The two BRICS powers Russia and China are moving towards dethroning the greenback as global reserve currency.
The Global South is moving away from the US dollar to the Chinese yuan owing to US politicization of global finance.
The two BRICS powers Russia and China are moving towards dethroning the greenback as global reserve currency.
31 comments:
This might make the academic MMTers start talking about the political advantages inherent in hegemonic currencies, rather than how it's somehow neutral, no better or worse than paying with any token but not presumably with root vegetables. Randy Wray retells the story of his asking Robert Heilbroner for a blurb for his book Understanding Modern Money. Heilbroner replied that as superb as the book was, he wasn't insane enough to break with orthodoxy and let the cat out of the bag about money.
For all their academic bravery, MMTers are unusually reluctant to discuss hegemonic currencies. MMTers rightly take other PKers to task for their timidity, even cowardice, over many areas of economics. But in this case the roles are reversed, and it is the PKers who are doing the brave thing by confronting the issue. Come on Bill and Randy, paint the sky with your stars, leaving us lesser mortals to look dumbfounded at the night sky from our gutters!
Then how do you explain this:
https://www.usatoday.com/story/money/economy/2017/12/05/u-s-trade-deficit-october-rises-48-7-billion-record-imports/922581001/
I know... I know... “neoliberal conspiracy!”....
Matt,
What's your point? The US is running a bigger trade deficit? So what? As far as I understand it, that means nothing: US consumers have bought items from the ROW and the ROW recipients of the dollars have, for various reasons, not spent them. Usually they don't spend them for very good reasons, but the issuer of the hegemonic currency understands and expects that. There's also the issue of receiving real goods for bits of paper, but that's another matter.
Furthermore, the US has at times had trade surpluses while at other times has had trade deficits with its hegemonic currency. The US has at times had a strong dollar and at other times a weak dollar with its hegemonic currency. The US has at times had strong growth, low inflation, high employment and at other times low growth, high inflation and high unemployment with its hegemonic currency. Having a hegemonic currency does not resolve EVERY economic problem. That's never been the proposition. What's put froward is that it INHERENTLY gives you huge economic advantages. An INTELLIGENTLY run economy, rather than a stupidly run neoliberal economy - yes, that dreaded word neoliberal! - with the advantages of a hegemonic currency reap unusual rewards.
Magic Mike, who is not an academic but the most ardent, uncompromising "streetfighting" MMTer there is - repeatedly stresses the "weaponisation" of the dollar. The only thing I'd quibble with is his assertion that this is somehow a recent development, and I don't think he believes a hegemonic currency has an INHERENT economic advantage, just that it can be used to stop clearing and close markets, the kind of things I've also stressed in the past. I'd say that EVERY country which has had a hegemonic currency has not only at ALL times essentially used it as a weapon to bludgeon the rest into submission but also understood the INHERENT economic advantages of issuing the hegemonic currency. Otherwise, Mike's one hundred percent right.
Anyway, Matt, I'd have thought you'd have agreed with me: disagreeing with MMT academics is your most beloved pastime, especially when the term neoliberal is used! What, you think there hasn't been a neoliberal turn?
So in zombie lore, you think that the normies are acting as hegemons over the zombies?
And somehow the normies are exhibiting some sort of advantage over the zombies that are trying to attack and devour the normies?
heg·e·mon·ic
adjective
ruling or dominant in a political or social context.
Iow to me it is like you are saying the normies are enjoying the constant threat of being devoured or turned into a zombie themselves...
When you use the word ‘hegemonic’...
Like you would watch a zombie movie and assert the normies really are enjoying the experience of constantly being pursued by the zombies...
We would like balanced trade so I don’t see how that is ‘hegmonic’ it is rather towards a “equitable” relationship...
The other thing is that the tax reforms trump is putting in may reveal that the USD zombie i isn’t as strong as I previously thought if it is in fact foreign subsidiaries of US corps that are doing a lot of the foreign savings...
So the deficit will come down...
Matt, nothing you've said negates the fact that the dollar is a hegemonic currency, like the British pound before it, and whoever issues it has an advantage. It's not so different to my having something you desperately need and using that desperation to my own advantage. Why should that be so difficult to fathom? It seems perfectly obvious.
I've never really understood all this stuff about zombies. Is Singapore an oil zombie? Or a gas zombie? No, it needs these products. Similarly, those who need dollars. If everything is priced in dollars, then you need dollars. What's not to understand? Those who complain about zombies should be looking closer to home: if Washington stopped enforcing everything being priced in dollars, then the zombification would end, no? Look at Washington's reaction when countries try to move away from a global dollar standard (the hegemon standard). It goes bananas. It can't stop Russia and China, but it can certainly enforce its will on its client states in the Middle East. And since everybody needs oil and gas, and these products are priced in dollars, zombification is a natural result.
The retort to all the above would be your statement: "We would like balanced trade so I don’t see how that is ‘hegmonic’ it is rather towards a “equitable” relationship..."
That's missing the point entirely. Yes, balanced trade would be a splendid thing, but it's unlikely with a hegemonic currency, especially one deployed in the way Washington deploys it, and if the inhabitants of the surplus country don't want to buy anything from the deficit country! Washington gets around some of this with its Salafi-jihadi client sates by recycling their petrodollars, thus ensuring their survival, by selling them hundreds of billions of dollars of military equipment. That's not balanced trade; that's suicidal stupidity.
Take all the countries affected during the East Asia crisis. They learned that they needed large dollar reserves. Meanwhile other countries have perfectly reasonable economic rationales for running economic surpluses. And as Mike has explained countless times in his videos, it is impossible not to run a surplus against the US. If a country NEEDS the dollar for transactions, it has by NECESSITY to run a surplus. If you can explain how you're going to motivate Chinese peasants to buy American products, I'm all ears.
Washington's trade policies are the problem, not poor countries trying to develop or peasants not buying US products. Washington's trade policies that have ravaged the US, not Chinese peasants who live on one meal a day. At the other end of the spectrum, what are you going to do if rich Japanese don't want to buy American? The Japanese government isn't going to buy trillions of dollars of military equipment or Walmart goods.
Matt, your faith in Trump is a thing of wonder! The American middle and working classes are going to get pulverised. The rich will do well, but the economy will suffer BIGLY. The deficits will balloon, which will then be an argument to cut so-called entitlements. Doing so will crash aggregate demand. In the long run, working Americans will end up eating dog food. What kind of achievement is that? I'm amazed that any "conservative" can claim to be a patriot. They're destroying their own country, and impoverishing their own citizenry. Unfuckingbelievable!
Deficit is going to come down ... I’m starting to get into this trump tax thing it sounds like he is going to tax US firms foreign earnings but at a reduced 20% instead of current 35%...
Maybe half a current trade deficit is due to this... once the trade deficit comes down the deficit should come with it...
Also seems to be provoking enemies around Israel...
It’s not that things are priced in USD it’s that the foreigners accept USDs in payment... we run a continuous trade deficit ...
“If you can explain how you're going to motivate Chinese peasants to buy American products,”
That’s impossible .... They won’t buy them because they would have to part with USDs in order to do that...
Matt: "It’s not that things are priced in USD it’s that the foreigners accept USDs in payment..."
This is the crux of the matter, and that is where we disagree. It's not that different to the argument that pits Austrians (and the whole economic orthodoxy) against the "Keynesians": which comes first savings or investment? In our case, I'd argue that you're the Austrian by claiming that the ROW "accepts" dollars; meanwhile I'm in the "Keynesian" camp by taking the opposite line. I would say that my case is proved by how strongly Washington reacts when moves are made away from dollar payments, or as the PKers put it "hegemony". Why does Washington go totally bonkers when the ROW initiates trade in their own currencies? That proves beyond any doubt the case I'm making.
You're right about Trump provoking enemies with his loony Jerusalem declaration. Apparently every significant figure within the military, national security, national intelligence, diplomacy and allies around the world were arguing vehemently against it, but Trump is a genius and everybody else are fools. Trump's spoiling for a fight, and it's going to be a very nasty one that he can't win. If the calculation is that the twin deficit will decrease by setting the world alight, then he's in for a nasty shock. As Mike says, Washington is bringing about the dollar's destruction itself. Everyone who has any sense will now find alternatives because it's crystal clear that Trump is certifiably insane as is the congress, who have legislated this religious right madness. Armageddon is now a self-fulfilling prophecy, now that the Salafi-Christians have ensured permanent conflict, no hope of peace and terrorism beyond our wildest imaginations. Trump has rebooted ISIS, and its 2.0 incarnation will make its predecessor look like a spaced out make-love-nor-war hippy. You were wrong about the Old Testament not being a manual for governance. The mad party wing of American politics, or White ISIS as Trever Noah memorably called them, clearly does believe in the smiting scriptures being a cultural revolution-style self-help book and divinely ordained foreign policy. Looking on the bright side, at least that smug moronic look the "Christian" right have permanently plastered on their faces, though their genitalia live a different life to the one their mouth intones, will be proved wrong when there is no "rapture".
Matt: "That’s impossible .... They won’t buy them because they would have to part with USDs in order to do that..."
Isn't it more likely that, as poor peasants, they don't really want a Tesla? They want something made in China, something either affordable or a Chinese security for their pension? Your zombie meme is amusing and arresting, but it just ain't so. The key is to organise and pressure Washington to change its trade agreements for the better of its own citizenry, not to blame the ROW for doing what they are forced to do. Isn't it more likely that the powerful lobbies in Washington are to blame rather than the poor of the ROW? It wasn't poor Asians and Mexicans who created the rust belt, stagnant wages and an increasingly impoverished working class. You'll find that was Washington, spurred on by super rich lobby groups. But I suppose that's part of the neoliberal "conspiracy" kool aid we've all swallowed by the gallon. The funny thing is, it was a "conspiracy" but neoliberalism is not new and not liberal. It's just the voodoo economics everybody laughed at until the lunatics took over the asylum, burned everything in the library except for the works of Jerry Falwell, Pat Robertson, Ayn Rand, the so-called "libertarians" and the monetarist charlatans. What could go wrong?
It wouldn’t be happening unless these other nations accepted the USDs and wanted to save them...
That is NOT a hegemonic relationship...
Hegemonic means to rule or dominate .. we are doing neither as far as them accepting USDs in payment ...
What are you saying that we’ve told them to accept the USDs “or else!” ???? C’mon
Ever travel over there? The taxis would take $2 for a $20 cab ride...
Seems like Trump is trying to provoke some missle strikes from Hezbollah and/or Hamas...
One reason for the trade deficit, which DJT realizes, is that the US has been exporting manufacturing investment and jobs while importing cheaper goods and embedded labor. A lot of that comes from US investment in factories abroad that hire workers in those countries for far less compensation than US workers would or could agree to without drastically lowering the US standard of living.
A corollary is US profits abroad, which are in USD, since the sales are invoiced in the US in USD.
Everyone loves less expensive goods and it has the additional benefit of suppressing inflation.
US worker compensation is stagnant with any gains going to increase cost of employer-shared health care.
It's a vicious cycle that only benefits US companies that invest abroad instead of the in the US.
It's not "unpatriotic." It's capitalism based on free markets, free trade, and free capital flow. The firms are just being rational in attempting to increase shareholder value. Their job is that rather than working to improve the financial and economic position of the US. That's supposed to follow from the model assumption.
Money-like things have value if they can be exchanged easily for other things of value.
Sovereign currency is like this domestically since tax payers can meet their obligation to the government using its currency. This creates demand for the currency even if it is not convertible into a real goods like gold or silver.
Why would foreigners want to save in a currency that they don't need to pay taxes or tariffs with? Obviously, because they can exchange it for something of value. If that good is invoiced only or primarily in a particular currency, then there will be international demand for the currency.
Maduro and Putin are operating on the same principle to create demand for the new cryptocurrencies, the crypt-ruble and the petro, by making them convertible into natural resources in which the issuer is rich, chiefly oil and natural gas. The advantage is more payment options and a payment option that is relatively transaction cost free by being free of the rules-dominated international financial system that is dominated by the US.
This is all perfectly rational and dovetails with MMT wrt an issuer creating demand for a currency by accepting it in settlement.
It wouldn’t be happening unless these other nations accepted the USDs and wanted to save them...
And prices would be higher and sales lower if these products were US manufactured by US workers, who would unionize big time again and the US would be back to "the good old days" when firms had to share productivity gains.
But this is not going to happen as long as firms can produce or procure goods abroad less expensively than they could investing in the US and hiring US workers.
Tom I'm picking up some stuff in this tax bill trump is putting thru... maybe alot of that trade deficit is US firms offshoring most of the earnings...
What is looks like he is doing is going after US firms USD profits no matter where they end up... but only taxing them at 20% instead of current 35% if he were to do the same thing without lowering the rate...
so expect the "trade deficit!" to come down and with it its opposite number "the deficit!"...
The we can see what the pure foreign USD zombies are doing..
"But this is not going to happen as long as firms can produce or procure goods abroad less expensively than they could investing in the US and hiring US workers."
Tax Accounting: Apple has its Ireland Subsidiary buy phones from a China USD zombie slave trapeze net sub-human factory for $15, Ireland Subsidiary sells it to Apple US for $700 and makes $685 tax free, then Apple US retails it in US for $725 and grosses $25 minus retailing expenses taxable at 35%...
So the US import level is $700 and adds greatly to the trade deficit meanwhile the actual foreign USD zombies in China running the slave factories for rations of dog brain soup only really got $15 out of the deal... Apple makes $685 tax free but it is in an Ireland subsidiary not directly available to shareholders...
so Trump is now going after the $685 and is going to tax that at 20% so apple may consider building it here as long as they can get it built in the US for less that the current $15 they pay the slave factory USD zombies plus the tax at 20%...
This is Trump's plan to bring the jobs back here... ie tax what is now tax free and then it should be more financially attractive to build the ones sold here in the US right here...
Deficit is going to come down with some GDP growth and then all the "deficit too small!" people are going to be exposed...
This is Trump's plan to bring the jobs back here... ie tax what is now tax free and then it should be more financially attractive to build the ones sold here in the US right here...
The jobs are not coming back home. US wages too high to sustain corp profits. If a firm like Apple brings its assembly back to the US it will be a fully automated and robotized factory. Even China is doing that now. The old manual assembly line is obsolescent, and it a developed country with high compensation (wage, benefits, and protections) is obsolete.
You have to do a financial illustration Tom.... and there will be higher domestic employment than current...
There are bazillion other industries than cell phones where this goes on...
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