accurate? It is my understanding that they are not very good generally speaking.<p><a href="https://www.google.com/amp/s/www.wsj.com/amp/articles/edward-lazear-government-forecasters-might-as-well-use-a-ouija-board-1413503121" rel="nofollow">https://www.google.com/amp/s/www.wsj.com/amp/articles/edward...</a>
It seems to me that those taking the position that the minimum wage should be lowered/abolished and those taking the opposite position are both accepting the premise that absent the minimum wage, wages would fall. Is there any real-world basis for that premise?<p>From basic supply and demand:<p>1. a downward pressure on wages emerges from workers competing with workers (competition among suppliers of labor)<p>2. an upward pressure on wages emerges from employers competing with employers (competition among consumers of labor)<p>And, <i>ceteris paribus</i>, some equilibrium wages emerge.<p>The minimum wage ostensibly exists to interfere with #1 (though usually framed as protecting workers from employers), assuming the minimum wage is set above the would-be equilibrium wage.<p>But what if the minimum wage is set below the would-be equilibrium wage? Perhaps the minimum wage instead serves to interfere with #2 by allowing a point of collusion among employers, and thereby keep wages artificially <i>low</i>.<p>Is anyone aware of any research on this?
Video of Ron Paul's speech linked in the article: <a href="https://www.youtube.com/watch?v=44wo8IhuHfQ&ab_channel=ttj1776" rel="nofollow">https://www.youtube.com/watch?v=44wo8IhuHfQ&ab_channel=ttj17...</a>
Meh. India similarly trues hard to manufacture stuff on its own buys weaponry from USA and Israel and France and other countires? Why ? Cant they produce gunmetal ? Yes they can but the ministers who take the decision get kickbacks from countries. Essentially for a minister, it is a financial incentive to buy from USA because he/she will get a share of the deal. If India starts making their own, this revenue stream will dry up and they cant let that happen.<p><a href="https://i.redd.it/wjxa2s4dbr461.jpg" rel="nofollow">https://i.redd.it/wjxa2s4dbr461.jpg</a><p>2 billion usd I presume. This money could build many megafactories but again, kickbacks
This was a fascinating look at the history of a subject i must admit i know very little about.<p>However the author lost me a bit when he started talking about bitcoin. I get why bitcoin might be appealing to a country like Iran with cheap energy and sanctions preventing them from participating in the world economy. I also get why it would be appealing to individuals in developing countries with unstable local currencies, and perhaps limited access to harder assets. I don't get what the benefit would be to national reserve banks and finance between countries in the general case, where special circumstances (like Iran) don't apply.
“ What the next system will look like is an open question. I’ve seen multiple proposals. Whatever form it takes, it’ll be decentralized in the sense that it won’t be completely tied to any one country’s currency, since no country is big enough for that anymore. It’ll be based around neutral reserve assets, and/or a more regional-reserve model based on a handful of key country currencies, with an expanded variety of payment channels.”<p>No wonder Facebook continues to fight hard for their Libra / Diem project
One thing I don't understand:<p>> The COVID-19 pandemic hit in early 2020, which halted global trade and contributed (along with a structural oil oversupply issue) to a collapse in oil prices. The dollar quickly spiked, foreigners began outright selling Treasuries and other US assets to get dollars<p>Earlier on the article explains that in the petrodollar system, foreigners need dollars to buy oil. If they can now buy oil for less dollars, then why do they want to get more dollars?
Luckily none of this has any military implications.<p>All the people who have dollars or bonds will be happy to see their money evaporate. And no one will be concerned if the US defaults, because they have nothing of value anyway worth liquidating or foreclosing.<p>And we could never have another global war. We are completely passed that now of course. All of the recent wars have been totally isolated incidents, mainly caused by evil dictators.<p>/s
I'm just a simple bear, so I don't understand any of this stuff. (I comfort myself knowing I'm in good company.)<p>Skim reading this, I provisionally label Lyn Adlen as an advocate of monetary policy.<p>As every one knows, abandoning the gold standard, adopting fiscal policy, makes monitarians anxious.<p>Over time, I'm leaning towards a refreshed Keynesian view: empire means huge military means deficits. Both trade and federal.<p>I'm not a classical Liberal or a Neo-Liberal. I'm just saying Keynesian and MMT notions seems like useful metaphors for understanding the current world.<p>--<p>Lyn Adlen does mention petrodollars. But doesn't provide a clue to what comes next.<p>Rare earth dollars? Gigawatt hours dollars? Some kind of PoW (and therefore measure of energy) crypto coin?<p>Does it even matter? Are petrodollars just a shibboleth for monetarians that can't accept there's "no there there" when money became fiat?
Which country would benefit from a weaker dollar? Germany wants to sell their cars. China their phones. If Americans can't afford them any more, then a big market would disappear.
This is perhaps the best written article on the current state and future of US dollar (and thus, America). As an avid follower of geopolitics and with exposure to both east and west, I've often had to work out where the future lies and the thoughts of this article appear to mirror mine.<p>Especially since Trump's election, I have always wondered about the future of America, not just socially but also economically. Trump's excessive use of sanctions and bullying comes at a major loss for future generations. And this line from the article elucidates it:<p>"However, when major powers like China, Russia, and India begin pricing things outside of the dollar-based system and using their currencies for trade, including for energy in some cases, the US can’t realistically intervene militarily, and instead can only intervene with sanctions or trade disputes and other forms of geopolitical pressure."<p>and<p>"Chinese officials have said on numerous occasions that their reliance on the dollar system is a security risk for them. Having surpassed the United States as the world’s largest trading partner and world’s biggest importer of commodities, China increasingly has an interest in being able to acquire commodities and perform global trade without dollars, which as we see with trading partners like Russia, or with China’s yuan-based oil futures contract, they’re increasingly able to do with small steps at a time."<p>The bullying is the last straw. A lot of countries are very independent and are only trading in dollars because of oil. Take that away with sanctions and the demand for dollars drops rapidly. Thus, US dollar doesn't need to be a major reserve currency, holding US dollars might even be a risk.<p>Had bitcoin not been deflationary, bitcoin could have filled this gap. More likely though is that the declining faith in American politics will force other countries to go back to a multicurrency system and thus, US will no longer remain the top dog.<p>History repeats.
I have wondered for quite some time what the impact of unlimited QE is on the economy but never found a good answer. I think I found it now. QE will be one parameter in the large equation that is the global currency system. With eroding grip/leadership in the world, the US is ceding the leadership position to either China or creating a vacuum. This accelerated in the last four years which unfortunately led into the pandemic too. So on the whole QE is just facilitating the case for the dollar to become less powerful.
You've been on HN for 13 years, and this is your first post in 7.<p>Welcome back!<p>Can you provide any context regarding why this article made the cut, when nothing did for 7 years?<p>Sorry if it's a bit off topic; it's just an interesting circumstance, and I'm curious.