For those that see Trump as an of oddity and his agenda to get rid of the trade deficet is wacky. A Trump like figure was coming from the birth of the US role of being the issuer global resvere currency. Economics being it Marxism or some form capitialist version are social sciences. But a careful study a economic history would point to Trump like figure coming a 99% percent chance. Are we at a time were the old system economic of a reserve currency will collaspe. All I can say that trump is the induivudal would lead the world to new system of trade globally. When history is written Nixon will be known for creating the global reserve currency but I suspect that we living a time where will demise of that system. If Trump follows his economic agedna a system is will be born and collaspe of the old system will on Trump's back. The replacement will be either of system gold return to its position of being center of global trade or will maybe the IMF will fill the breach that would mean a sacrfice a powerful countries giving up soverign power to the IMF which has really no oversight by the average person in the world. IMF talk is just palour talk of liberals who think they can unify the world with capitialism at its base. But I am giving away to much :), I leave the IMF to further blogging. Maybe some other system will replace things I open to idea but I have no clue what it be. But for now next post will start with Triffin dilemma.
Triffin dilemma predicted a Trump like figure 55 years ago.
Triffin was economist in 60's which pointed that a nation that has privilge of being to issue gloabal currency has certain objections that will build up and then result where it potilically impossible accept the role of the global reserve currency issuers. I believe were are at the moment were Trump reflects the mood of the US people on trade.
Huge advantage of the being the issuers of curreny that is accpected fromally in trade worldwide. Only the countries that a chance to run an independment policy are those with oil or deep national market for domestic goods ex China, a more intergated EU. All other countries have to struggle to find the access to global reserve country, this critical to trade, your country must aquire US dollars because when want to purchase sometthing from an country they accept US dollars. Usually not the Euro or the Yuan. For a simple reason there Euro countries and China do not run trade deficits of any substance. Countries find hard to get excess amounts of Euros and Yuan, both these countries follow protectist trade policy. Compared to the US which unleashes 500 billion a year in trade deficet. And more importantly the US can sell paper in trade. Us sends pecie of paper with has the instrinic value of ink and paper. While the other sides you good or service that labour and resources to achive. But here the kicker, those accepting the paper are only to happy to accept the paper becasue a trade parter will demand those US paper in return goods. They generally will not accept your national currency in trade rather want the reserve currency. That need for the US currency in trade gives the incredible power to control the economics of world that accept the US dollars as the reserve policy. The US is the centre of economic web that makes the current system work.
Now lets about the costs of the issuer of the reserve currency.
Becasue the nations are the world are dependent of the US currency, 1)The US domestic market realivty open to exports of other nations becasue the lack of the dollars other countries will hurt the trade system. 2)Because the us domestic is so open to foerign trade, its extremely competive for market share. This keeps the inflation low because everybody wants dollars for trade and will price items were the average America will be able to buy these goods. >>>>>> This makes local production very hard(factories going away, wage stagnation,etc) indeed.
But has been happening (trade deficiets) for couple generations. And Trump is the poticital reaction to those factories moving, wage stagnation, hollowing of huge areas of US(rust belt states). This price the issuer of the global reserve is the open market of loast restort. With out the open economy accepting trade deficits to your partners there is very little trade. Nations become nations deserpate to find dollars, and with situation limted dollars leaving the US. Makes the current trade system non effective .Choas comes and new system will come with it.
The US can punish other nations just by closing the domestic market to them. No dollars no trade.
The American people decided that they will no accept being open market to world. With that decision that current system is doomed. Are other nations to step into the roll of the US, China or Europe. In a word NO. That will be the next post.
Ok lets get to it. Will China or Europe replace the issuer of international reserve currency.
Europe at the moment is patch of different nations with different agendas. The only holding together the EU is duck tape. If the Europeans opened there markets to world the political reaction will come in a voting cycle, keep in mind that most Euro nations newer voting systems {prop} will reflect peoples conditions quite faster. Here were have FPTP were one party stall economic reform with a majority of 35%. The US is deeper mess with a 2 party system. In NA the politicans can suppress economic reform until Trump of the right or Bernie of the left up. And political pundit will go on tv and will puzzled by the support of Trump and Bernie. The europeans want their birth to grave governments (sign me up) and those type of government will not allow on chagne to their protectionist policy. Industry policy and protectism allow the socail states to survive. If made to accept the role on the Europeans the EU would collaspe under strain independent economics paths that will result.
China is playing the long game, quitely building power and influence but are not ready to open there markets to stress needed to be global reserve policy. They quite happy with current system and try keeping currently go own an generation. And less be honest while GDP maybe close to America, individual GDP is much lower. The Chiness have governent owned companys that employe half a million working under the urbremla. They are trying figure out how keep employed with half a million or million governemt employers, that the agenda. To allow access to internal economic s not on the agenda. Keep people empolyed is the agenda they want the current system to run for a generation.
All that talk baton being passed from a US to China has no basis in reality.
Next I will talk about to paths the world follow.
1.IMF will given the power to issue the world reserve currency. This is nice idea but politicaly non starter. The liberals will talk about great benefit a unitified currency that will be the basis for trade. I don't see how the world of populism will accept body with no political oversight from the general public. Will China give up soverngin power, will a nationalism filled US will accept the IMF which no more palour for bored economists that believe is possible to unite the world and keep captialism as well. Good luck with you fool's errand.
2.I own no gold, I dont see owning gold in the future. I say his because alot people that advovate for idea and just self serving because their valve of their gold hoards will skyrocket. We will return to a system will have comptent that will include gold as element in trade system. To many it baribaric that gold will play in the future system. This system worked for hundreds of years and it would work again. It probably have modifed to new world events but its simply nature of how work is greatest strenght.
These 2 proposals have been on my radar screen for many years. I am sure brilliant ideas out there but I have never of them. In the final part of this thread I will talk about the classical gold system of trade.
I will keep this short, gold will flow into your economy and good times will role. The good times mean imports increase, you pay the for imports with gold. With gold leaving the country you find the boom turn to crisis as the gold leaves the country because gold is tied monteray base. You get deflation, wages fall, the price of your goods produced gos lower. This is the bottom the cycle, starts gold to flow into the country becasue other nations by your goods for gold becasue the deflation forces prices and wages of country. Soon the gold exdous turns to flood of gold coming back and cycle strats again. A pretty choatic system but it has tendeny to balance trade between nations. There is no need for gold but a system with encourage balanced trade. If we can achieve this work new system without gold its even better, I mentioned the gold stranard because it managed the problem unbalanced trade in the past. Balanced trade is the future.