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PaperclipPerfector  6mo ago (text post)   24828 thread views

Culture War Roundup for the week of May 6, 2024

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This might run out, with devastating effect, some day.

If people lose confidence in the US dollar, suddenly they'll try to get rid of it, leading to an increase in domestic supply and dramatic inflation, and foreign goods in general will be much more expensive.

It might, when someone else has 11 carrier strike groups. It won't be in our lifetimes.

But how much does that actually matter to the value of the dollar?

My guess would be that the general value prospect to people and countries abroad of holding dollars are that:

  1. Dollars have low inflation, so they're one of the better currencies to sit on.
  2. The US is fairly reliable, as nations go, so it can be expected to remain stable.
  3. Dollars are useful for trade with the US, and the US is an important part of the world economy.
  4. Other places and people want dollars too, so they work well as a currency.

But if 1 fails (due to, say, running out of people willing to finance US debt, meaning that we need to start printing money to fund things or pay back debtors), then some will drop the US dollar for other currencies. This will drive down the cost of the dollar, that is, cause inflation, which will lead to more of the same.

I don't expect 3 and 4 to go anywhere, but I think 1 and 2 could change, in a way that would meaningfully affect demand for dollars, and hurt US prosperity.

That said, that's mostly just from me thinking things through myself, not something better vetted, so is there some reason that I'm wrong, or something I'm missing?

Anything could happen, but it hasn't. People have been predicting the demise of the dollar for 60 years, from weird baskets of BRIC currency to crypto, to gold. It only gets stronger! It is interesting that people are always calling for the fall of the mighty USD and yet when I travel these days I can only buy more and more with the same amount of cash! Call me when that changes.

I don't expect the demise of the dollar before the US comes close to defaulting on its debt, which is still a ways away. But the deficit's steadily been growing relative to GDP. (And even then, I don't expect a total collapse.)

The US will never default, we are in a better place than all other countries, hence the strong dollar. Unless you think all other players are totally irrational investing in it? If we are defaulting, the rest of the world has already fallen apart and it doesn't matter. Like people who buy gold for the apocalypse...when what you really need is beans and bullets.

The US will never default, we are in a better place than all other countries, hence the strong dollar.

Okay, the US won't default, but at some point it'll need to start printing money, at least, to avoid it.

That is:

The US wants to pay for stuff.

To raise funds to do so, it sells bonds.

Demand for bonds is not limitless.

US spending keeps growing.

Eventually it will hit the limit of those willing to buy US debt.

At that point, it must either print money to pay for things, or fail to pay for things (that is, default).

Unless you think all other players are totally irrational investing in it?

It wouldn't surprise me. But really, all you need to buy a bond is just to think that things will be fine within the lifetime of the bond, which is entirely possible even if you think it's going to collapse in a few decades.

If we are defaulting, the rest of the world has already fallen apart and it doesn't matter. Like people who buy gold for the apocalypse...when what you really need is beans and bullets.

I see no reason to think the former is true. And the latter depends heavily on what kind of apocalypse you're in.

Again, we have the strongest currency in the world. If it goes bad then all others have gone before it. We abuse the shit out of that and we're going to abuse it more. No one can say boo.

You keep saying this, and not addressing what I said about the mechanisms of how the US would end up in a situation of scrambling to avoid default.

Which point in that list was wrong (following "that is:")?

What is the actual mechanism by which the US can keep borrowing? Who, specifically, wants US dollars, and will keep buying up our debt indefinitely, even as it continues to grow to be a larger and larger share of US and world GDP?

Instead of just giving a, "we'll be fine, someone will stop it," as you have us sleepwalk into disaster.

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Or if one of those gets sunk by hypersonic missiles. Or if you run out of people to con into manning them in exchange for IOUs.

I think it's quite reasonable to put a decent chance of dollar collapse happening within the next 50 years actually. Especially now that the dam of signing oil contracts in other currencies has broken. Though I'm still betting on Japanese style long term containment.

It becomes more likely if NATO decisively loses the Ukraine war. When force is the only thing backing the entire system, any large display of weakness is a potential black swan.

Lots of hypotheticals here. The dollar has only become stronger over the last 20 years despite rumors of demise. So forgive me if I take this with a huge grain of salt.

I'm not saying it's gonna happen. Again my base case is USD becomes JPY 2. But if you're not banking on it being possible you're taking an irrational risk in my opinion.

Also the dollar is insanely weaker in real terms than 20 years ago. Anything with an actual backing would trample over it. The only question is whether the people emitting an alternative could survive the wrath of the US Army.

You're the only one. The dollar is stronger than ever against all other currencies, anything that takes the dollar down will mean the end of the financial world first.

In "real terms" it is stronger than ever compared to all other currency; if your talking about inflation which is normal, expected, sought after, and planned for, then yes, it has inflated, like it is supposed to, to keep money moving.

If you understand monetary policy at all you don't want something that never changes in value or deflates, that just leads to hoarding and doing nothing.

Unless you're some kind of silver/gold late night TV guy then this is all common knowledge.

Ah, an other private account so I don't even know where you're coming from on issues. TheMotte should do away with that feature.

stronger than ever against all other currencies

All currencies except Bitcoin and gold. Non-fiat ways of storing wealth are all doing very well compared to the dollar. Why are equities priced so highly? Why are houses so expensive? Because the real value of each dollar is shrinking, purchasing power is shrinking.

This may come as a surprise to the 'monetary policy' community but things are supposed to get cheaper, not more expensive. New technology should improve production processes. TVs have gotten cheaper, as have computers. Even if technology is mature like burgers, it should stay roughly the same price, ceteris paribus. But a great many things have rapidly risen in price due to money-printing, which has caused considerable alarm amongst policymakers along with economic stress.

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