Interesting Frontline last night

[Koolau]

As long as the US dollar is the world's reserve currency and other countries are willing to buy our debt and keep investing in the USA, we're good !

True. Just as long... It's seems clear to me that China is attempting to change that dynamic.

 

[Trooper]

I watched the documentary and for me it was a story of lost opportunities.

Corporate America didn't have investment opportunities in its own plant and equipment and felt that there was a better return for virtually interest-free money in stock buybacks. This inflated stock prices artificially, creating a bubble that no one knows has been resolved.

The federal government, due to an inability to agree on fiscal policy, was unable to put the free money to work in improving infrastructure (roads/schools, etc.). This put the country's economic well-being squarely in the hands of the Fed's monetary policy. As was mentioned, changing interest rates isn't going to lower gas prices or fix the supply chain.

I still believe the US has the world's best economy; just hoping that this stays the case.

 

[ncbill]

True. Just as long... It's seems clear to me that China is attempting to change that dynamic.

Yeah...not happening.

A book I read recently noted a few years ago China thought its yuan had the potential to become another reserve currency so they liberalized convertibility for its own citizens.

Who promptly moved their yuan into other currencies to the tune of over a trillion dollars worth of yuan over roughly 6 months before China slammed the door on that experiment.

 

[Mr._Graybeard]

One thing that sticks in my memory is my dad's experience in about 2004, He was a saver and limited his investments to CDs. I saw his face fall when the banker told him the going rate for a jumbo CD was around 3%.
So the era of cheap money goes back further than 2008-09.

 

[Koolau]

Yeah...not happening.

A book I read recently noted a few years ago China thought its yuan had the potential to become another reserve currency so they liberalized convertibility for its own citizens.

Who promptly moved their yuan into other currencies to the tune of over a trillion dollars worth of yuan over roughly 6 months before China slammed the door on that experiment.

Probably not worth discussing, but there are lots of issues involved in whether a currency could ever be considered as a reserve currency. Economic "might" is certainly one of those issues, and China has made amazing strides of late in that area. They are making side deals with various countries to denominate their trades in the yuan - bypassing the dollar IIRC. Let's just say that China WANTS to be the dominant economy with reserve currency status. That is their goal. Personally, I've never achieved much unless I first set it as a goal. Most things I've set as a goal, I have achieved. We (USA) have become complacent about having reserve currency status. China is challenging us and we ignore them at our peril. Just sayin'.

 

[Montecfo]

I found that it was pretty negative. It's not portraying tons of hope for the future. I need to watch it again. I considered it pretty biased toward the left!

Well, PBS. But can still glean some info but knowing the perspective. Have not watched myself yet but may.

 

[Montecfo]

As long as the US dollar is the world's reserve currency and other countries are willing to buy our debt and keep investing in the USA, we're good !

Yeah, this is interesting. As much hand-wringing about the dollar it remains the world's reserve currency, and there really is no heir apparent, and for clear reasons. This may not always be the case but it is unclear to me how this is likely to change.

Having said that, we have no plan to pay down the debt. I hope we create a plan soon to stop increasing it. Job one is to balance the budget. Job 2 is to grow the economy so the debt becomes less relevant as a percentage of GDP.

Unfortunately we voters are not demanding this. If we did demand it, it is doable.

We have met the enemy etc etc.

 

[MichaelB]

Here’s a very good CNBC interview just a few days ago with Michael Pettis, economist and professor of finance at Peking University and expert on trade, where he discusses this topic of reserve currency and US debt. He’s written a number of books on trade, all excellent, the latest as co-author with Matt Klein titled “Trade Wars are Class Wars”.

 

[Markola]

^^^^ That five minute interview highlights how capital inflows into the US are a double edged sword, great for Wall Street and importing but deadly for US manufacturing and exports. And he summarized why China, nor any other country besides us, really wants to have the world’s reserve currency. China and other authoritarian countries are all about state control, which won’t work for a reserve currency.

She didn’t let him explain well why capital inflows require persistent deficits, but I guess he meant our persistent trade deficit, which is easy to understand. Politicians blame unions and regulations and they try to impose tariffs to even the trade deficit but the driver of our weakened manufacturing sector is the strong dollar, due to its Faustian status as the world reserve currency.

 

[MichaelB]

^^^^ That five minute interview highlights how capital inflows into the US are a double edged sword, great for Wall Street and importing but deadly for US manufacturing and exports. And he summarized why China, nor any other country besides us, really wants to have the world’s reserve currency. China and other authoritarian countries are all about state control, which won’t work for a reserve currency.

Exactly

She didn’t let him explain well why capital inflows require persistent deficits, but I guess he meant our persistent trade deficit, which is easy to understand. Politicians blame unions and regulations and they try to impose tariffs to even the trade deficit but the driver of our weakened manufacturing sector is the strong dollar, due to its Faustian status as the world reserve currency.

Yes, the inflows and strong dollar are the result of surplus countries (China, Japan, Germany, Netherlands, Taiwan, etc) suppressing their own internal demand and exchange rate. This creates the trade surplus. The only real option they have is to invest that surplus in US Treasuries. If they were to invest it in their own economies their currencies would appreciate and the surplus would disappear.

 

[Markola]

Nonetheless, some serious people would like there to be some competition with the dollar, like this former Goldman Sachs chief economist, Jim O’Neill. I can’t imagine that the world would trust the “bad neighborhoods” BRICS countries with its Monopoly Money, much less any store of value or medium of exchange, but those authoritarian countries are experimenting with going their own way, according to this article:

https://www.kitco.com/news/2023-03-...ce-as-China-leads-de-dollarization-trend.html

“Former Goldman Sachs chief economist Jim O'Neill is calling on the BRICS bloc to expand and challenge the dominance of the U.S. dollar. China's recent actions with the yuan are already doing just that.”

 

[Montecfo]

Yes they are. And they encounter a mixed bag. But it is interesting to watch and not something to be ignored.

 

[Koolau]

I'm not up on this stuff very much and I'm certainly not familiar with all the intricacies of currency manipulation, reserve currency, etc. What I do know is that China is challenging us (USA) to dominate the financial world as well as the geopolitical world. With that in mind, the least we could do is play to win instead of assuming we already ARE the winner. China will never give up. We change our policies at least every time we change administrations. China never changes their goal to dominate. We play the game as if everyone thinks like we do and is in it for the short term gain. China plays for keeps and for the long term.

Yes, once again, I've told you way more than I know. But I believe it down to my socks. YMMV

 

[Graybeard]

Nonetheless, some serious people would like there to be some competition with the dollar, like this former Goldman Sachs chief economist, Jim O’Neill. I can’t imagine that the world would trust the “bad neighborhoods” BRICS countries with its Monopoly Money, much less any store of value or medium of exchange, but those authoritarian countries are experimenting with going their own way, according to this article:

https://www.kitco.com/news/2023-03-...ce-as-China-leads-de-dollarization-trend.html

“Former Goldman Sachs chief economist Jim O'Neill is calling on the BRICS bloc to expand and challenge the dominance of the U.S. dollar. China's recent actions with the yuan are already doing just that.”

Maybe the goal is for these currencies to collapse an then Bitcoin becomes the world currency. Of course, totalitarian counties would not like that as they lose control.

 

[Koolau]

Maybe the goal is for these currencies to collapse an then Bitcoin becomes the world currency. Of course, totalitarian counties would not like that as they lose control.

Heh, heh, USA doesn't like Bitcoin, et al either. Same reason.