Love it or hate it. USD is here to stay.
The power of having the world's leading reserve currency, USD, is an exorbitant privilege. The US is abusing this privilege with all the actions of the federal reserve to save the domestic economy at the expense of creditors.
Ray Dalio wrote in September, "The United States is testing the limits of how much there can simultaneously be a) enormous amounts of dollar-denominated money and debt created, b) falling and negative real returns, c) the dollar being used as a weapon (e.g., the usage can be limited via capital controls), and d) a fiat monetary system. We won’t know what the limit is and we can’t say it is here until it is reached. At that point it will be too late to fix." linkedin.com/pulse/chapter-7-us-china-relations-wars-ray-dalio/
Will we get away with the money printing in the short run? I think so. The reason is all of the debt that's denominated in USD that needs to be paid back in USD.
The US financial system is a 54T animal. The SEC's October report "US Credit Markets' Interconnectedness" reveals that foreign investors are
a huge part of this system. sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf To participate as debtors and creditors, foreign market participants need to convert their currency into dollars. On top of that, there is an additional 12.6T in dollar-denominated debt outside the US. These are borrowers in Asia, the Middle East, and Africa who owe people money in USD, again driving the need to buy dollars.
How much is 54T or 12.6T? To give you a comparison, check out the 2020 GDP of:
USA: 20.81T
China: 14.86T
Japan: 4.91T
Germany: 3.78T
and more: en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Here's the % breakdown of world reserve currencies:
USD: 60%
Euro: 20% <-- are these guys going to hold it together with their lack of plan to address a no-deal Brexit scenario? also, the coronavirus vaccine, they are going to wait until the end of Jan to approve it while the US and UK and Russia and China and probably many other countries will already have been using the vaccines available. (ft.com/content/21f16d65-803d-4b2f-818a-5a1b7c712481)
Yen: 5.7%
GBP: 4.62%
Renminbi: 1.96%
and more: en.wikipedia.org/wiki/Reserve_currency
I also believe gold is around 8% of Fx reserves but don't have the source readily available.
With debt outside the US denominated in USD that needs to be serviced regularly (by converting local currency to dollars) and USD-denominated wealth held by foreign creditors, and the fact that there's no other viable reserve currency out there, USD is here to stay.
Now, if China takes Taiwan, that could change things. Just like how the GBP dropped after the British lost the Suez canal – so the American empire may crumble if we suffer a symbolic foreign defeat. But Taiwan is prepared for war--that's been part of their culture unfortunately since the war with China was never really over...
So that brings us back full circle to the headline of this post. Love it or hate it. USD is here to stay.
Ray Dalio wrote in September, "The United States is testing the limits of how much there can simultaneously be a) enormous amounts of dollar-denominated money and debt created, b) falling and negative real returns, c) the dollar being used as a weapon (e.g., the usage can be limited via capital controls), and d) a fiat monetary system. We won’t know what the limit is and we can’t say it is here until it is reached. At that point it will be too late to fix." linkedin.com/pulse/chapter-7-us-china-relations-wars-ray-dalio/
Will we get away with the money printing in the short run? I think so. The reason is all of the debt that's denominated in USD that needs to be paid back in USD.
The US financial system is a 54T animal. The SEC's October report "US Credit Markets' Interconnectedness" reveals that foreign investors are
a huge part of this system. sec.gov/files/US-Credit-Markets_COVID-19_Report.pdf To participate as debtors and creditors, foreign market participants need to convert their currency into dollars. On top of that, there is an additional 12.6T in dollar-denominated debt outside the US. These are borrowers in Asia, the Middle East, and Africa who owe people money in USD, again driving the need to buy dollars.
How much is 54T or 12.6T? To give you a comparison, check out the 2020 GDP of:
USA: 20.81T
China: 14.86T
Japan: 4.91T
Germany: 3.78T
and more: en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
Here's the % breakdown of world reserve currencies:
USD: 60%
Euro: 20% <-- are these guys going to hold it together with their lack of plan to address a no-deal Brexit scenario? also, the coronavirus vaccine, they are going to wait until the end of Jan to approve it while the US and UK and Russia and China and probably many other countries will already have been using the vaccines available. (ft.com/content/21f16d65-803d-4b2f-818a-5a1b7c712481)
Yen: 5.7%
GBP: 4.62%
Renminbi: 1.96%
and more: en.wikipedia.org/wiki/Reserve_currency
I also believe gold is around 8% of Fx reserves but don't have the source readily available.
With debt outside the US denominated in USD that needs to be serviced regularly (by converting local currency to dollars) and USD-denominated wealth held by foreign creditors, and the fact that there's no other viable reserve currency out there, USD is here to stay.
Now, if China takes Taiwan, that could change things. Just like how the GBP dropped after the British lost the Suez canal – so the American empire may crumble if we suffer a symbolic foreign defeat. But Taiwan is prepared for war--that's been part of their culture unfortunately since the war with China was never really over...
So that brings us back full circle to the headline of this post. Love it or hate it. USD is here to stay.
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