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250 sats \ 2 replies \ @Solomonsatoshi 8 Apr \ on: Bitcoin from First Principles - There is no Free Lunch so Ignore the Noise econ
'While this administration focuses almost entirely on 'deficits', 'currencies', 'unfair trade' and 'trade imbalances'... as if they were the "super-secrets" of Rich and Prosperous Countries...'
The reason this administration is taking such a focus is that the status of the USD as the primary global reserve currency has become the primary mechanism for the maintenance of US wealth and power. As US productivity and competitiveness has declined, USDs have been printed to fund the military and government deficits and general consumption greater than production.
The level of accumulated debt is now such that USD reserve currency status is under threat.
China has begun enabling trade payments outside of SWIFT and USD.
mBridge is a digital trade payments protocol developed initially by China, UAE, Thailand and Hong Kong. It is now reaching capability for wider application and provides a scalable alternative to USD hegemony over trade payments.
Saudi Arabia recently joined BRICS and mBridge.
So the US must address the chronic debt that now burdens the viability of its status as the primary reserve currency issuer. Tariffs may do that in the short term by reducing governments fiscal deficit and reducing the trade deficit by reducing imports.
Tariffs are unlikely to greatly improve US productivity and competitiveness- they might do more harm than good in fact. But in the short term Trump has little choice but to act quickly and seek to preserve the pretense of solvency.
China has already won the trade war and Trumps tariffs seem very unlikely to fix the massive gap that exists between US and Chinese productivity. All the tariffs achieve might be to enable the roll over of debt that is required in the short term and delay the insolvency that is almost inevitable in the medium term.
All empires were built upon trade surpluses and the military advantage they can fund.
All empires decline and fall on trade and fiscal deficits and the reluctance of citizens to accept the reality of the decline.
Fiat money can delay acceptance of the decline but does not soften the ultimate reckoning.
There is no free lunch in economics!
The level of accumulated debt is now such that USD reserve currency status is under threat. China has begun enabling trade payments outside of SWIFT and USD. mBridge is a digital trade payments protocol developed initially by China, UAE, Thailand and Hong Kong. It is now reaching capability for wider application and provides a scalable alternative to USD hegemony over trade payments.
There was an article today about 'the alternative to the dollar' in Bloomberg. It didn't mention anything about mbridge. In fact... I have heard mbridge mentioned once but only once before in Bloomberg... and it was in the middle of an article almost nobody read months ago. Otherwise the US financial publications never mention it.
According to Bloomberg today the alternative to the Dollar (potentially) is the Euro and the Germand Bund. (?)
I don't know if this is true (because Bloomberg is obviously biased) but it's what they say...
So the US must address the chronic debt that now burdens the viability of its status as the primary reserve currency issuer. Tariffs may do that in the short term by reducing governments fiscal deficit and reducing the trade deficit by reducing imports.
This is something I never understood. If the tariffs reduce imports... then even with the tariffs the revenue raised from imports won't be that much because people won't be buying the expensive imported goods.
On the other hand, if people still buy the imported goods (because there is no alternative) then the government raises revenue through those taxes. But the trade deficit remains.
So what I don't understand is if the President and his team are so concerned about the fiscal deficit and US debt (which they should be)... why then are they passing tax cuts? They should postpone the tax cuts for next year, cut spending meaningfully through congress, and raise revenue wherever they can. Tariffs would help but only if people still buy imported things, and if those things get "made in America" then there is no tax, no tariff, but those things still get more expensive.
It seems like making things 'more expensive'... without necessarily raising US wages which happens with productivity increases (like i wrote about above) is a really dumb idea.
Which is why I don't understand the President's fascination with tariffs.
Tariffs are unlikely to greatly improve US productivity and competitiveness- they might do more harm than good in fact. But in the short term Trump has little choice but to act quickly and seek to preserve the pretense of solvency.
The US is basically insolvent with that I agree. However... I think the tariffs do more harm than good. Like in the article I wrote if he really wanted to help Americans he would spend the money (because the US is broke anyway) to fund a massive amount of retraining and education for workers, new infrastructure projects, and deregulate new technologies so they can make Americans (like you said) more competitive.
New tech, more school, better roads and bridges. "Grow" your way out of the debt if possible... but he never mentions these things.
All empires were built upon trade surpluses and the military advantage they can fund.
I'll... have to do more research on this. I don't think that trade is a "zero sum" game, and I don't think that the US trade deficits are inherently bad. It's the federal deficit and unsustainable borrowing that's the issue and Mr Trump still won't deal with it meaningfully.
There is no free lunch in economics!
With this I agree ;)
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The conventional wisdom in western economic circles has been that USD reserve currency status is secure despite USAs chronic and growing trade and fiscal deficits. Say something enough and it becomes the accepted wisdom, especially when it serves the interests and biases of everyone saying it. The idea that China could engineer an alternative trade payments regime has generally been dismissed with the argument that Chinas financial system does not have the depth, legal system transparency backing and universal acceptance that the USD/US does.
There is some truth in this argument but it is clearly not as robust as mainstream western commentators have believed it to be. China has made no secret of its intention to build an alternative to USD/SWIFT trade payments, but it has also recognised the scale of what is required to achieve this ambition and the risk inherent in launching an alternative while China remains still reliant upon the USD/SWIFT system- it is a delicate process.
But Chinas economic/trade strength has reached the point where it would be extremely difficult for the US to apply broad SWIFT trade payments sanctions on China and meanwhile China has quietly built alternative/shadow banking trade payments options, like mBridge in collaboration with other nations.
Regaining control over Hong Kong has been crucial in assisting in developing this.
Hong Kong being an integral part of the global banking system built by Britain and the US.
China has enabled alternative trade payments with Iran and Russia to enable them to bypass the US/SWIFT sanctions imposed upon them- demonstrating that capacity to others who might be interested. Chinas ability to now supply almost all of the manufactured product lines required for a modern economy assists in this.
With Russia and Iran now settling their oil and gas trade outside of the SWIFT/USD hegemony others are also showing interest.
The Saudis and others have recently joined BRICS and mBridge. More recently BIS abandoned its patronage of mBridge because it had reached a point where it could be used to breach SWIFT sanctions.
With Iran, Saudi Arabia and UAE as members, Brics countries produce about 44% of the world's crude oil.
How exactly China enables trade payments for Russia and Iran is unclear- but we know is it is not directly via SWIFT and probably denominated in Yuan. Like the shipments themselves which are done mostly using 3rd tier tankers and small non state independent Chinese oil traders called teapot refiners, the payments appear to be made via a shadow banking network. One outside of US/SWIFT control and jurisdiction.
Demonstrating such a capacity appears to have attracted the interest of the Saudis whose secret preferential access to USTs over 50 years ago formed the basis of the petrodollar.
Trumps tariffs alienate traditional allies of the US, like Europe, Japan and others and the trust in and reliance on the USD is weakened. This advances the use of the Euro and the potential for Chinas mBridge and other mechanisms to be used instead of USD.
Europe was long reluctant to sanction Iran but could be relied upon to support the US sanctions in the end. That unity of western powers is now much reduced.
There is an opening for China to rapidly advance its long held ambitions to launch an alternative or alternatives to the USD/SWIFT hegemony. They could more probably now involve links with the Euro, Yen and other major economies.
Since the IMFs reserve currency board invited China to join its exclusive club post GFC, because of Chinas huge economic ballast and significance in the post GFC recovery, China has been an integral part of the traditional SWIFT/USD hegemony- but at the same time has been working to build alternatives.
China was and still is the only IMF reserve currency board member that is not monetarily and militarily subservient to the US.
Chinas CBDC appears to be crucial to its trade payments protocol ambitions- Jack Mas alipay posed a threat to Xis CBDC and Ma was swiftly sidelined. Now China is in a better position than ever before to match its trade mass leverage with trade payments infrastructure. mBridge is a protocol designed to enable trade payments between nations using their respective CBDCs. So it is a global monetary system protocol designed to succeed SWIFTs 1960s analogue technology.
Ever since the Opium Wars where Britain positioned its banks in Hong Kong and enable predatory trade upon China, China has understood the strategic alignment of moinetary and military systems.
As China now builds most of the worlds merchant shipping it also builds most of the worlds military vessels...and it along side military expansion building the monetary protocols to align with and be supported by its military power projection. It took more than 100 years for China to assimilate and respond to western imperialism, but it has learned the lessons we imposed...and is now reverse engineering the mechanisms we employed- mercantilism, militarism and monetary hegemony.
USA and The West in its woke entitled spendthrift fiat debt funded indulgence has been caught vulnerable and now, in disunity.
Trumps tariffs, crude and short term fixes that they are, recognise the urgency of the challenge. They should enable the roll over of debt obligations expiring this year, but for how long? The market will speak its judgement.
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