Magical thinking is essential to understanding Team Trump’s Economic Policy Policy. The White House has always believed in two opposing policies that work together while one policy can do two or three contradictory things.
It will take a heavy dose of husc pocus to make the dollar work for the United States interest administration, as it appears they want to end the supremacy of the Global Dollar.
At least some parts of it. True, Donald Trump warned countries not to replace the dollar, or otherwise. And, reportedly, some members of the administration want to encourage more countries to adoption of the dollar directly. But what is also true is that Stephen Miran, the president’s chief economic adviser, on leave to act as board member of the Federal Reserve, thinks the dollar’s position as the main reserve currency of the world is an undue burden for the US and a principal driver of the large trade deficit that Trump finds Very good.
“America is running huge current account deficits not because there are too many imports,” miran said wrote last year. However, imports are high because Treasury bonds must be exported to provide other countries with assets in which to put their reserves. This leads to “permanent dollar overvaluation that prevents the balance of international trade.”
The quote brings to mind Jenny Holzer square square square, with a dry appeal to a higher power: “Protect me from what I want. “
It is not impossible that Trump & Co. be effective dollar declaration. They can do this by choosing a policy or by default. Argument, they have started. They don’t like the outcome.
Perhaps, foreign countries will suffer if US Treasury bonds stop their work as safe liquid assets where parking reserves. There are no good alternatives out there. Long-held hopes that the euro would fight back against the dollar have been dampened by battered European capital markets. A quarter century from the launch of the euro without a Euro T-Bond. Meanwhile, the Renminbi, unable to play a leading role in global finance while China maintains capital controls that prevent money from freely flowing abroad.
The dollar is important not only as a financial haven. A new one research paper points out that almost two-thirds of the world’s countries have strengthened their currency against the dollar to provide insurance against global economic disturbances. Because the US market is so large, the value of the dollar affects the price of traded goods: shocks that also appreciate the dollar price. Holding the dollar or, in fact, the inducement of money in a dollar – helps to consolidate against economic fluctuations.
The cost of holding back the US dollar can be substantial as well. For starters, it will lose its influence in the world, along with its main tool for economic coercion, which allows it to limit the access of its enemies to the financial system. In addition, the US abandoned what the former French president Valery GS called the “extreme privilege of the US”.
Miran isn’t wrong that the dollar’s reserve situation is taking a lot of money out of Treasury bonds. But that is a gift. This allows the government to fund it A lot of debt – 120% of GDP – at a low interest rate. Privilege also means that the US many more In its holdings of foreign assets than foreigners acquire their holdings in the US. In fact, curbing the US current account deficit will be more difficult if the US loses the reserve resolution because of its interest rate.
Which brings us to the question, will the dollar be worth the dollar? Its supremacy has been destroyed. Today it accounts for 58% of foreign reserves, up from 74% at the turn of the century. The interest rate on Treasury bonds has a debt component of Corporations or other countries seems to decrease over time.
And Trump’s Trade war will reduce the dollar’s insurance powers. By importing US imports, Trump’s tariff will demofen the relationship between the dollar and the price of traded goods as a hedge against economic shocks. “We are reducing the impact of the world market, and by reducing the impact that the world has on the world market, we are also reducing the dollar’s assets in the dollar,” Note Tarek Hassan at Boston University.
And that gives countries and investors less reason to peg their currency to the greenback or hold dollar assets. Hassan estimates that the tariffs imposed so far have raised US interest rates by half a percentage point, an unnecessary amount given rates in the 3-4% range. Developing countries have done Swacking Dollar Dound In recent months, that turns to currencies with lower interest rates such as the Swiss Franc and Renminbi.
The idea that the President’s Trade War could damage the pre-eminence of the dollar’s attack on “Liberation Day” in April how to stop rounding his round-robin “tariffs” robin “robin” robin “robin robin” tariffs “tariffs” rob robin “tariff” robin “robin robin” tariffs “tariffs” US stocks, bonds and the dollar together, such as the risk that arises in the assets of the market, which comes from the US or the governments, the governments, officials and regular murderers of the world in times of chaos.
Markets have calmed down since then. Investors appear to have forgiven Trump for incoherent fallicymaking. Maybe because Trump is finally hiking more tariffs. But the blood is in the water. The consequences that the Treasury bond will lose its primacy as the world’s safest asset look very small.
Who knows what will work? Other currencies can fill some of the slack. For example the joint efforts of Europe But insurance against economic and financial shocks can be very expensive. The welfare of the world will surely suffer.
Trump & CO will probably be agitating for a cheap dollar, which will likely translate into a small US trade deficit. The joys, however, may not last. This will come, for the US, at an exorbitant cost.