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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.
Tlt bad investment. You compared long term investments where the market was priced at 0% (historically high prices) to now higher rates. This is just bond math. Interest rates change. T-Bills did not lose any money. 30 year bonds are a bet on rates.
US took Russias money. If I have $20 of Jeroboam’s money in my pocket. And you Jeroboam punched me in the face he shouldn’t be surprised when I don’t give him his money back. Seems rational. The funny thing before Jeroboam punched me in the face he knew he was going to punch me in the face. Yet he also knew I had his money. Why didn’t he get it back before punching me? Something something there are good reasons why Jeroboam had his money in my pocket before punching me and it’s very sticky.
No accounting for a risks free asset versus a hunk of metal that only has value if someone else values it. Gold is a Ponzi scheme depending on a new sucker getting talked into owning gold. The Dollar is not a Ponzi scheme. People have to use it and if they don’t use it a military takes them and puts them in jail.
Edit: Too emphasize point 2. His argument for dollar weakness is the dollars greatest strength. Russia chose to go to war with America. They fully knew we would confiscate $300 billion. And could not liquidate before going to war. I complain that Apple is incredibly sticky and people just buy IPhones so they don’t look ghetto with green text. The dollar is so sticky you can go to war with America and can’t get rid of the dollar.
T-bills never "lose" any money. If you hold to maturity you will get paid... in dollars. But tell that to the people who bought 100-year Australian bonds that are now trading 96% under what they paid for them. A promise to pay in 2050 dollars is worth only as much as the buying power of those dollars. In this case, probably not much.
But it's also rational when the other kids on the playground wonder "Why, exactly, does this other kid have MY money in HIS pocket. Let me ask for it back."
The dollar is a medium of exchange. And yes, we are mostly forced by the government to use it. But, like gold, it doesn't have intrinsic value. If the supply of dollars is increased, their value goes down. That why treasuries are not a risk-free asset. It's true that you will get paid back. In dollars. But there's no guarantee how many goods and services you can buy for those dollars.
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Re point 3
As between gold and T bills, the only asset with intrinsic value is gold (it is used frequently in electronic manufacturing).
The uses of gold can be broken down to:
A and B are of course interlinked -- gold chains make a good signal of "I am rich" because it is universally accepted as precious, and the fact that gold is both rare and in demand for jewelry makes it precious.
But if A and B were to somehow to go away, the price would tank dramatically, and industrial demand would not save you from a price crash -- especially if all the central banks were to put decades of world production on the market because gold was no longer an efficient way to store wealth.
Julia Child (in a TV documentary) once demonstrated that gold would be a great material for cookware.
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Is there not an obvious OPSEC explanation? You had a prior understanding that you and Jeroboam were in good relation and that he was literally investing in the relationship, with the expectation that it was a long-term investment. If he suddenly asks for his money back, you're gonna start wondering what he's up to, what's changed, why is he acting so weird? Imagine Avon Barksdale saying, "Yo String, I love what you've been doing with investing our money, but actually, I'd like to just withdraw my half. Cash. Right now. What am I gonna do with it? I don't know; nothing in particular. I just like looking at it." Even high-level corporate folks are often required to have significant investment in their own companies, and questions are asked if they seem to be withdrawing too much. "Do they know something? Are they thinking that this corporate partnership is becoming a bad deal? Might they jump ship?" If having the investment is essentially known to all parties to be, in part, a trust mechanism to indicate whether everything is normal and good and that defection can be "punished" by confiscating part/all of that investment, sudden withdrawal of that investment may contain a lot of signal. Maybe dude just wants to build a new mansion or buy twitter or something... but maybe...
In the international realm, there is a delicate balance between quietly trying to organize your affairs to try to make your regime more sanctions-proof and retaining enough ambiguity about the likelihood that you're going to suckerpunch someone.
Opsec explanation seems fine to me. Yes if you liquidate your dollar account the world would be asking why are you doing that and assume it’s something like war.
That being said I am not sure Russia was capable of liquidating dollars even if they wanted to.
They could have gone to Goldman Sachs and told them here is $300 billion give me gold. They would move the price of gold significantly. Then they do war. Let’s say they win war. Now they want to use the gold to buy real things. Selling 300 billion of gold would drive the price down. A second issue is now the global market doesn’t like Russia. Trading in gold gets a negative reputation. Maybe Chile’s central bank wanted more gold but now gold is known as Russian money and buying gold helps bad people.
My point is I agree their is an opsec angle but de-dollarizing into something else is perhaps impossible but definitely not easy.
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That’s also why nobody really wants to have to be tied down to you. To hand your money to another person and be tied to their rules if they want the money back. China doesn’t want dollars after seeing what we attempted to do to Russia over Ukraine. Disconnected from the banking system, assets frozen, and a massive divestment campaign were attempts to hamstring the economy of Russia once it broke the Western world’s rules. China wants Taiwan. China also known it will get similar treatment if it invades. Hence they don’t want dollars.
Gold I think is less of a Ponzi scheme than government fiat currency. Gold is an established global market, it has uses in industrial manufacturing, and in making jewelry. It’s therefore not dependent on the fiscal system of any single country the way a fiat currency would be. Not only can the country in question take your money back, but it can inflate their currency to the point of worthlessness (see Zimbabwe). They could also end up becoming a failed state if there’s a prolonged political crisis of some sort. If we end up in Boogaloo Civil War, the value of the dollar will fall by quite a lot because the USA will lose credibility as a stable country. The dollars right now is propped up by being backed as the currency that oil is traded in, but this could change and in fact both Russia and China want to change it. If that happens, you lose a major reason that people ever wanted the dollar. To cut this short, to be tied to the dollar means being tied to the fortunes of the USA, which, while it used to be a sure thing, may not continue to be as steady. Gold isn’t tied to the fortunes of any country therefore, no matter what happens, it’s not going to be devalued by the failure of that state.
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Glad we are admiting that Ukraine is just a proxy state for America. So the US can bomb, invade and occupy countries left and right and have proxy states right on Russia's border and there are no sanctions. However, other countries have no real legal protection and are left to the wims of American for whether their dollars are worth something or not.
There is a reason why this system isn't going to be stable.
Russia wanted Ukraine in its sphere, America wants it in its sphere. There's nothing original about this exact kind of proxy conflict, they've been happening between these very parties since 1945. If Russia or China (or anyone else) wanted to sanction the US and allies for supporting Euromaidan, they obviously could. They don't because it's transparently not in their interest.
In other words there is no rules based international order, there is just powergrabs. If that is the case then it is expected that other countries will be weary of the US and their power. Why be vulnerable to a country that is nothing more than extractive empire? The US has a problem and it is that the rest of the world is no longer far behind the US and therefore they can't bully countries to submission.
Yes of course. So strange that this is such a bitter pill for some people.
It's not. It's the people acting like there is such a thing that are hard to deal with.
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“Extractive Empire”
Many a MAGA and probably some leftist would argue we are the exact opposite of an extractive empire. Thru things like free trade and open borders we actually weaken our empire and act not in our own best interest. We sacrificed our industrial base to China. I myself will argue we give too good of a deal to otherwise in terms of security guarantees. I agreed with Trump when he says he would kick countries out of NATO who are not contributing to NATO military strength. America does subsidize the national security of a lot of rich nations (I am looking at you Germany).
We offer a very good deal for a country to be a country that uses dollars. We let them not spend on national defense and dump their products on the U.S. market. While America will flex our muscles with our rules at times we also offer them very good terms that are against our interests all the time.
Both can be true. The US becomes a financial empire with the rest of the world buying lots of money from the US. The rest of the world is forced to prop up American real estate markets and financial markets while the expensive dollar makes it cheap for Americans to import. The US empire is great for finance, insurance, real estate and the military industrial complex. It is not good for manufacturing. The world is has to send products to the US in order to get dollars, the US gets products for free but all the money printing makes the US too expensive for a large portion of the population.
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When people refer to US empire they aren't really referring to a traditional empire in which one country benefits off another. It's more the "globalist" empire, or stateless elite empire. American's are just as much colonists having their wealth funneled off as any of the other vassals in Europe.
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Because it's completely unclear that predation by China or (in some regional cases like Central Asia/Middle East/Caucasus/Baltics/Eastern Europe) Russia would be any better, when in fact it would likely be much worse. Sure, you can be a free agent with no permanent alliances, but that leaves you like the Philippines would be if they went full neutral; completely open to Chinese aggression. Much of the Pacific prefers the US to China. India is obviously fearful of China. In Africa and Latin America the factions are more mercenary, as we see. In Europe the bargain is that being part of the US alliance vs China is necessary to guarantee American support versus Russia.
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Can't get rid of the dollar..until you can.
For your information,Iphones are kind of rare elsewhere. ..and..green text? Wut?
Iphone is just incredibly bad value. I
Americans use traditional SMS messages to text each other, instead of Whatsapp like everyone else. When you text another iPhone from your iPhone, it actually uses a different app called iMessage that doesn’t cost money and the text appears in a blue bubble. If you text an Android user from an iPhone, the text appears in a green bubble and costs money (or consumes a bit of your plan, or whatever).
LOL i love the way you phrased this. As an Expat American it's incredibly annoying that my home country is still stuck on SMS messaging, and they just take that as a default ("texting") to where it's hard to even describe anything else to my friends back home.
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European countries do often have cheaper data than the US, but that's not the main reason why Americans use iMessage. The main reason is that early smartphone adoption in the US was extremely iPhone centric for anyone (a) under 40 and (b) not-poor. That has only grown more skewed over time. Premium Android phones in the iPhone price range are almost unheard of in the US - especially outside some first-gen immigrants from China/India (who use WeChat/Whatsapp). In Europe a lot of early smartphone adoption was HTC/Samsung/Sony Android devices; it's not uncommon for PMC types to have thousand dollar Samsung Galaxy whatever phones, although the trend is still toward iPhone in the long term. Not a single one of my American coworkers has an Android, ever.
This means that in a work group or social environment in the US for middle-class and above people, setting up a chat on iMessage is always an option, whereas in Europe even if 3/5 or 8/10 people use iPhone, you still use Whatsapp to include the others.
I don't think so. The nicer Samsung phones (S and Note) are fairly popular. At least among the people I know.
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That seems overstated. If you walk into any carrier store, at least half the shelf space is usually for higher end Samsung, Motorola, Google, or even OnePlus devices. Maybe it's because I'm in the midwest, but Android easily outnumbers iPhone among my friends and family.
iPhone has 80% marketshare among 18-24 year olds in the US, and well in excess of 80% marketshare among high income millennials too. Phone retailers (including carriers) love Android because they make more margin on their phones (a deal Samsung etc readily agree to in exchange for store space). For reference, after the iPhone X (2017), Apple cut margins for resellers (which obviously include carriers) to sub-4% in many cases. Samsung resellers make more like 6-7%, so it's a huge difference for the retailer if you sell 10,000 $1000 iPhones vs 10,000 $1000 Samsungs.
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