I think this looks entirely right, I found it extremely informative and opinion-changing, and I'd thoroughly recommend it to anyone who isn't American. For Americans, I suspect it's missing the far weirder dynamics of the US dollar.
Everything about US fiscal and monetary policy should be far more inflationary than it is. A large part of …
I think this looks entirely right, I found it extremely informative and opinion-changing, and I'd thoroughly recommend it to anyone who isn't American. For Americans, I suspect it's missing the far weirder dynamics of the US dollar.
Everything about US fiscal and monetary policy should be far more inflationary than it is. A large part of why it's not is the Chinese and Japanese governments hoarding dollars in order to distort their economies in favour of industrial development so they become manufacturing economies instead of agricultural economies, which isn't done for purely rational economic reasons but for strategic and social policy reasons, and doesn't impact this point.
However the value of the dollar must be impacted by the fact that it's used in trade outside the US between non-Americans in transactions that don't involve them.
My proof of this would be Ecuador, which does (did?) use the US dollar as its currency. Clearly, Ecuador's balance of trade can't be the sole determinant of the value of the dollar, and presumably can't be a major part of it. I'd suggest that it can't seriously have much impact on the value of the dollar at all, so can end up running permanent, real trade deficits until their economy becomes drained of capital altogether.
Half of US cash is circulating outside the US (source: just googled it). The eurodollar market is... big (source: everyone on google disagrees by order of magnitude), and creates at least quasi-exogenous demand for dollars. My suggestion would be that the effect of the international dollar on the US should be similar to the effect of the US on Ecuador as a determinant of exchange rates.
I'm not going to pretend I really understand the effects of this for a moment, but my tentative hypothesis is that the US dollar doesn't lose value fast enough to balance trade deficits. This lets the US create dollars without compensating inflation (or rather, much of the inflation happens outside the US, so within the US there's less inflation than there otherwise would be; a bit like if Ecuador printed its whole GDP's worth of US dollars - historically the Pope did this with debased in the LMU).
I think the long term effect is that it becomes cheaper for a while for the US to simply print Hondas (or let banks create them out of thin air) instead of growing them. But this presumably can't last forever, and the end state is a US that no longer grows or makes anything. At that stage (realistically, long before that stage), the international dollar is probably toast.
Hence, the "competitiveness" argument isn't necessarily farmers vs factory workers. It could well be farmers and factory workers vs banks and the bureau of engraving and printing. It's still distortionary, but probably a good idea in the long term.
Caveat: I'm very far out on a limb her and all of the details will probably be wrong. I think something of this sort should be a real problem though.
I think this looks entirely right, I found it extremely informative and opinion-changing, and I'd thoroughly recommend it to anyone who isn't American. For Americans, I suspect it's missing the far weirder dynamics of the US dollar.
Everything about US fiscal and monetary policy should be far more inflationary than it is. A large part of why it's not is the Chinese and Japanese governments hoarding dollars in order to distort their economies in favour of industrial development so they become manufacturing economies instead of agricultural economies, which isn't done for purely rational economic reasons but for strategic and social policy reasons, and doesn't impact this point.
However the value of the dollar must be impacted by the fact that it's used in trade outside the US between non-Americans in transactions that don't involve them.
My proof of this would be Ecuador, which does (did?) use the US dollar as its currency. Clearly, Ecuador's balance of trade can't be the sole determinant of the value of the dollar, and presumably can't be a major part of it. I'd suggest that it can't seriously have much impact on the value of the dollar at all, so can end up running permanent, real trade deficits until their economy becomes drained of capital altogether.
Half of US cash is circulating outside the US (source: just googled it). The eurodollar market is... big (source: everyone on google disagrees by order of magnitude), and creates at least quasi-exogenous demand for dollars. My suggestion would be that the effect of the international dollar on the US should be similar to the effect of the US on Ecuador as a determinant of exchange rates.
I'm not going to pretend I really understand the effects of this for a moment, but my tentative hypothesis is that the US dollar doesn't lose value fast enough to balance trade deficits. This lets the US create dollars without compensating inflation (or rather, much of the inflation happens outside the US, so within the US there's less inflation than there otherwise would be; a bit like if Ecuador printed its whole GDP's worth of US dollars - historically the Pope did this with debased in the LMU).
I think the long term effect is that it becomes cheaper for a while for the US to simply print Hondas (or let banks create them out of thin air) instead of growing them. But this presumably can't last forever, and the end state is a US that no longer grows or makes anything. At that stage (realistically, long before that stage), the international dollar is probably toast.
Hence, the "competitiveness" argument isn't necessarily farmers vs factory workers. It could well be farmers and factory workers vs banks and the bureau of engraving and printing. It's still distortionary, but probably a good idea in the long term.
Caveat: I'm very far out on a limb her and all of the details will probably be wrong. I think something of this sort should be a real problem though.