Donald Trump Fast Tracks a Reckoning
Note: there are references to U.S. debt and U.S. Treasuries in the videos below. If you are not acquainted with the relationship between Treasuries and the national debt, there’s an introduction here.
A financial reckoning is coming for the United States, a nation fast becoming a kleptocracy run by people with little regard for the public good, and high regard for power and money. We don’t know when the reckoning will come—half a year? a year? two years? four? eight?—but on our present socioeconomic trajectory, it will come. Donald Trump’s policies, weakening America’s position in global finance, will hurry it along. The reckoning could well be a sharp lowering of the American standard of living, although the greatest impact could be on the rich.
The reckoning will come in part from the resistance of foreign countries to American dominance of the world economy, as presently instantiated in the U.S. dollar as the world’s reserve currency. Donald Trump may be able to bully Republicans in the U.S. Congress to do his bidding, but he doesn’t have the same sway over foreign governments. They are tired of being pushed around by the United States for seven decades, and Trump’s threats to bully foreign countries financially or even militarily are provoking them to resist by stepping away from the dollar.
A powerful group that has been stepping away is the BRICS group—originally Brazil, Russia, India, China, and South Africa, joined in 2024 by Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates—who have combined to offer an alternative, “multipolar” international monetary system, where no single currency dominates.
For a snapshot of where things stand today in the erosion of the dollar’s dominance in world finance, check out the following video:
(Note that captions above can be misleading, with the AI often calling the speaker’s “de-dollarization” as “dollarization.” Context tells you which is which.)
The bullying began long ago
Donald Trump is very worried about de-dollarization—the dethroning of the American dollar as the world’s reserve currency—and for good reason. It would lessen the economic and geopolitical leverage the U.S. holds over every other country on Earth, and eventually depreciate the worth of the dollar at home.
Trump made a point in his first administration of preserving the global dominance of the dollar. But that’s hardly new with him.
(What is new with Trump is the concept that he can improve the U.S. balance of trade by using tariffs while at the same time keeping the dollar strong. Tariffs have a side effect of strengthening the dollar, which makes U.S. exports more expensive for foreign countries, countering the effort to export more and import less.)
In fact, ever since the end of World War II, when the U.S. dollar became the world’s reserve currency, the dollar’s standing has disadvantaged scores of countries throughout the world, particularly those indebted to the U.S. who were forced to pay off their debt in dollars, leading to economic hardship and price inflation (the IMF was often involved in this strategy). The U.S. has done a good PR job of portraying the dominance of the dollar as a universally Good Thing by stabilizing and simplifying global finance. Being the world’s biggest economy enabled the U.S. to strongly influence the currency of other countries, if not outright bully them into submission. Sometimes the influencing took the form of military interventions, typically characterized as political moves—defeating communism and socialism and oppressive autocrats like Saddam Hussein.
For a vehement critique of what is often termed the dollar’s “exorbitant privilege,” watch the video with Ben Norton below.
(Note that Ben Norton is, if not a communist, a friend to Nicaragua’s dictator Daniel Ortega, a sympathizer with Russia against Ukraine, and a fierce critic of American imperialism. He sounds particularly outraged when speaking of the West’s freezing of $300 billion of Russian assets during the first year of the Ukraine war. He calls that a tipping point in the movement toward de-dollarizaton. Although his political bias may color his analysis of the geopolitical economy, it does not invalidate the logic of his critique.)
In short, the “exorbitant privilege” enjoyed by the U.S. as a result of the supremacy of the dollar has distorted international trade. According to the economist Philip Pilkington whose work Norton cites at length, the loss of that “exorbitant privilege” could result in a fall in living standards of 27% to 57%—most likely at the lower end of that range. The “upside” according to Norton is that the heaviest losses would fall on the wealthiest individuals.
Norton puts a heavy emphasis on the financialization of the U.S. economy, starting at 14 minutes. If you get as far as 27 minutes, you will see a graph illustrating the decline of manufacturing jobs in the U.S. from 1942 (height of WW II production) to 2023. Financialization and deindustrialization together have made the U.S. economy highly dependent on the standing of the dollar as the world’s reserve currency.
Up until the 2024 Presidential campaign, economic bullying was masked by politics. But in 2024, Trump issued overt threats of 100% tariffs on countries that abandoned the U.S. dollar as a global reserve currency. It was a favorite theme in his campaign speeches where he roared that he would end the de-dollarization trend—or crush the offending countries.
What’s up with all the gold?
Ben Norton makes much of how buying of gold by BRICS countries strengthens the de-dollarization campaign. True, but the BRICS countries appear to have a long way to go to balance their ownership of gold vs the U.S., as the chart below shows. That could explain Trump’s proposed trip to Fort Knox to view the United States physical stock of gold: a way of saying, “Look, BRICS countries, you have a long way to go to equal our stockpile.”
Right now, with so much in flux on the international financial scene, it is hard to gauge the impact of these gold holdings on the de-dollarization trend. Like the U.S., China has a fiat currency, but shifting to the gold standard would have a heavy global impact. Signs are they are heading in that direction.
According to the chart above, the official total of Russia’s, China’s, and India’s gold reserves is 5,431 tons. Notice that if Trump drives Germany, Italy, and France into the de-dollarization camp, the U.S. gold advantage disappears. Considering the way Trump is alienating those countries, why shouldn’t they make alliance with BRICS to cut into the dollar’s dominance as a reserve currency, or at least threaten to?
But wait, there’s more, which could make Trump’s visit to Fort Knox something of a joke:
China’s real gold holdings, according to Jonathan Maverick in TRUE GOLD REPUBLIC, are more like 20,000 tons! The evidence comes from precious metals experts who have been following huge Chinese gold purchases even while their officially reported holdings stayed at the level from three years ago. If Maverick is right, the dollar could be in an even bigger world of hurt.
What might be holding China back from making its next de-dollarization move its remaining holdings in U.S. Treasuries, now approximately $760 billion. A demolished dollar would totally tank the value of those Treasuries.
How big a threat does de-dollarization pose to the U.S.?
A post in the International Monetary Fund blog in June, 2024, minimized the impact of de-dollarization on the world economy, while acknowledging a gradual shift away from the dollar, in particular favoring the Chinese renminbi (or “yuan,” the unit of currency used in practice, as opposed to the renminbi, or “people’s currency,” the official name of the currency on the global stage).
That China is now the second-largest economy in the world—the biggest by some measures— makes it the leading candidate to usurp America’s hold on global financial markets.
But China can’t go it alone. China’s partners in the BRICS group—originally Brazil, Russia, India, China, and South Africa, joined in 2024 by Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates, have combined to offer an alternative, “multipolar” international monetary system, where no single currency dominates. However, if the alternative to the dollar were to become a single currency backed by gold, the yuan/renminbi would be the logical choice. This may be Trump’s biggest fear on the economic front, although China has publicly disavowed such a plan.
More on developments in de-dollarization in a later post. It gets really complicated when you factor in tariffs, trade, industrial policy, currency inflation, and the decline of the petro-dollar.
Trump’s promises to reindustrialize are contradicted by trade policies that weaponize tariffs
Trump’s intuition is good that the U.S. needs to ramp up manufacturing to keep the U.S. competitive in global trade. His intuition fails when he brings into his cabinet Wall Street eminences like Scott Bessent, whose instincts are in favor of financialization because that’s the world he knows. Bessent has vowed to bolster U.S. industry, but that can’t be turned on a dime.
Trump’s intuition is bad when it comes to both raising U.S. exports AND strengthening the dollar—making our exports less competitive abroad.
More later. . . .