On the dollar – Edward Chancellor in TLS:

‘For the vice president, J. D. Vance, and Stephen Miran, chairman of the Council of Economic Advisers, the dollar is not so much an “exorbitant privilege” (a term coined in 1965 by the then French finance minister Valéry Giscard d’Estaing) enjoyed by the American nation as an economic curse. And to be fair, the costs and benefits of issuing the global currency are more finely balanced than is generally believed.’

(…)

‘In 1925, the dollar surpassed sterling as the largest reserve currency.
For the past century, the greenback has retained its global dominance despite many setbacks, as the financial journalist Paul Blustein shows us in his scholarly and readable history, King Dollar. After the Second World War, the dollar provided the keystone for the new international monetary system. The Bretton Woods agreement of 1944 arranged for the currencies of member countries to be pegged to the dollar, which in turn was convertible into gold (but only at the request of foreign central banks) at the rate of $35 per ounce.’

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‘Today, the US remains the largest economy, although its share of global GDP has slipped from about 40 per cent in the early 1960s to just under 25 per cent today (a figure exaggerated somewhat by the high value of the dollar on the foreign exchanges). China is the world’s top trading nation and now rivals the US as a military superpower. In the 1980s, the US ceased to be an international creditor, and it has since transformed into the world’s largest international debtor, with net foreign liabilities exceeding 70 per cent of GDP.
The Bretton Woods system broke down in the late 1960s, as rising inflation in the US rendered the dollar’s peg to gold untenable. (The French government pushed the system to the brink by demanding payments in gold for its holdings of US government securities.) In August 1971, President Nixon closed the gold window, imposed tariffs on foreign imports and bullied America’s trading partners into depreciating their currencies. The Great Inflation followed. On the foreign exchanges, the dollar declined sharply relative to the German deutschmark, Swiss franc and Japanese yen.’

(…)

‘Stephen Miran believes that the inelastic demand for dollars as reserve assets has resulted in the persistent overvaluation of the currency. In a much-cited paper from last November, he warned that the US was approaching a tipping point – the moment when increasing foreign indebtedness induces credit risk in the reserve asset. Blustein likewise believes that the country’s fiscal path cannot be sustained indefinitely. The ratings agency Fitch downgraded US Treasuries in August 2023, citing a “steady deterioration in standards of governance” over the previous two decades. (This month, Moody’s also stripped the US of its triple-A rating.)’

(…)

‘The US dollar remains overvalued. A bear market in all three asset classes opens up and the trickle of foreigners divesting dollar securities continues. King Dollar is gently dethroned.’

Read the article here.

The dollar dethroned? Perhaps, but what currency will become the new world’s reserve currency?

The fiscal path of the US is unsustainable?

The empire always believes it can get away with everything, including being unsustainable forever.