Three projections that signal the dollar's demise: 1. The Fed has lost control of the Yield Curve, 2. One term presidents will become the norm, and fail to cut deficit spending 3. Powell will be the last multi-term Fed chair, and monetary policy will begin to oscillate in lock step with fiscal policy.
i would like to see deeper analysis of similar forces playing out in other countries. A weakening dollar implies a strengthening world, but European policy is even more messed up than American, there is still widespread talent export e.g. european programmers working for american companies, indian asian and russian programmers immigrating to Europe or working remote abroad, and China seems to face financial crises just the same as ours in the US. The US tech sector for all its faults and incompetencies still seems impregnable. So how does all this factor into the weak dollar narrative?
The dollar is weakening because the US institutions are weakening. The EU might not be wealthy compared to the US, but at this moment in time it is more rational and future-proof than the volatile US business environment.
The main reason the US is a hub for well-paid programmers, is that there is a giant pool of VCs that subsidise growth for companies that can potentially find money all over the world thanks to the way the US still is a cultural hegemon to western liberal nations with strong English language skills. As long as a US based tech company leverages cultural hegemony (in a positive way) and deep VC pockets, they can succeed in Europe and the world.
The biggest tech company failing at using cultural hegemony in a positive way is Tesla. European consumers have largely abandoned Tesla thanks to E.M. He single handedly ruined the company's position of strength by thinking that US news and politics do not reach us. He did not understand the hegemonic aspect (or was too high to care).
addressing only paragraph 2: American VC funded startups mostly don’t hire overseas remote programmers for two reasons: 1) they don’t need to, they are overfunded and the culture/communication overhead tradeoff is not worth it; 2) they are california biased which has poor timezone overlap with overseas time zones. The companies that historically lean in on overseas workers are the bootstrappers, because they cannot afford market american salaries. The company I founded is one such company.
Is there any other country with both the court system and wealth required to back up being the global reserve currency? I don't think there is and I don't see a viable contender showing up in the near future.
But that doesn’t mean confidence in the dollar can’t die anyway before an alternative is found. Straight up chaos and collapse is a hopefully remote but real possibility.
Remember how the 2008 crisis was stopped? Strong messages from reserve banks that they’ll backstop and people believing them. That trick doesn’t work in the world author it’s describing.
Even if the dollar was "dead" the time and effort required by the world economy to switch away from the dollar system would be enormous so not much is likely to happen quicker than a few decades.
I think that people and countries not wanting to purchase 30 year long term debt in a zero interest rate environment is perfectly natural. There is far more potential downside than upside and not evidence of demise.
Reality is that there is little motivation to invest in long term debt under 3%, normal motivation to invest in debt between 5-10% and huge appetite for debt above 10%.
Debt with a sub 2% interest rate can only be achieved with significant government intervention. We were living in an unrealistic economoic reality and now we’re going back towards something realistic with interest rates between 5-10%.
USD strength comes from military. Just as it was the case with all other currencies in the past. Do you see anyone challenging the US in a conflict? China won’t even invade Taiwan because they are afraid. ‘Nuff said.
The country is getting forced by markets into realizing pain for overspending, and only congress can manage this pain. Manage the pain, not remove it is key here. Manage it.
Conrgess is totally inept and ridiculously politicized, so it's unlikely they will do anything except make the problem worse.
That leaves only the natural fall out of refusing to acknowledge a financial injury before going out on the field to play hard for your voters.
Inflation. The US will be forced, it will not decide, but be forced, to inflate away its debt. Which means that people who cannot bury their wealth in (non-treasury!) assets will pay off the debt.
> The US will be forced, it will not decide, but be forced, to inflate away its debt. Which means that people who cannot bury their wealth in (non-treasury!) assets will pay off the debt.
There is also the chance of capital flight - and hyper inflation.
The debt holders could also lose out remember - if the dollar becomes less valuable then any holdings in the dollar ( including debt ) become less valuable.
I used to think that the dominance of the US dollar in world trade would fade as technologies like crytocurrencies rise, but the dominance of stablecoins pegged to the US dollar has shown that without, or even despite, policies and practices of the US government, society is adamant that USD be the reserve currency.
Reserve currency may maintain its status even after the empire behind it has collapsed. America may decline but the dollar will go on for a number of decades
NPR’s Planet Money had a podcast about this a few months ago. I see several assertions and claims that it deals with made here without any evidence or discussion as to why.
TLDR: Yes the dollar is weakening as a reserve currency. But the decline has been long and slow and it is not clear what, if anything, will replace it.
Fiat currencies are like Unicorns and Santa Claus, they stop existing when people grow up and stop believing in them. And there is no need for a "replacement" (i.e. the nothing is better argument) or a need for "enforcement" (i.e. the military argument) or a need for a "system" (i.e. the rule-based-order & courts argument). Fiat currencies simply die off due to lack of trust and belief, and it often happens by way of Gresham's Law.
The idea that a basket of foreign currencies or "BRIC+" will replace the dollar is absolutely not going to happen. If the dollar goes down it takes the entire world with it. Nobody is insulated from the risk of a dedollarization.
It's which came first the chicken or egg?
The fall of the dollar will happen because anyone(everyone) with significant wealth will divest from the dollar CAUSING the de-dollarization. That's the point of the indicators.
Don't forget, the US is the lowest-taxed Western country, so they have lots of room (and lots of inherent wealth) to tax. Whether they have the political will to do this, or the political will to reduce Defence Spending is an open question. But it's not inevitable. Hell, they can always do what other countries have done and abrogate debt or pay it down pennies or quarters to the dollar. Would work once.
Or, the country can break up with each portion rearranging its financing and resources accordingly. There's a number of options, if people choose to think beyond the next social message post.
One thing I desperately wish the markets would finally recognize is that the call is coming from inside the house: by letting private enterprise capture government, they are destroying the very currency that gives them power through unnecessary subsidies, preferential tax policies, socialization of losses and privatization of profits. Through corporate mass media manipulating voters and outright corruption in donations or associations with politicians, they did this to themselves.
Until markets begin penalizing companies receiving government funding (or whose workers disproportionately rely on welfare due to low wages) with shitty share prices and recognize which sectors should be private while which others should be public, this nonsense will continue unabated.
This is why I loathe believers in the mythos of “the invisible hand of the free market”: if said hand existed, it’s been firing shots into its mouth for decades and everyone in finance has seemed okay with that continuing.
Nit: Is anyone else annoyed by the trend of people using block quote formatting to emphasize their own topic sentences rather than to quote from another source? In addition to being visually annoying, to me it highlights that the author habitually doesn't interact with whatever literature exists (i.e. if they sometimes needed to quote a paragraph from another author, they wouldn't use block quote formatting in this way), which signals that they're more likely to be missing something that's well known to people in the field.
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[ 4.5 ms ] story [ 82.3 ms ] threadThe main reason the US is a hub for well-paid programmers, is that there is a giant pool of VCs that subsidise growth for companies that can potentially find money all over the world thanks to the way the US still is a cultural hegemon to western liberal nations with strong English language skills. As long as a US based tech company leverages cultural hegemony (in a positive way) and deep VC pockets, they can succeed in Europe and the world.
The biggest tech company failing at using cultural hegemony in a positive way is Tesla. European consumers have largely abandoned Tesla thanks to E.M. He single handedly ruined the company's position of strength by thinking that US news and politics do not reach us. He did not understand the hegemonic aspect (or was too high to care).
But we don't have covid this time.
We do have the same guy in the White House again though...
RFK Jr: ‘Hold my unpasteurized beer...’
But that doesn’t mean confidence in the dollar can’t die anyway before an alternative is found. Straight up chaos and collapse is a hopefully remote but real possibility.
Remember how the 2008 crisis was stopped? Strong messages from reserve banks that they’ll backstop and people believing them. That trick doesn’t work in the world author it’s describing.
Reality is that there is little motivation to invest in long term debt under 3%, normal motivation to invest in debt between 5-10% and huge appetite for debt above 10%.
Debt with a sub 2% interest rate can only be achieved with significant government intervention. We were living in an unrealistic economoic reality and now we’re going back towards something realistic with interest rates between 5-10%.
It's closer to a cold war situation than just "selling dept"
Conrgess is totally inept and ridiculously politicized, so it's unlikely they will do anything except make the problem worse.
That leaves only the natural fall out of refusing to acknowledge a financial injury before going out on the field to play hard for your voters.
Inflation. The US will be forced, it will not decide, but be forced, to inflate away its debt. Which means that people who cannot bury their wealth in (non-treasury!) assets will pay off the debt.
There is also the chance of capital flight - and hyper inflation. The debt holders could also lose out remember - if the dollar becomes less valuable then any holdings in the dollar ( including debt ) become less valuable.
What about TIPS and I bonds?
Also USD's circulation in US markets has nothing to do with maintaining reserve currency status.
TLDR: Yes the dollar is weakening as a reserve currency. But the decline has been long and slow and it is not clear what, if anything, will replace it.
https://www.npr.org/2025/05/09/1250191994/reserve-currency-d...
So what will come next? It can’t be gold because we already tried that. I don’t see the West letting BRICS have it. Crypto seems too polarizing.
This has happened before. GFC 2008 comes to mind.
Or, the country can break up with each portion rearranging its financing and resources accordingly. There's a number of options, if people choose to think beyond the next social message post.
From 2021 but shows relatively how much tax is taken before you get your after-tax income:
https://www.brusselsreport.eu/2021/07/22/new-study-compares-...
Until markets begin penalizing companies receiving government funding (or whose workers disproportionately rely on welfare due to low wages) with shitty share prices and recognize which sectors should be private while which others should be public, this nonsense will continue unabated.
This is why I loathe believers in the mythos of “the invisible hand of the free market”: if said hand existed, it’s been firing shots into its mouth for decades and everyone in finance has seemed okay with that continuing.