Category: Economics

De-Dollarization and the Decline of the American Empire Part 2: The Cost of Breaking Trust

Strong-arm tariff manipulations
will have consequences lasting far beyond
the Trump Presidency
Time Contraction in the Age of Trump

When I posted ‘De-Dollarization and the Decline of the American Empire Part 1: Overview’ six weeks  ago, I had in mind that the Empire’s  financial reckoning was still years away.

But behold! here we are barely three months into Trump 2.0, and the reckoning has come over the horizon and is barreling at us like a runaway train.

OK, that’s a little much—the train is a runaway, but it moves in fits and starts, sometimes idling ominously, at other times lurching forward or backward, in correspondence with the fits and starts of Donald Trump’s mental processes. There’s no telling just when and how hard it will hit us, but now we can see it coming.

As of the evening of April 9, 2025, Donald Trump has just paused most of the procrustean tariffs he had called into being just seven days before, on “Liberation Day,” except for a whopping 145 percent on imports from China, and 10 percent on most of the others. These changes, taken together with the earlier on-again, off-again, whipsawing of tariffs on Mexico and Canada, convey one concept above all else: you never know what he will do next. Trump thinks this is good strategy. Time will tell otherwise.

Update as of April 16th: Trump has now lifted tariffs on smart phones, computers, and other electronic devices coming from China. Trump has been the first to blink in the trade war with China that he started. You might say that vacillation is at the center of Trump trade policy.

Multiple choice test: what are the objectives behind Donald Trump’s wide array of tariffs?

A) Belief that these tariffs will bring about the resurrection of U.S. manufacturing.

B) To punish foreign countries who have been unfairly and malignly “ripping us off” since World War II. Take that, you blood-suckers!

C) To enact a plan starting with threats to foreign countries to impose tariffs that could cripple their economies unless they accede to Trump’s demands on prices, currency valuations,  and regulations.  The purpose is to aggregate trade concessions in a sweeping plan which goes by the name of “The Mar-a-Lago Accords.” That grand-sounding name is a euphemism for  worldwide extortion.

D) To use proceeds from tariffs to offset tax cuts for corporations, private equity businesses, and wealthy individuals. (Note that tariffs are effectively regressive sales taxes that hurt the poor and lower-middle classes the hardest, and the super-wealthy hardly at all.)

E) To use proceeds from tariffs for a sovereign wealth fund which he and his billionaire buddies can tap for government investments in their businesses.

F) Take an opportunity to look tough by playing a game of chicken with China

G) He just likes tariffs, the bigger the better. After all, he’s had a lifetime fixation on tariffs.  He has said that “tariff” is the most beautiful word in the English language (more beautiful even than “love”—the last pronounced at a rally of the Trump cultists with a note of sarcasm, the strength of which serves as  another clue that at the core of Donald Trump’s heart is a void).

H) All of the above.

While the answer is ‘H,’ most of these objectives have flaws that undermine their practicability. The most doable—using tariffs to feed a sovereign wealth fund and to offset income tax cuts—are the ones limited to the boundaries of the U.S. The ones that involve foreign countries have slim prospects at best, and they get slimmer the more Donald Trump tries to jerk them around.

The potential for  ‘C’ (the putative Mar-a-Lago Accord)  to work has been undermined by Trump’s erratic approach to the application of tariffs. Countries will be wary of negotiating agreements that could be ripped up in a matter of days.  They will be asking for assurances that scotch the deal before negotiations have finished.

As for ‘F,’ Trump has already backed down once. He’s come up against someone who has more “cards” than he does.

Mutual trust is the foundation of successful trade, and Trump has broken trust more times than anyone can count

Countries alienated by Donald Trump are seeking a new international economic order—an order no longer dictated to them by the U.S. Their search is increasingly focused on currency and bond markets, with the financial hegemony inherent in the status of the U.S. dollar as the global reserve currency at stake.

De-dollarization and the erosion of America’s economic strength go hand in hand. The replacement of the dollar by some other dominant currency as the global reserve in a formal sense would entail complex negotiations among scores of countries, and I understand it might take at least two years to put in place at best.  Yet what is now happening, as foreign nations, businesses, and persons sell their U.S. Treasuries* and pull back from other investments in the U.S., is a shift away from the dollar and toward multipolar arrangements.  This was discussed in my earlier post on de-dollarization. Alliances of countries such as the growing BRICS+ group pose a practical threat to American hegemony. Even if the dollar remains officially the reserve currency, it will become less and less relevant to actual trade.

Consider How  Europe Can Replace the Dollar by Ryan Cooper in American Prospect. I quote a key passage from Cooper below:

Normally during a chaotic trading situation, anxious financiers run to what has long been the safest of investments: dollars and dollar assets, like U.S. government debt. That drives the value of the dollar up and the interest rate on debt down.

Instead, we are seeing the opposite: The dollar is falling against other currencies, and interest rates on American debt are increasing. As yet, these movements are relatively modest, and may represent nothing more than chaos in the market. However, they do indicate a likely weakening of confidence in the stability and security of the dollar as a global reserve currency—which given Trump’s deranged behavior, ought to be expected. A country that elected a senile criminal madman twice is not to be trusted.

[sic] The European Union just might have a once-in-a-century opportunity to provide that stability and security to governments and investors, and swipe some or all of the dollar’s status. But it won’t happen automatically, and it will require permanently ditching the traditional European allergy to debt and printing money.

Cooper is probably wrong right about Europe’s capacity to replace the dollar. Globally, China is just as important as Europe in international trade, and is working with its BRICS+ allies to craft a multipolar alternative to one dominant world reserve currency—an alternative whose center of gravity is shifting toward the global South.

But Cooper’s most important point is “A country that elected a senile criminal madman twice is not to be trusted.”

We are contemplating a lack of trust not just in Trump but in the country that voted a “senile criminal madman” into office (along with a contingent of far-right, conspiracy-mongering Christian nationalists who are holding moderate lawmakers in Congress hostage). Trump is laying waste to the foreign policy based on alliances with friends and solidarity against foes that Biden sought to forge after the first Trump presidency. Relationships that have taken decades to develop are being shattered in a matter of weeks.  It  would take at least two successor political administrations—if they occur—to restore trust in the U.S. (if there is still a U.S.) by mid-century. By the time that happens we’ll be living in an entirely different world, shaped by forces and events that we can now envision only through a glass darkly.

A lack of trust will prove the downfall of any global-scale economic program the Trump regime might try. Lack of trust is hastening the decline of the dollar and with it the economic hegemony of the United States.

Lastly: the futility of the trade war with China

Trump and his advisors have it badly wrong about the economic strength of the U.S. vs China.  I don’t have to make that case, since Ben Norton in  Geopolitical Economy Report makes it in a devastating critique in the video below (note that Norton, who is a very serious guy, is having quite a bit of fun with this one—it’s the first time I’ve seen him chuckle more than once during a podcast):

More on the China dilemma in a later post.

 

*  For more on Treasuries, see U.S. National Debt and U.S. Treasuries

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

I found myself in a world in which

 

De-Dollarization and the Decline of the American Empire Part 1: Overview

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.)

Continue reading “De-Dollarization and the Decline of the American Empire Part 1: Overview”

U.S. National Debt and U.S. Treasuries

To understand the national debt is also to understand U.S. Treasuries

Who Owns the National Debt?

When folks talk about the national and international economy, they often refer to U.S. Treasuries as well as the U.S. national debt, and often interchangeably. They talk about “buying U.S. debt” in one sentence, and “buying U.S. Treasuries” in the next sentence as if they were the same thing. They pretty much are. The total sum of U.S. Treasuries, plus some interest on the Treasuries, is equal to the national debt.  The “owners” of the national debt are the same entities who hold U.S. treasuries. For example, if you have a U.S. savings bond, you own part of the debt.

U.S. Treasuries comprise Treasury notes (T-notes), Treasury bonds (T-bonds), and Treasury Bills (T-bills). For now, you don’t need to know the differences between them (if you want to know, check out this site for a good explanation by Investopedia). What you do need to know is they are all forms of loans to the U.S. government, that pay you back with interest and eventually the principal. That’s why when you buy a U.S. Treasury you are “buying” a slice of the national debt. Another way to look at it is you are making an investment in the U.S. government. The return you get is typically lower than you can get in other kinds of investments, but the upside is that it’s very low risk. Or has been until DOGE came along.

“Making an investment” has a more positive ring to it than “buying debt.” It’s a glass-half-full vs glass-half-empty view of U.S. Treasuries.

U.S. Treasuries are considered a safe investment worldwide, because they are backed by the U.S. government. That is, they have been considered safe investments until the last few weeks, when the stability of the U.S. government appears to be in question.

Who are all those entities who “own” the national debt?  You can get a rough idea from the pie chart below. It is somewhat out of date, but today the proportions are similar to what they were in 2022—China has probably cut back the most.  I chose this chart because it is the best quick-at-glance visualization I could find.

Since January 2022, the most significant change is that China cut back by a half. They have been cutting back since the mid-2010s, when they held approximately 10-12%. Japan remains the largest foreign debt holder.

One thing that jumps out is the amount of the debt that the government owes itself—adding together the federal reserve and the social security trust fund, you get 28.3% of the total; that fraction remains about the same from year to year.

To calculate dollar amounts of the various investor classes, apply the percentages above—out of date but not obsolete—to the total debt which is now roughly $34 trillion. So the debt owned by U.S. individuals and institutions (the blue slice above) is now approximately .39 x $34 trillion, or ~$13.3 trillion.

A breakdown of domestic debt in 2023 is shown in the chart below. As before, the proportions remain roughly the same year to year.

What these charts do NOT show is interest payments on the debt, eliciting lots of grumbling as it grows along with the principal. According to Investopedia, interest payments  in 2024 were $1.2 trillion, the highest ever. It’s big, but the 2024 Gross Domestic Product was ~$30 trillion, making interest payments on the debt about 1/25th of GDP. Since the interest paid goes to investors it potentially contributes to growing the economy, although since most investment in Treasuries are held by the rich, the bulk of it goes to the rich.

As I’ve discussed elsewhere in terms of Modern Monetary Theory (see here, here, and here), the U.S. can always pay off its debt, because unlike a household, a municipality, a state, a business, a charity—all of which need to balance their budgets eventually—the federal government is the issuer of a sovereign currency, and can create as much money as it needs to pay its debts.

The problem with the debt is not the numerical size of it, but what it represents. If it represents money the government has spent into the real economy, as in building roads and bridges or research facilities or training workers with new job skills, that’s money invested in the American people, and part of the return on that investment comes back around to those investing in U.S. Treasuries. As long as it hasn’t spurred inflation, it’s part of a virtuous circle. BUT if it represents giveaways to oligarchs and financial corporations in the form of tax cuts, the money has been largely wasted on those who either sit on it or play financial games such as stock buybacks to create wealth on behalf of the already filthy rich (and in the process cause the stock market to become overvalued).

 

 

National Combustion, Part 1: Political Disintegration and the Potential for Civil War

Foretastes of a new American civil war

If a new civil war comes to the United States of America, it will  not come in the form it did in the 19th Century, with two large intact geographic blocks—the Confederacy and the Union–each with their own military locked continuously in armed conflict. It’s likely to take one of two tracks: (1) a coup attempt, like the January 6 insurrection; or  (2) it will look more like the late 20th Century convulsions in Northern Ireland, known as “The Troubles,” marked by scattered and sporadic acts of violence inflicted by loosely networked paramilitary groups.  In Northern Ireland, more than half the 3,500 people killed were civilians, in a conflict that spanned about 30 years from the late 1960s to the late 1990s.

We are getting foretastes of something similar, now largely committed piecemeal by individual right wing “lone wolves” terrorizing racial, ethnic, and religious minorities, LGBTQ communities, and increasingly school board members, electoral officials, businesses that openly support progressive causes, law enforcement, and members of the judiciary.

The overall effect is to sow fear and mistrust broadly among citizens, citizen groups, and institutions. The intent of each violent individual is narrow, but the cumulative impact is wide, and deep.  If paramilitary groups like those in Northern Ireland grow in strength in the U.S., the cumulative impact will be all the greater. What’s more, horrifically lethal weapons and ammunition now widely available in the U.S. and being stockpiled by extremists make individuals and groups far more powerful than those in Northern Ireland of the 1990s. The death toll from a low-level but widespread civil war in the U.S. would dwarf the numbers in ‘The Troubles’ of Northern Ireland.

Partisan divisions and proliferation of weaponry make for a combustible mix  that threatens a breakdown in the institutions that so far have kept America relatively stable.

The attempted coup on January 6, 2021, the attempt by a militia to kidnap and kill the governor of Michigan in 2020, and many individual hate crimes—mostly associated with white supremacy—are symptoms of what social scientist and historian Peter Turchin calls “political disintegration.”  The conditions and causes for disintegration follow a pattern seen many times before in history among various states, and more often than not the outcome is bad for democracy.

One of the more common outcomes is civil war. The objective of the Michigan militia was expressly to start a civil war. Likewise, that was the express hope of Dylan Roof,  who shot nine Black parishioners in a church in 2015. These are just two of the highest profile evildoers among many extremists who have sought, or advocated for, a civil war.

In his recent book End Times, Turchin illuminates the patterns of social and political disintegration from the past that closely resemble what is happening around us today. Continue reading “National Combustion, Part 1: Political Disintegration and the Potential for Civil War”

Debt Ceiling Impasse: Biden Needs to Go on Offense

Delay is the enemy

Let there be no mistake: Republicans are forcing the current debt ceiling crisis for political purposes. It is not about fiscal responsibility. If it were, the Republicans would not have cavalierly raised the debt ceiling three times during the Trump presidency, thereby pumping up the debt by about $7 trillion.  The Republican debt ceiling hostage-taking is calculated to push the economy south sufficiently to undermine Biden’s economic policies through the 2024 election. If the result is a recession or a depression does not matter that much to them, as long as it creates economic pain and thereby gets votes in 2024. True conservatives—the Party siding with rich people and corporations—would prefer it be only a recession, but if driving the economy over a cliff is what is required to boot Democrats out of power, they’re on board  The MAGA Republicans who have contrived the deficit dilemma really have no political philosophy apart from fear and detestation of the federal government, and a concept of individualism bordering on anarchy. So they don’t care either way. These are bad people who cannot be counted on to act in good faith.

These bad people—either by extreme action or through the tacit threat of extreme action to include physical violence—are the ones driving the debt ceiling crisis.  Their main strategy is intimidation. This strategy of intimidation is what stayed Merrick Garland’s hand in pursuing Trump and Trump henchman over the stolen documents case back in 2021  and continuing into 2022.  It is also delaying President Biden’s hand in his fight with House Republicans over the debt ceiling.

Let there also be no mistake regarding House Speaker Kevin McCarthy’s shows of negotiating with the White House: the MAGA Republicans are capable of, and willing to, sabotage any compromise between McCarthy and the President at the last minute.

Continue reading “Debt Ceiling Impasse: Biden Needs to Go on Offense”

Reasons to Hate the Debt Ceiling

Battles over the debt ceiling cripple the economy

As of this writing (November 21, 2022), Republicans are poised to take over the House of Representatives next year, and one of the weapons they are expected to use to scare people with is the federal debt ceiling.  If the debt ceiling is not raised, all sorts of economic havoc could result, based on the failure of the government to pay its bills, and the government might even go into default after a short lag time.  A default would send shock waves throughout the global economy, and make the U.S.—both government and the private sector—a less desirable entity to do business with.

Just the threat of a default makes other countries jittery—when, they ask themselves, will the U.S. actually default because of political wrangling?  Recurring battles over the debt ceiling weaken our position versus the developing BRICS countries (Brazil, Russia, India, China, and South Africa) as well as established economies in the West.

What seems scary about the “national debt” and deficit spending

The “national debt” consists principally of the total of all the Treasury bonds, Treasury bills, and Treasury notes—or “Treasuries”— held by entities such as you, if you happen to hold a U.S. savings bond, as well as by the U.S. government itself. Currently the breakdown among all bondholders is about 36% held by American individuals and companies, 39% held by the U.S. federal government (used for such things as the Social Security Trust Fund, Medicare, and federal pensions) and 25% held by foreign investors such as China and Japan. The latter proportion  suggests the unlikelihood of the U.S. government being “held hostage” by foreign bond holders.

Continue reading “Reasons to Hate the Debt Ceiling”

Joe Biden’s Perfect Storm

A storm of woes haunts the Biden presidency

*COVID-19 Original
*COVID-19 Delta
*Fox News
*Divisive social media
*Donald Trump
*Russia
*Countless claims that Biden lost the 2020 election, believed by 78%
of Republicans
*Trump toadies Kevin McCarthy, Elise Stefanik, et al
*Trump thugs Marjorie Taylor Green, Paul Gosar, Matt Gaetz, et al
*Senate obstructionist Republican team, head thug Mitch McConnell
*Senate obstructionist pseudo-Democratic tag team Manchin-Sinema
*Militant House progressives
*Pigheaded House moderates
*Anti-Mask rebellions
*Anti-Vaccine rebellions
*Republican governors taking every opportunity to undermine his authority
*Anti-democratic Republican state legislatures
*Sinister conspiracy theories
*Bloodthirsty crazed dupes of conspiracy theories
*Threats against his life rising along with deadly threats against all office-holding Democrats (and some non-Democrats who refuse to be intimidated by the thugs)
*Emboldened white supremacists
*Irresolute Attorney General
*Bungled Afghanistan pullout
*Chinese saber-rattling
*A tsunami of pandemic-rebound shopping
*Oil price shocks
*Clogged supply chains

and now . . . 

The headline in the November 10, 6:24 pm story in The Hill was: “Biden Gets Inflation Gut Punch.”  Sure enough, just when it looked like a coalition of moderates and progressive Democrats was going to stitch together enough of the remains of Biden’s Build Back Better legislation to have all House Democrats call it a win, along comes inflation to poison the deal.

The result of too many dollars chasing too little capacity as the economy ramps up boosts inflation, and makes big government spending—of the magnitude that would benefit Americans up and down the economic ladder—enough of an inflation risk to stall or starve Biden’s Build Back Better legislative agenda.

Continue reading “Joe Biden’s Perfect Storm”

Budget Policy, Taxation, and Gratuitous Suffering

[Preamble: Along with the prospect of a massive national infrastructure program has come talk of the necessity of raising taxes in order to pay for it—from Democrats as well as Republicans. That talk is a mistake. My apologies for writing the third post on this subject in the last month, but I realize I have failed to convey the importance of it. Perhaps it’s better to frame it in the negative: how balancing the budget produces not just suffering, but gratuitous suffering. ]  

The tax and budget debate and gratuitous suffering

Continuing to talk about federal deficits and taxation is  dull, particularly when politicians from Bernie Sanders to Paul Ryan trot out the same tired commonplaces about taxing the rich (Sanders) and saddling future generations with crushing debt (Ryan & his successors).  Arguments from Left and Right are both couched in the paradigm of either balancing the federal budget or courting future disaster. Stuff we’ve heard countless times before, and just as irrelevant now as in the past.

Cloaked by the dullness is the true human cost of decision-makers getting bogged down in  meaningless arguments about budget deficits and taxes, while those who bear the greatest costs of the decisions have little voice.

The bogging-down leads to what Modern Monetary Theory champion Stephanie Kelton terms “gratuitous suffering.” Kelton:

It is just about the worst kind of suffering, because we have the capacity to do better, and to do better for our fellow Americans. To do better by others.  And if we can improve economic life for millions of people without creating harm, why wouldn’t we do that? 

Gratuitous, because there is a way out, but getting out requires something that almost no one on the public stage is talking about: to shed the mindset of having either to balance federal spending with taxes, or having to rectify crushing debt somewhere down the road with even greater taxes.

If you—despite your generous impulse to provide tens of millions of people with economic relief through government spending—still worry yourself about terrible future costs incurred by relief given in the present, then just stop worrying. Worrying about balancing the budget keeps getting  in the way of real economic progress.

For a 5-minute primer on Modern Monetary Theory and how it does away with concerns over budget deficits, watch Stephanie Kelton below:

Continue reading “Budget Policy, Taxation, and Gratuitous Suffering”

Stop Asking That Question!

COVID-19 Relief Bill draws another round
of pointless reiterations of
“how-are-you-going-to-pay-for-it?”

Those who had the patience and tolerance to wade through my earlier post on Modern Monetary Theory (find here) might not need to read the rest of this one. This one is something of a rehash of the reasons not to pay attention to the tired refrain, in respect to a government spending program, “how are you going to pay for it?”

Specifically, how are you (that is, we the taxpayers as distinct from zillionaires whose tax bills are barely a blip on their balance sheets) going to pay for the $1.9 trillion COVID Relief Bill, without bankrupting future generations?

It seems, from most of what I’ve been seeing and hearing, just about everyone on the political Left and Right is still buying  into “The Deficit Myth”—the fertile soil from which the how-are-you-going-to-pay-for-it commonplace sprouts. In the view of both sides, the National Debt looms as colossally menacing to American financial welfare as was Sauron’s redoubt Barad-Dur  to the welfare of the peoples of Middle Earth.

Interestingly, neither current Federal Reserve chairperson Jerome Powell nor past Fed chairperson and now Secretary of the Treasury Janet Yellen are sounding alarms about national debt risk caused by a $1.9 trillion economic stimulus.  Powell, to the contrary (and to the discomfort of fiscal conservatives dismayed to find out that Powell is not exactly Their Guy), has been advocating a big stimulus bill for months in order to head off another deep recession.

Continue reading “Stop Asking That Question!”

The Fix for the Economy You Never Hear About: Slaying the Budget Deficit Myth

Forget the mantra, “how are you going to pay for it?”

On page 182 of  The Deficit Myth,  author Stephanie Kelton quotes Alan Greenspan expressing the key idea that underpins Modern Monetary Theory (MMT)—that’s the theory that shows we can dispense with pointless agonizing over federal budget deficits. Deficit spending is the bugaboo that looms menacingly over every proposal to spend big on some government program—the bugaboo that elicits the refrain, “How are you going to pay for it?”

The bugaboo can be easily slain, and  conservative Alan Greenspan was just the man for the job.

The Greenspan quote at the end of this paragraph is an answer he gave to famous deficit hawk Congressman Paul Ryan in a hearing about entitlement reform.  Ryan was hoping to elicit Greenspan’s endorsement of privatizing social security—Ryan’s premise being that government-supported Social Security was insecure due to  impending deficits, and that “personal retirement accounts” were the remedy.  Greenspan, however, disappointed him. His answer was, “I wouldn’t say pay-as-you-go benefits are insecure. There’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.”

Whoa! Was Greenspan—chairman of the Federal Reserve at the time, and self-described “lifelong libertarian Republican”—really pulling the rug from under Paul Ryan’s cherished agenda to wrest safety-net programs away from the federal government and hand them over to his big-money donors? Was he really saying that the federal government could pluck money out of thin air to fund an entitlement?

Continue reading “The Fix for the Economy You Never Hear About: Slaying the Budget Deficit Myth”