Era of U.S. dollar may be winding down

To be clear, the error caused a 'kink' in the graph which made it look like there was a 'tipping point' at a 90% debt-GDP ratio. Correcting this error did not change the overall result, which is that a 'high' debt/GDP ratio caused reduced growth.

> I'm inclined to think that is true, that the US is retreating from the world stage and the dollar will follow, but whether that happens now, later or never, I couldn't say.

I don't understand why or how that would be a goal. Doesn't the US get / consume something like 25% of the world's production while having about 5% of the population? If they're consuming 5x their share, the bottom is way, way further down than anyone can fathom, isn't it?

Thanks -- thus quote seems on the mark:

> Economics professor L. Randall Wray criticized Reinhart and Rogoff for combining data "across centuries, exchange rate regimes, public and private debt, and debt denominated in foreign currency as well as domestic currency," in addition to "statistical errors," and for lacking a "theory of sovereign currency".

Thanks for the link. My memory from that time had it as "merely" excel issues, but as described it is a fair bit worse than that.

I stopped reading at:

> But then President Richard Nixon decided, in 1971, that we weren’t going to [give you gold for dollars on demand] anymore.

It wasn't a political decision to end Bretton Woods. Nixon had no choice, there was no agency, nobody decided. Gold standard will never come back. Bretton Woods was a flawed system, and one of its fatal flaws occurred. If we ever came back to Bretton Woods, it would blow up again. It doesn't work.

But governments do have the greatest power to create and destroy wealth! It is political. So it's so unfortunate that he chooses to make this point about Bretton Woods, where he's wrong, as opposed to say tariffs, where he'd be right.

I watched it and I found him less convincing than Dalio's Principles of a changing world order, which I found to be extremely intuitive although not at all rigorous.

Ezra gave Rogoff a lot of push back and Rogoff came off as a guy who intuitively understands things but doesn't rigorously understand them so he looked kind of foolish multiple times. Rhetorically he was poor and if I hadn't already gone in agreeing with his general consensus, I would probably have been left fairly unconvinced. Of course, the curse of knowing a lot is that your knowledge of what you don't know is much larger than other people's knowledge so it's harder to confidently present things because you can think of exceptions or why they might not be true or how things could be much worse or much better than what seems most likely.

If I am China I lend you money I would like get paid back in dollars because I can already print as many Yuan as a I want. Why should I lend to you in a currency I can turn the printing press on for. So it feels like the Dollar will be around for awhile as long as it is accepted, convertible, and the Government tries to slow down the printing press themselves.

Shortly after JFK: https://wtfhappenedin1971.com

Yes, this is the Triffin Trap or the Triffin Dilemma

https://en.wikipedia.org/wiki/Triffin_dilemma

my understanding is that yes it is, you cant make shoes in the US, but the power that comes from pretty much all finance flowing through the American pipes is a good trade off.

That's mixing up dominance with high value. In theory there could be a world with a lower value dollar that's still stable and used for international trade.

> are being hollowed out.

What does this mean?

Let's say some random country follows your advice and decides to go back to the gold standard – is that going to convince people globally to use their currency? Probably not.

Because even if the currency is on the gold standard today, what stops the country's government from switching back to fiat tomorrow and pocketing all the gold? Or, gradually doing so by introducing restrictions on gold redemption and slowly tightening them over time?

Whether a currency is fiat or backed, it is ultimately a statement that you trust the government which controls the currency to take good care of it – and in general, it is easier to have that trust with democracies than authoritarian regimes. And this is part of the argument for fiat currencies – if trust in the institutions ultimately counts for more than what the currency is backed by, why do we really need the backing?

Which is why replacing the USD is so hard. I think even if the US starts to go really downhill, people will be looking at currencies like the EUR, JPY, GBP as an alternative. If the IMF allowed private parties to use SDR as a currency – a move the US has always blocked as a threat to the USD, but in a global crisis the US might feel it has no choice but to change its mind – that might become a viable alternative global currency. CNY may become important in trade with China and its close allies, but who outside of China trusts the Chinese government enough to use CNY as a long-term store of value? Only as a riskier bet in a diversified portfolio including safer options.

The backing the US dollar has is the strength of the world's only superpower. It doesn't matter if it's backed by gold or commodities, what matters is whether people believe there's an entity backstopping the currency that can guarantee its stability. That means an entity strong enough to be fully independent, and governed by the rule of law, so that if you're holding a bunch of that currency you can be confident it'll be worth as much tomorrow as it is today.

It doesn't matter if Russia or China peg their currencies to gold reserves, no one trusts them keep the currency market-stable, because they're autocracies. And if Canada pegged its currency to gold or commodities, it wouldn't matter because it's not strong enough to maintain its independence by force, if it came to war.

The EU and the Euro might be a replacement for USD in terms of a currency backed by a big enough, stable enough entity to make it that trustworthy, but that's a long way in the future. Though, as US Treasuries lose their preferred status, European instruments will likely gain from that.

Bitcoin is so concentrated in the hands of so few that its probably the simplest thing in the world to be manipulated

I think this is the most incompetent administration USA has had in modern times, and it’s perhaps the second most authoritarian (next to WW2 era FDR). The current administration seems to be taking concrete steps to weaken USA’s financial dominance in a way that has not happened in the years since you were a teenager.

I suspect these forces will combine to significantly weaken the dollar.

The bond market, and blasé attitude towards national debt and default.

In the last 35 years, the US dollar has lost 60% of its purchasing power.

https://www.bls.gov/cpi/factsheets/purchasing-power-constant...

This time it isn't we will fail in our efforts to maintain a strong dollar. It's, US policy is no longer attempting to maintain a strong dollar.

Perhaps you’ve also followed politics since, oh, about 2016 or so?

Everything has been in a headline at some point. Perhaps all that experience is hindering your ability to discern what really matters. Too much noise from your past.

Because this time is always different. There needs to be some accountability when pundits are wrong, just like in any other profession. I have read this prediction forever too. The dollar always has a recurring tendency of surging, typically when there is unrest or recession or any other reason, or even no reason.

Also, the dollar falling also does not make Americans poorer, as the implicit unit of wealth is the US dollar (e.g. the Forbes 400 list). Americans measure their net worth in dollar, not Euros. This would only matter if traveling oversea and purchasing power falls due to falling dollar. Otherwise, it does not matter.

We have an administration actively attempting to tank the US dollar as global reserve currency?

If you think this is a crazy thing to suggest, consider that there is a faction in the US that wants this to happen. They see a strong US dollar as harmful to manufacturing and the working class.

My guess is that initially it will get eaten away by parties that currently trade in US dollar for convenience shifting to trading directly in their native currencies. It's a pure cost / risk equation for them that they have to manage this third variable in their dealings and if that outweighs the benefits of using a common currency they will make an agreement to trade directly. This will happen slowly over a long time and eventually a new default currency will emerge as a result of these decisions.

pretty much all economists and commentators state that the replacement will be a basket of currencies not a single currency, where each countries' basket will be weighted by the typical trade volume they have with other countries (more trade with Country X, then hold more of Country X's currency) plus some factor for stability/volatility/currency risk etc.

It literally says in the article that nothing is going to fully replace it. And the same way that it didn’t happen overnight for it to become the force that it’s today in the global economy, it won’t disappear overnight either.

national currencies of other countries, which are backed by gold and their national reserves.

Nothing. Even the price of bitcoin is measured in dollars.

I doubt it will be a single currency.

Something I think a lot of people miss in this discussion is that with computers and electronic markets dealing with currency conversions is fairly easy. In the past doing everything in USD vastly simplified everything, but today I think countries just trading with whatever currency works for a given market or transaction probably makes the most sense.

There is no other world currency that looks both large and stable enough to replace USD. Chinese Yuan/Renminbi is probably the closest but it's probably viewed by many as too easily manipulated. It's a pure fiat currency run by a single party state with little separation of powers.

Hummus.