Let’s start with the obvious. First, Trump is bluffing. Second, he is clueless as to what the real problem is.
Truth Social Post
“The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER. We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they will face 100% Tariffs, and should expect to say goodbye to selling into the wonderful U.S. Economy.”
“They can go find another “sucker!” There is no chance that the BRICS will replace the U.S. Dollar in International Trade, and any Country that tries should wave goodbye to America.”
Video of Trump’s 100 Percent Tariff to the Economic Club of Chicago.
[Trump to BRICS nations] We love your product and we hope you sell a lot of it but you are going to pay 100 percent tariff.
They will then follow it up by saying, sir it would be an honor to stay with the reserve currency.
That’s not even chess it’s checkers.
The idea of passing a 100 percent tariff is such an obvious a bluff, that the correct response is to laugh.
Nonetheless, that’s what he said and clueless supporters are cheering.
Who Really Wants Reserve Currency Status?
Despite moaning about the dollar, China does not want to have the world’s reserve currency because it would imply running trade deficits in which other nations accumulate yuan reserves.
Japan and the EU (led by Germany), don’t want to have the reserve currency “advantage” either, for the same reason.
Since Nixon trashed the gold standard, an export-based, current account surplus economy is incompatible with reserve currency status.
Please read the above lines over and over until it sinks in.
Reserve Currency Curse
The reserve currency irony is that despite protestations of US advantage, no country wants the alleged advantages the US purportedly receives.
Since no one really wants it, having the reserve currency is best viewed as a “curse” not an “exorbitant privilege“.
Reserve currency status allows the US to run deficits with policy set by foreign nations.
Q: How so?
A: If China subsides exports (call it dumping if you would), the US gets to chose between higher unemployment, slower growth, or trade and budget deficits.
The US choice has always been higher trade and budget deficits.
What Happens When you Raise Tariffs?
In isolation, tariffs act to strengthen the dollar, reduce growth, and increase inflation.
Strengthening the dollar is counterproductive to the idea of increasing exports.
Carried to extreme, and 60 percent or 100 percent tariffs on China would be extreme, retaliations would be swift, and likely drastic.
If Trump really did what he said, we would likely have an instant global recession.
Trump is playing neither chess nor checkers. It’s a nonsensical rant from someone who fails to understand the massive problem that started after Nixon ended gold convertibility.
Global Consumers of Last Resort
The US is stuck with the reserve currency because we have the largest, most open capital markets in the world, the world’s largest bond market, and a far better business climate than the EU, China, or Japan.
To ensure the US remains the curse holder, China does not float the Yuan but props up corrupt SOEs, and Germany punishes the rest of the EU.
Everyone wants to export to the US, and they do.
The result is a currency war with everyone hoping to devalue their currencies against the dollar.
As a direct result, and aided further by better US demographics, US consumers have become the global consumers of last resort.
Total Credit Market Debt Owed
Base money supply is the sum of currency in circulation and reserve balances, or deposits held by banks and other depository institutions in their accounts at the Federal Reserve.
US Current Account Balance
The current account balance is the financial inflow and outflow record. It is part of the balance of payments, the statement of all transactions made between one country and another.
No Restrictions on Debt and No Enforcement Mechanism
As a direct result of having the global reserve currency with no restrictions on money supply (no gold standard or other enforcement mechanism) we now have nearly $100 trillion in total US dollar denominated debt with base money supply at $5.7 trillion.
And the US trade deficit has soared.
Trump threatens to keep this scheme in place with dollar-strengthening, growth-slowing, and export-weakening tariffs.
Tariffs cannot and will not fix this because the problem is the lack of an enforcement mechanism that gold once provided and now nothing does.
A currency crisis awaits as the current path is not sustainable.
Addendum
A reader accurately commented “There isn’t really any other country that can have the reserve currency.”
That is correct. But that was true immediately after WWII. The US Current Account was essentially zero from 1947 to 1971.
What Happened?
Also note the irony. BRICS is no threat to the US dollar except possibly as a sanction avoidance mechanism. So it’s just Trump huffing and puffing nonsense like a big blowfish.
Addendum
A reader accurately commented “There isn’t really any other country that can have the reserve currency.”
That is correct. But that was true immediately after WWII. The US Current Account was essentially zero from 1947 to 1971.
What Happened?
Also note the irony. BRICS is no threat to the US dollar except possibly as a sanction avoidance mechanism. So it’s just Trump huffing and puffing nonsense like a big blowfish.
I have said it over and over, and I will continue to say it! Trump is a financial illiterate!
What does that have to do with anything?
So why ya visiting this forum, Professor?
The point is that the U.S. can not, under any current circumstance, compete financially against most of the global south. Even with a 100% manipulated margin.
It will never happen.
The world is duplicating what the West has done with out the learning curve.
Plus the populations and the education.
The parity will be achieved in an exponential time frame, plus 100 percent on top for those 3rd worlds.
Very simple.
I realize that you’re being ridiculous but in fact even many self employed blue collar people like me have substantial savings. I have to keep opening new bank accounts to keep the balances under the FDIC $250k insurance limit. I now have 4 accounts.
So you’re single?
LMAO!!!!!!!!!
And that fiat currency that you have in those 4 accounts is deflating in purchasing power by 10% every year.
20 years ago I had a few hundred dollars spare every few months, I’d purchase a bullion gold coin and put it away. Now those gold coins have appreciated 7 fold against fiat; had I kept that fiat money in the bank I’d have earned maybe 5% annually, then lost a third of that to income tax at my marginal rate.
In the next 4 years those ounces of gold will still be ounces of gold, your 4 accounts will suffer loss of purchasing power, earn crap interest on which you will pay tax and worst of all a currency crisis, a collapse of confidence or a war could see bank runs, bank collapses and FDIC not having the reserves to cover the losses. Not hard for the government to limit or change the rules about payouts such that you only get a limited amount back or you have to wait a few years to be paid out while the USD is trashed with hyperinflation.
The only solution, and a difficult one, to the curse of a reserve currency is for no country to be the reserve currency country. Got gold?
A college education does not make you smart. It makes you indoctrinated and unable to reason with opposing views and facts.
True nowadays. However, that was the result of liberals dominating education.
– It has to do with the fact that very few people are billionaires. > Roughly 3,000 in the World today.
– Jim probably has 200 dollars in his bank account. Probably less. > What does that have to do with anything at all?
– You probably have a little more, > What’s with the foolish “How Much $” questions and comments?
– It is stunning to me that even supposedly “intelligent” What Information and How Analyzed?
> Your comments are a mess and meaningless, and besides “It’s Never” how much you show that you have, it’s how much you Owe!!! Then you can start talking in an educated way, about what’s left.
My account balance or what my Dad left for me?
You made it clear, Mish, that you think that going off the gold standard is the reason. But how many countries anywhere in the world are on a gold standard now? And some countries have current account deficits (like the US) and some have current account surpluses. Some have national debts and some have national surpluses. So being off a gold standard does not necessitate a current account deficit. You and I and the US government individually decide how much we spend or save, and whether we spend or save it internally or externally. And that leads to current account deficits/surpluses and national debt/surpluses.
Trump’s utterances are bluster for the Masses..
this site should be made mandatory reading everyone on trumps team
especially those so called economics advisors
Thanks Jerry
We might lump this Trump threatening of the BRICs countries with his “hell to pay” bluster concerning the remaining hostages in Gaza. Could he be suggesting that he’s going to cut out the Israeli middle man and start slaughtering Palestinian women and children directly if Hamas does not cater to his wishes?
Trump is clueless. BRICS+, headed by Russia and China will move forward dispute what the Western criminal oligarchs, who control the US/West wants, or what Trump wants – and there nothing the US military can do about it. The U.S. and the U.S. dollar is over.
The Truth is in 1970 the ( American ) Business Round table decided to leave America because of unions ( fair wages) and environment laws. You could not just pour your shit out on the ground water or air anymore. Businesses could not make a big enough profit. It’s that simple they could not afford a middle class.
US companies, when confronted by countries with lower labor costs and less regulation followed good business practice.
US consumers, when confronted by products at lower prices from other countries, ignored the ‘Made in USA’ label.
It was a chicken and egg thing. The major problems were labor unions, and corporate offices not innovating. Throw in Vietnam and social revolution post-Kennedy assassination…
I think Trump knows tariffs are bad but he uses them as leverage to get other countries to do what he wants. If you see how other countries are responding, it seems to be working already and he’s not even president yet. People continue to underestimate this man.
Why, exactly, does the world need a ‘reserve currency’? If gold can buy all currencies at their market-determined exchange rates, is gold not also a ‘currency’ without a country? Ideally, international transactions would be made using digital gold, which is always redeemable in physical gold, or in the currency of choice, at the appropriate exchange rate?
Mish, I never comment, but I am a long-term reader of your blog. Could you do a post on Tesla’s entry into Hydrogen Fuel Cell EV? https://mitechnews.com/featured/elon-musk-says-hes-leaving-electric-vehicles-behind/
Hydrogen Fuel cell vehicles have been around for a long time and they have not gained any traction.
There are 1.5 billion vehicles in the world.
Here is the breakdown:
FCV: less than 100,000
PHEV: 12,000,000
EV: 28,000,000
CNG: 30,000,000
Diesel: 330,000,000
Gasoline: 1,100,000,000
In order to reach mass adoption you need infrastructure. We already have the infrastructure for gasoline and diesel. And we are spending a lot to expand the infrastructure for electric. We are also expanding the infrastructure for CNG. Biden attempted to kickstart Hydrogen infrastructure, but at this point it is going nowhere. And I don’t think Trump will care to promote it.
There is no need for Musk to develop a Hydrogen FCV because there is no demand for it and no infrastructure for it.
GM was investing heavily in Fuel Cell technology prior to the 2007-8 recession. The stumbling block was not the proton-exchange membrane, or pollution (water), but finding viable solutions to the method of supplying hydrogen to fueling stations, and refilling vehicles (for example switching in/out gas cylinders).
BTW, Musk is very aware a fuel cell vehicle does NOT require lugging around heavy lithium batteries, and does not cause air pollution. It was, and still is, a very viable solution to ground transportation.
Musk is again following in GMs footsteps. They were doing EVs back in the 1990s, but abandoned the project as unprofitable. We know that now as companies struggle to make EV cost effective. The shift to a fuel cell vehicle was evident in 2010 or so Chevrolet Sequel. It was a Bob Lutz project, following his Chev. Volt project.
Yeah, the Don is economically incoherent on this one for sure. The United States Government uses the dollar as a bat to beat other countries into submission. If you want your dollar to be accepted as a reserve currency by everyone, stop punishing people who use it. No sanctions on countries, no seizing of their dollar assets, no kicking countries out of the ability to use the system. We the people complain about “Debanking” of regular folks with the “wrong” politics? The U.S. debanks whole nations. It’s no wonder they want out.
Very good comment
Thanks
With all due respect, here is why you are mistaken Mish.
1) Asia has a savings glut is a false narrative created so that people in the US think they are virtuous. You take GDP = Nat’l income and solve for trade surplus. You get a trade deficit equals a savings deficit. But NOBODY cares about the savings rate. Nobody hires a worker or starts a business to change the savings rate. We care about profits. So take GDP = Nat’l income and solve for profits. You get the profit equation and in this equation China et. al are stealing our profits. But why do we let our rival/possible enemy steal from us? Because to replace the stolen profits we run large budget deficits and low interest rates to promote housing prices which benefit the rich urban elite. They get lower taxes and gov’t benefits they do not deserve. You collaborate with the CCP and punish the working class of this country for your own benefits.
2) Tariffs that target industry are not good but broad-based tariffs are basically no different that taxing the capital side of the trade/finance situation. At Bretton Woods, Keynes proposed the ICU and the Bancor as a way to promote trade while punishing imbalances. With the blockchain today, we have a real opportunity to implement this. Until then, broad-based tariffs can be an effective way to restore balance.
3) Tariffs should approximate the gross margin rate if they are to be effective. Thus 40-60% broad-based tariffs can restore the balance.
4) Once we must finance our budget deficit, the deficit will be reduced by lower spending and entitlements.
5) Yes people like you lose due to inflation, higher taxes, smaller benefits… But there will be winners and they are the working class people (higher wages, smaller budget deficits, stronger currency paradoxically). They understand that Trump represents them.
If China subsides exports it is to the advantage of US buyers and the detriment of Chinese consumers.
Tariffs are a tax on consumers or US importers if they eat the cost instead.
The sun says: here take these cheap solar panels. You want to tax the sun.
Instead of creating thousands of jobs installing free (or cheap) solar panels, you support tariffs driving up the price so no one wants to buy them ad no one installs them and US manufacturers go bankrupt trying to manufacture them.
People like you want to tax the sun. That is what it amount to.
And tariffs will not restore any balance because nations retaliate or trade shifts or stops.
So yeah, lets create 5,000 or whatever underwear making jobs in the US and triple the cost.
The “winners” you allege are the 5,000 underwear employees. The losers are 250 million people buying underwear.
It’s downright stupid.
As for financing the deficit with tariffs you are clearly nuts (and double counting), supposedly we collect all this money from tariffs while creating underwear manufacturing jobs too.
If trade wars were easy to win, why the flying F didn’t Trump win them when he made that proclamation.
I just want balanced trade. We have balanced trade with the Sun (no trade deficits) so I don’t want to tax the Sun. Surrendering to avoid retaliation is not the solution but just a deferral until there is a revolt. The winners are also the 250 million people who didn’t have to pay an income tax hike because China paid the tax instead. I also mentioned they are broad-based tariffs so it is not likely that we would create underwear manufacturing jobs. Balanced trade does not mean zero trade.
For ‘balanced trade’ there mus be some equivalence in the factors of production and the value added. Tariffs are a balancing mechanism that rewards ineffectiveness.
The US is at a disadvantage in most productive enterprises, and is getting worse as education is now about 50th percentile globally..
“Tariffs cannot and will not fix this because the problem is the lack of an enforcement mechanism that gold once provided and now nothing does.”
Is that why Khaddaffi was killed? Didn’t he want to create a gold backed currency for African nations?
Last thing the reptile people want is an “inelastic” currency, store of value?
I am waiting to see if Trump will suggest resurrecting the Keystone XL pipeline project again to bring more Canadian oil to the US; while also threatening that oil with a 25% tariff.
He is also advocating “drill baby drill” because he wants US companies to produce more oil to help reduce oil prices. Which could bankrupt some of the smaller US oil companies. So I am waiting to see how he will accomplish that.
Will he enforce sanctions on Iran, Russia, and Venezuela that Biden turned a blind eye to?
Will he tariff the world, and slow economic growth and therefore energy demand?
So many conflicting possibilities! What a great show it is turning out to be!
He hasn’t mentioned beautiful clean coal recently. We will see.
We live in interesting times.
I have my popcorn ready. And a bigger cash position than usual.
#1 – I sure hope he pushes forward with KS XL.
#2 – Let’s open up ANWR
#3 – Without a doubt, he needs to re-implement sanctions on Iran and possibly Russia if Putin doesn’t meet Zelensky at the negotiation table. He should move to sanction China, if they don’t shutdown their Mexican cartel collaboration with fentanyl.
#4 – No, I don’t think he’s going to tariff the world. The main countries he needs to go after are China & Mexico right out the gate. I’d suggest an across the board 10% tariff which is just enough to raise significant revenue while also forcing exporters & importers into choosing whether to absorb some or all of the tariff via their margin. And, it will start to bring some manufacturing back on shore. I’d suggest that he raise the tariffs over about 5 months to give everyone time to adjust. Then, let that burn in for about 4 additional months while saber rattling more to come.
Yes, it’s a very interesting time. Most importantly, it’s time for massive disruption of the status quo across all sorts of policies. It’s time that America first & MAGA get their due.
US oil production is already at record highs. It’s unlikely the oil companies want (or could} produce more, driving down their profits.
https://www.eia.gov/todayinenergy/detail.php?id=61545
I agree. Which is why I am waiting to see how Trump will get US oil companies to “drill baby drill”. It is not in their best interest to do so.
In a fiat currency world, balanced budgets and currency valuations are supposed to be the enforcement mechanisms. If a country’s trade balance grows too high, its currency appreciates and makes it less competitive. The US budget deficit must grow in order to finance international growth. US treasuries, not the US dollars are the true reserve currency. And those are created by US budget deficits.
Yet his obvious bluff to tariff the crap out of any country that doesn’t play along with his trade, immigration, and drug enforcement agenda isn’t just as obvious?
Trump’s bluffs are what make him successful. His rhetoric makes governors, mayors and world leaders pay attention. Don’t believe me just ask Hochul, the mayor of Denver and the leader of Mexico. Crazy thing is that he is not even president yet.
I think his bluffs will work for his first year or so. After that, the country will be looking past him.
The ending comment is the truth. The US wielding sanctions like some foolish bully trying to control the world is not working, overwhelms international trade with unintentional consequences and makes US look like fools. For better or worse President Biden goes down as the President who drove China and Russia into partnership. And there is no going back no matter what our Blowhard Billionaire from Queens says.
Mish, You remain my number one source of real knowledge- – – thank you.
Even Austrian economists agree that when it comes to national security, the case for free trade becomes nuanced. Trade with authoritarian or totalitarian regimes like China should be limited, and dependencies on these nations should be avoided. This is what several of the more level-headed posters have been saying here for quite some time.
Democrats continue to steal cash from a multitude of programs to pay for illegals to live in the US. I’m sure DOGE will shed some light, but I wouldn’t be surprised if the amount of cash is north of a trillion a year already.
US seems drown in the swamp. The more trying to escape the more sinking.
It’s not a curse to have the nations of the world want to export subsidized products to you, and for you to print “money” at will whenever you like and have the world gobble it up. It is an exorbitant privilege and a potent weapon, but it has to stay that way for good or the results would be catastrophic. So Trump’s impulse is on point here, though threats of tariffs are not necessarily the best approach.
Since being a practical sort of Guy am more interested in results.
So far Trumps Tariff threats aimed at Canada and Mexico have moved the goal posts on illegal immigration. People might remember how illegal immigration could not get stopped, that is until Mexico and Canada are moved to act.
Brics currency did not that have something to do with Saudi interests and energy?
Oh like in middle East region. Why yes.
Is not there a War going on in Mid East as well as Ukraine? Are countries involved directly as well as indirectly part of the economic cooperation required to form a currency.
So will wait some time to see what actually comes about as consequence of Trump threat. Politics makes strange bedfellows and we do not really know what is going on behind scenes.
For me I would be asking what’s the deal, rather then how does Trump not fit into my Box.
No way to know what the Beverly hillbillies led by Jed “Trump” Clampett will do with currencies so the only prudent thing to do is take positions in Euro and Swiss currencies as a hedge which is what I did this week. With USD at all time highs, prudent to buy other currencies at a deep discount.
The real issue for America is the continued demographic death spiral which no one talks about and the growing dependence of 80 million on social programs which can’t be sustained even with a strong dollar.
But I’m not worried, the GOP/Trump have 100% control of all branches of government and they will take us to the promised land and fulfill every campaign promise.
The US $ has been bolstered by the decline in the E-$ market. Dropping reserve requirements put the US $ on comparable terms.
The Beverly Hillbillies characters were totally the opposite of Trump. Before they got lucky and rich, the type of people they were knew how to live solely off the land and labor. Also the real issue isnt demographics, as we have more than enough people, its the immoral, foolish spending of way more than we produce by Congress, who continue to operate without leadership and integrity.
Do you ever even pay attention to the comments you type? You can’t seem to connect the dots even though you see the dots.
The “immoral foolish spending” is mostly social security, health and medicare. That’s your demographic death spiral right there. Defense spending is the other elephant in the room.
I suggest you spend some time looking at the charts and data at this link.
https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/
Peoples living standards are going to decrease either way. The right way to do it is with spending cuts across all those caregories instead of inflation from money printing because we simply cant afford it. More people would be comfortable starting families if not for the idiotic Republican and Democrat supported subsidation of mortgage rates, through dollar debasement, fueling the cheap debt speculative hoarding of real estate thats made basic houses unaffordable for many.
The alternative is a new economic paradigm, not more of the same, must grow at all costs or die. However, that would mean a level of thought and innovation most people are incapable of.
The current economic system depends upon immoral foolish spending to survive. It is a hollow void underneath.
Absolutely right. Why can the nation do what individuals cannot do… Live beyond its means?
Jed Clampet was the smartest one in the series because by being down to earth he outwitted the sophisticated Beverly Hill people with no sweat. Jethro was dumb. Granny could whip any of them and all strait Californians wanted Ely Mae badly.
How does it increase inflation? The tariffs are remitted to the treasury which means less deficit spending needs to be monetized by the Fed. I don’t see how it expands the money/credit supply. [It does of course increase relative prices of said goods and all intermediate goods based on them]
How can a relatively poor developing country continue to subsidize exports for decades, essentially giving away goods to the rest of the world below cost price? Why don’t they run out of the wherewithal to continue showering the planet with subsidized goods?
Because their people are enslaved.
They are not dumped below price; they are not paying “global wages” for jobs like Iphone assembler.
West want to pay slave salary to poor countries. That’s why they deindustrialise their countries.
But they have all become a lot more prosperous during all this slavery !!
Tariffs are a tax on consumers and cause prices to increase.
That is the short term. The longer term impact is recessionary.
These are in isolation.
What if tariffs were used exclusively for paying off the Fed debt?
In doing so, the interest rate would be reduced as the US would be seen as safe relative to other countries. Similarly, the US$ would be viewed as more stable…
I agree with this (first) question. I’ve been assuming Mish is speaking somewhat informally, and really just means tariffs cause prices to go up (which is what his comment says), otherwise it doesn’t seem consistent with his previous posts on how to define/measure inflation.
Though if I’m misunderstanding, happy to be corrected by Mish.
Exactly.
Relapse on the painstaking distinction between inflation and price increases.
Because they are a very large country.
That is not how the math works.
If a beer brewer sells beer for 2 cents but it costs 3 cents, and someone asks: How can you keep this up? How can you turn a profit?
He could say, it is the large volumes, the amounts are the key.
Nobody would believe it, which is why this age-old anecdote exists.
I understand that some companies are stocking up on things like parts for equipment in anticipation of tariffs. Will Mr. T follow through on his promises to look tough then reverse claiming victory? What will Mr. Market do? Will the true believers double down while the good money gets out or will they all just wait it out? Hmm…
Medicare/caid just added $25B in liabilities over next 10 years for the
fatso(pc: obese) injectibles. That’ll trickle into private plans increasing premiums soon; plus the side-effects generate a few extra 10 min, Level III, MD visits for $250-$350.Along with means-testing medicare, maybe RFK will push for premium setting via health-testing? Would you lose weight or pay $20K/year more for insurance?
Quite an incentive. These kinds of incentives keeps us near the speed limit.
The citizens have been sold out by our corrupt govt officials with subsidizing these toxic weight loss “drugs”. It is ridiculous. The way to lose weight right and safely is and will always be staying active and eating very affordable simple healthy foods like oats, fruits, vegetables, etc. Taking those disgusting weight loss drugs is very likely to have bad health effects.
100 percent in agreement. However, NFL Sunday will see most of America gobbling wings and crap while watching spectator sports on their ample derrieres.
Trump is the classic alligator mouth on a canary chassis.
If Trump goes through with the brics tariff, the world gets a depression and America gets recession
The coming recession and or depression has been assured by our decades of debt and deficit spending. Our continuous senseless attempts to paper over the problem with woefully inadequate gimmicks will just be more wasted time and effort when the solution all along has been substantial spending cuts. Its austerity either way, by rightfully cutting back now, or due to even worse inflation from more can kicking.
it seems that the problems we have with costs of goods, etc goes back to Nixon taking the US off the gold standard, resulting in print till you cant print no more
For those who worry about tariffs causing trade wars, there’s one thing to remember. The advantage is overwhelmingly ours. As of 2022, the latest year for which we have official results, the U.S. had a trade deficit of $971.12 Billion. That number has likely increased to more than a Trillion dollars since. If DJT were to tax every item we import and each country retaliated, our tax gain could be a large fraction of the trade deficit and our “partners” who can also do the math will reckon that assisting in levelling the playing field will be a saner policy.
I am waiting to see what Trump says about China issuing US dollar denominated bonds in Saudi Arabia. They were over subscribed by 40x and are trading at higher values than those issued by the US. Some folks think this is a big deal. I was wondering what you think about this Mish.
To show that they can be an alternate Dollar provider outside the US. An end run if you prefer.
Yes. To what end though?
To supplant us of course. The one in second place always wants to be first. Human nature.
It’s obvious, 100% tariff on Saudi Oil. Got oil stonks?
There is an oil connection. But we get very little Saudi oil and can do without it. China needs it though.
Dollar will slowly lose reserve “currency” status (to bitcoin, gold, sliver, etc); US sanctions showed dollar is not safe or convertible enough for everyone.
Good summary of China’s thinking:
https://x.com/RnaudBertrand/status/1859446480198828360
Thanks.
That is meaningless PD. I had a post in my head on this I don’t think I wrote about it.
Any step China is taking to pull Saudi Arabia into their orbit isn’t meaningless. Maybe there’s angle you know of that I don’t that make you think this, but the kingdom is very important for moving peace forward in the Middle East, second only to Iran.
Thanks. I have read several different opinions and was thinking it was insignificant. I value your opinion on these things.
My first question is why did China take a three-year absence? Did their housing troubles force them to take a break from issuing dollar denominated bonds?
Next, does this mean they’re going to slow down their sell off of treasuries? I read recently that China raised its treasury holding a bit, something they haven’t done in a while.
As for the Saudi Arabia angle, I would suspect Trump will make it a priority pull the kingdom back towards our orbit some, trying to keep them from drifting too far east.
They want a security guarantee & civilian nuclear technology & we want them to slow down their cooperation with China and to eventually establish diplomatic ties with Israel.
Time will tell how all this plays out, but as is the case with any issue we’re facing, I’m pleased we’ve got Trump for the next four years vs Brandon / Comrade Kamala.
Thanks. Good info.
If China dumps its US treasuries in mass and takes the hit, is there downward momentum to justify it?
Perhaps a gamble on global outcomes via future exchange rates and yields. Today, $1 = 7.43 yuan. China sells Saudis a US$ denominated face-value $1000 10-year bond. If ten years later, the US$1 is worth 5 CNY….
Which begs the question, what might cause exchange rates to move in that direction–a relative major decline in the US dollar–keeping in mind that the US is $36 trillion in debt with no way of paying it back. Is someone expecting a credit event?
Trading at higher values is the bet on the other side of exchange rates.
A very complicated topic. But I would assume reserve currency status is not a title or defined in any way. As long as another country holds enough currency reserve of their trading partner then they effectively operate without $US. That can grow organically, as it should, between more partners. Trying to eliminate the foreign reserves drives the home currency up which is unwanted and hence the longevity to be seen.
Countries can reduce their foreign currency reserves by a few methods that won’t drive their currency up. They can reduce exports of critical minerals or precious metals which means they earn less foreign money (and those minerals can be stored away in warehouses and the bullion in their own Fort Knox). Or they can spend those foreign currencies buying up or investing in assets like China has buying up or building ports in countries like Pakistan and Ceylon. So those trade deficit dollars that US consumers give to Chinese exporters are helping China defeat the U.S. one strategic port at a time.
I suspect it is the stick to control future Russian oil exports. The carrot will be something else although what I am not sure. It comes right after General Kellogg being named Ukraine envoy and sounds like part of what he wants to do to stop the Ukraine war.
As for BRICS, it’s my understanding that they came out of their big annual summit in October with no real commitment to create a single currency. Rather, they’re quite happy for now with trading in their own currencies with the near-term focus on pushing adoption of BRICS Payment System to replace SWIFT.
Furthermore, I don’t think the dollar has to be replaced as a global reserve currency as much as seeing its status continue to erode. Currently at about 58%, it’s hard to say how quickly this will push below 50% with the higher interest rates expected in the coming years. It makes a lot of sense to hold treasuries with the enormous amount of interest we’re going to be paying out.
Be that as it may, I do foresee further balkanization of the financial system. In addition, I see a push by Trump to get US companies like GM, Ford, etc out of manufacturing in China.
However, we’re really just in the first couple of innings of BRICS, so I think it’s every premature to make the following prediction without specifying some sort of timeframe:
“BRICS is no threat to the US dollar”
Having a reserve currency operating is a huge convenience. It eliminates the need to hold reserves in each trade country. I think that is why the participants can hold their nose’s so long in the face of deficit spenders awild in Washington. The thought of creating another competing reserve currency only brings visions of the future abuses the user will be enduring.
Mish : Many have underestimated Trump , and I believe your one of those many. Roosevelt ended the gold , it was IIlegal to own it. Nixon closed the window for transfer’s to France , as closing the entire window. After Nixon did this , citizens were able to purchase gold and silver for the first time since the 1930s. The “Free Trade ” model the USA has been agreeing to since 1990s stripped most all manufacturing and created great transfers of wealth , ownership , and technical knowledge. During this time it created many lobbyists representing external interests in partnership with our politicians. These elite’s do not want to lose the cash and power they have been in control of since that time. Globalism has made the USA a dumping ground , and its time for it to end. Major Government reforms are necessary , or our nation dies under what we have been operating under.
I had low expectations of trump las time, and he did not exceed them. He’s 78 now. He is not on the rise. He will be 82 at some point in his presidency, if he lives that long.
This is why you see Peter Thiel and Elon Musk circling the soon-to-be corpse. They see a country they can buy for a bargain price from an idiot that doesn’t know the value of what he’s selling.
Well said. We’ll prob see more of these rich guys hanging around the Executive Bldg.
Gold?
Trump isn’t clueless just on trade. I can only laugh when he describes himself as “the smartest guy in the room.” I doubt he’s even top 50%. I can bottom-line Orange Face in two words, “Trump University.” And, yea, I’ve voted for him three times – a reflection on the quality of our Presidential candidates. On a 1 – 10, I’d rate him a “3.” He promised to “drain the swamp,” but U.S. debt and number of government employees both increased significantly under his “leadership.” Barack Hussein a “zero” (with both houses of Congress, WHAT did he accomplish? He almost doubled the debt accrued by Presidents 1 – 43, and he DID double the amount of spying on American citizens. Dubya (all those American kids who died, and for what?) was a “-1” and Harris, the quintessential Hillary/Hussein puppet a “-3.” WHEN are we going to have a candidate, Republican or Democrat, who can even spell “I-N-T-E-G-R-I-T-Y?
Then buy gold. While it does not allow countries to debase their currencies or run an export economy running current account surpluses, it still allows individuals to do so.
The BRICS currencies could take a hit tomorrow unless they make public statements announcing a sudden change of policy. This announcement is perfectly timed to collapse Putin’s economy before peace negotiations begin. Poor baby. The Russian Central Bank stopped trading and supporting the ruble. The ruble still trades without support. A little push would move the ruble to 120/dollar. A big push puts the ruble at 140/dollar. 200/dollar is possible. The USTreasury trading desk can set the ruble to any value they please.
You understand nothing.
You mean support by means of the terminology “Faith”, a belief? Full Faith?
BRICS currency is 40% backed in physical Gold. fyi
None of the BRICS currencies can be exchanged upon demand for any gold whatsoever.
Russia is an autarky.
Another distraction.
The world is already dividing. Markets are being cut in half.
Third worlds are ascending while the U.S. Accelerates its decline.
While the U.S. ramps up Ai chat robot loops and digital girlfriends, China and Russia are developing their own more advanced, better and cheaper technology. Chips, materials, medicine, minerals and electronics. Stunning developments.
Americans must be overdosing on the fluoride in their water, because their I.Q.’S are basically negative.
I don’t think anyone including Trump is really concerned about any of these banana republics or communist countries forming their own reserve currency. It isn’t ever going to happen. This is all about showing them there’s a new sheriff in town and he don’t take any sheet.
Wouldn’t be surprised if he makes an example out of one of them, like Brazil. What’s the saying, “kill the chickens to scare the monkeys”
Like Russia.
While we’re on the topic of Trump’s ineffective policies, NY Gov Hochul just capitulated and said NY will assist in deporting illegals with criminal backgrounds. But don’t tell Denver’s mayor. I’d like to see him go to jail, if only to set an example for all the other liberal sheetheads.
Trump isn’t even in office yet, and Hochul has changed course on deporting illegals.
I’d stay that’s pretty damn impressive on Trump’s part, and he hasn’t implemented a single policy.
Noone is talking about replacing the US dollar, but most of the would welcome an parallel payment system, because the dollar has been weaponized.
Trump could do nothing about it, because the trade wouldn’t be in dollars, and noone would be any wiser. Unless he wanted to randomly tariff the whole world.
Sorry, which President is your expert? Woodrow Wilson?
Sorry – what charts did I post that you care to dispute?
What reasoning did I post that you care to dispute?
Who is your model? Nixon?
Or is the problem that you have TDS Type II?
Trump Tariffs: Known Knowns and Known Unknowns
Trade wonks like me have found themselves once again shoved into the spotlight by the imminent Trump administration and its tariff agenda. For obvious reasons, everyone from executives at majorcorporations to developing country economic officials are shaking us by our poorly ironed lapels and demanding we tell them what’s about to happen.
https://www.explaintrade.com/resource/trump-tariffs-known-unknowns
Thank you for the credible link, robbyrob!
There isn’t really any other country that can have the reserve currency; and any replacement for the USA would have to have many of the characteristics of the USA, and no such country really exists. Maybe in the far future a large country might do it.
That is correct. But that was true in 1960 as well. The US Current Account was essentially zero from 1947 to 1971.
What Happened?
Led Zeppelin IV