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Since no one's posting...
The dollar is done dude. It was nice while it lasted. But I believe that the U.S. dollar's reign as a universal reserve currency has ended. Over time fewer countries will hold U.S. treasuries and do business in U.S. dollars.
But why?
The dollar is a bad investment. How would you feel about holding a currency that is controlled by the government of a foreign country? You'd feel pretty bad if that country is $35 trillion in debt and will need to print trillions more every year to have any hope of even making the interest payments.
China is dumping U.S. treasuries and buying gold instead. It just makes financial sense.
U.S. treasuries are suffering their worst bear market possibly ever. Let's say you bought TLT (a long-term treasury ETF) at its peak in 2020. Today, you'd be down by more than 50% in real terms. What is supposed to be a "safe" investment becomes very unsafe in the presence of inflation.
The long-term picture isn't much better. Since the end of the gold standard in 1971, gold has outperformed U.S. treasuries. Simply buying and holding a lump of rock is better than holding the debt of the U.S. government. And the government was actually in good financial health for most of those years, unlike now.
The U.S. is not a trustworthy partner. Before Russia invaded Ukraine, Russia held about $600 billion in currency and gold reserves. About half of those reserves, $300 billion, were held in the West. After the invasion, those reserves were frozen. Now, they are now likely to be given to Ukraine.
Because of this, there is no reason for a country like China (or any other country for that matter) to store their wealth in the West, or to hold U.S. dollar-denominated assets. It's all conditional on U.S. allegiance.
For most countries, trade with China is more valuable than trade with the U.S. China now dominates most of the world's industries, and the trend continues to point in that direction. Third world countries often have much stronger trade ties with China than they do the U.S. They export natural resources and import Chinese goods. Increasingly, they can do without U.S. goods and services. Do what we say or otherwise you can't have our, um, Microsoft Excel licenses...
As this process strengthens, China will be able to lean on these countries to do business in Yuan, or perhaps in some resource-demoninated currency.
Okay, so the dollar is done. What comes next? Probably nothing major. I don't think that the Yuan will become the reserve currency, or that we'll move back to the gold standard (although global reserves will be held increasingly in gold). But the U.S. dollar will no longer be the uncontested reserve currency. The world will once again be multipolar, with the U.S. just one of multiple competing forces, and not necessarily the strongest one.
In the long run (10+ years) I expect gold to significantly outperform treasuries.
The weaponization of the dollar has been one of the worse policy decisions in the history of our country. The only reason we've been able to float such insane deficits, and largely skate through innumerable corrupt bailouts or foreign wastes of lives and treasure, is because our debt to GDP ratio doesn't matter. Because the dollar isn't just backed by our own economy, but all the goods in the world that trade in dollars. It's a cushy gig if you can get it, and we've gone and made getting off the USD a national security issue to any country that values its sovereignty.
I see people mock dedollarization. That the process of getting off the USD will be so painful for these countries that they'll never do it. And I can't completely discount that. But it does stink of hubris, and countries may judge (correctly) that the pain of getting off the dollar is less than the pain of staying on it.
My main issue is that I agree with all this, but I've been crying "wolf" a long with Ron Paul for more than a quarter century now.
Our deficits and foreign policy have seemed like intractable problems to me for so long I don't understand how we're still going, that anyone can justify buying T-bills with our attitude towards spending.
It just feels all made up. At least until the military industrial complex falls a couple more notches.
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You say that weaponization of the dollar was bad policy, but then you give examples of a long list of bad policy decisions the US government would not have been able to pursue if it couldn't borrow infinite dollars.
To me it sounds like the Western governments would in general be better managed if they faced some budgetary constraints.
I sincerely hope so.
Alternately, it could result in no more Western governments. During Rome's constant decline and mismanagement, hardly anybody in any position of power ever went "Woah woah woah, we have straight up squandered our resources! This can't go on forever! We gotta get on the right track!" Of the few who tried, many were put to the sword when the dependents of the state revolted at austerity. Of the few who survived that bottleneck, their meager accomplishments were often squandered and set even further back by their unworthy successors. And eventually, at the end of it all, the empire entirely dissolved, overrun by foreign tribes with foreign customs, and a cult worshipping what arguably killed the empire was left in it's place.
I think it's far more likely there is no Unites States of America, replaced by a confederation of racialized kingdoms (none of which are white), loosely paying lip service to an institutionalized cult of woke dedicated to constant polemics about the sins of whiteness, and good riddance to them all.
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There's a joke to be made here about which historically terrible policy will be bumped out of the top 5/10/15/25, but there's too many to make it work well.
Part of the issue that leads to the mockery is framing it as 'getting off the dollar' in the first place. It treats the dollar as a mechanical instrument issue which will be resolved if your substitute the medium with something else, as opposed to a financial system issue which doesn't actually need a dollar currency to be exchanged to still work.
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