Ireland has a yearly trade surplus of $85 billion, mostly in pharmaceuticals and medical devices which are not produced in the US. Demand for these products is not likely to drop significantly as they are necessary and a 25% increase in their price will clearly affect the US consumer and the US economy.
On top of that, Ireland holds roughly $350 billion of US debt. So, by your correct reasoning, should Ireland instead invest in another currency instead of the dollar, the US would be losing both ways, higher inflation and the loss of a debt purchasing customer, Ireland Inc.
All US policy, along with European and British policy, domestic, economic and foreign, is totally devoid of logic. The inability of the collective west to come up with and stick to a 20-30 year plan is central to the collapse of reasoning, peace and prosperity that is destroying our civilisation.
Much of the $85 billion Irish surplus in pharmaceuticals and medical devices that are ‘not produced in the United States’ are not produced in Ireland either.
In 2022 Ireland exported goods and services to the value of 136% of its GDP. This, as Paul Krugman rightfully called it, is ‘leprechaun economics’.
I’m not a big Trump fan, but when it comes to Ireland, he’s got a point.
So you're telling me that the thousands upon thousands of people going to work in US pharmaceutical and medical devices factories are pretending to make products for the US market. Whether it's leprechaun economics or not, the facts remain the same. Prices for goods and services will increase in the US, while share prices and dividends will remain high for these US corporations who have their European bases in Ireland.
Raising tariffs won't affect Ireland in the short or long term. Look up Medtronic, one of hundreds of medical device companies in Ireland if you want to get a better picture of how the economies of both countries are intertwined.
"So you're telling me that the thousands upon thousands of people going to work in US pharmaceutical and medical devices factories are pretending to make products for the US market"
A quick gúgl of 'Leprechaun economics' flags up the issue as largely Apple-related, so not pharma-related (although it could be, in theory at least)
A quick read identifies the issue as Ireland being used as a kind of conduit to move intellectual property from higher tax to lower/zero tax jurisdictions.
The example given was of Germany refusing to have tax agreements with tax havens like Bermuda etc (Germany, we applaud you), so to get around that the company will just link Germany to Ireland, and then Ireland to Bermuda.
Without going further into it and getting a headache, its just tax dodging dressed up as tax minimisation (the old tax 'evasion' versus tax 'avoidance').
Whatever, it is totally immoral, and really ought to be illegal. There are no guys and gals from Apple or Medtronic or whoever, sitting there in Bermuda inventing clever stuff and then charging Apple or Medtronic in Ireland or Germany or wherever for the privilege of using stuff invented in Bermuda (or another tax haven) to instal in products made in Ireland/Germany/wherever.
It is in essence corporations stealing from their host nations.
It is theft. Let's call it what it is.
What Trump really should be doing is tackling it, not using crude tariffs.
Personally I don't think he has the concentration span to work it all out. Viscerally, he knows there's an issue, he knows it's inherently unfair, and I think threatening tariffs is his way of saying "Look, I don't have time for this shite, there's a massive balance of payments deficit between the US and your country, so you get it sorted or there'll be these punitive tariffs put on you."
It's crude. It's probably not effective and may be detrimental in some ways. But maybe it should be interpreted as a signal that someone in Ireland or Germany or Bermuda (or all three and many more besides) better do something clever cos DT doesn't have the time to go through international taxation scams invented by devious immoral bastards in accountancy firms?
He wants to bring American companies home to provide American jobs and I'm fairly sure that doesn't make him a bad person. He wants the big accountancy firms to stop scamming the US out of corporate taxation revenue and I'm fairly sure that doesn't make him a bad person either.
I think it's best to look at Donald Trump in a 'transactional' way. He'll do some bad stuff. He may even do some good stuff. I'm not a fan of his in many ways but I think people in Britain and Europe need to get a sense of perspective.
I'm very tired of being presented with the latest bogeyman to be scared of.
But will I be fighting him on the beaches if he invades Greenland, or Ireland? Yep. I'll defend dirty Greenlandish oil extraction and leprechaun economics to the death. Where do I sign up?
Disengaging from the reserve currency is a tightrope walk. All the big players are doing it and have been doing it for years but it must be done slowly and quietly. The answer is obvious: these countries are creditors of the system, and as such, if they withdraw too quickly or too openly they collapse the value of the assets they are trying to liquidate. They all collectively need to avoid triggering a sort of “bank run”. And so the creditors (BRICs etc) are complicit with the debtor (the US).
Of course, though the point I'm making is that the creditors need to up the ante rather than fighting back with tariffs. Clearly, no one is going to sell everything overnight, and this process will take years to unfold.
You might be interested to read Matt Stoller (”BIG” here on Substack). He argues the unorthodox view that tariffs do not necessarily push up prices, but instead are used as a smokescreen by oligopolies and monopolies. He has empirical data for this which is worth looking at. Of course whether his heterodoxy would still hold at Trumpian tariff levels of 50% and even 100% might be in question.
Presently, only a minority - even indside the Beltway - acknowledged that the US is in decline. But what will surly drive a growing recognition of this reality is US's huge burden of debt. This will prevent the contry at every level of goverment, especially federal, continuung to live in the manner to which it has become accustomed. The demand of debt will be relentless and unforgiving. If US has enjoyed the intoxixation of over-consumption for the last four decades, now it faces the prospect of a permanent hangover. The fact that US is paralysed by the political polarization will make the task of coming to terms with the debt crisis that more difficult and protracted
In the end, empires are always about money. One of the key reasons the Roman Empire fell – or perhaps crumbled would be a more fitting metaphor – was its own financial contradictions: vast expenditures on its military-industrial complex, the repeated devaluation of its currency, and persistent tax issues. The wealthy elites disproportionately benefited, leaving the lower classes to bear the burden. In the United States, we are witnessing similar structural stresses; eventually, the house of cards will collapse.
Curiously, China holds nearly $800 billion in U.S. Treasury securities and is deeply integrated into the US monetary system. One reason for this is that by purchasing U.S. Treasuries, China effectively helps to keep the value of the yuan lower compared to the dollar. A weaker yuan makes Chinese exports cheaper and more competitive in global markets. If China were to sell off its U.S. debt, the yuan could strengthen, which would harm China’s export-driven economy. It’s a classic case of the snake consuming its own tail: both the Chinese and U.S. markets are so intertwined that they depend on one another to avoid a mutual death spiral.
Furthermore, China holds over $3 trillion in foreign reserves. The question then arises: where do you place such vast sums of money? The European markets, despite their size, are not viewed as securely as U.S. assets, which, though burdened by debt, still stand as the economic powerhouse of the world, now only rivalled by China’s own burgeoning economy.
Ian has a point about inflation. For the moment, the U.S. can continue borrowing at relatively low interest rates, despite its overwhelming debt, because of the confidence in its ability to service that debt. But as Ian outlines, what happens when a country like the U.S. finds itself in a race to service the interest on its debt? Ill-starred, I’d say.
Perhaps the U.S. will attempt to replicate the Russian model, creating an internal market that caters to its own economic needs. If this is the case, it seems that Trump is attempting to reinvigorate the industrial heartlands through tariffs. However, this is not a short-term project – unlike a presidential term, it will take years to come to fruition. The Russians, despite their enthusiastic embrace of capitalist methodologies post-Soviet Union, still retain a strong state-planning core. The U.S., by contrast, does not. Yes, the U.S. uses its Treasury to flood the economy with fiat money, but this is merely to prop up an inflated stock market and redistribute public wealth to the super-rich via tax cuts – a reverse form of welfare.
Finally, we can all see the contradictions inherent in 21st-century capital accumulation. The last time such contradictions became so stark, we had a world war on our hands. The shadows are lengthening…
The US is entering a protracted period of economic, political and military trauma. Its medium-term reaction may not be pretty: the world must hope it is not to ugly; aka Gaza, Ukraine, Iran...
"Foreign countries put their capital into the U.S. precisely because it is stable and safe"
And also because they have to.
There is an element of compulsion. For instance, the petrodollar.
How safe it is is questionable.
30 trillion is just the debt 'on the books'. I believe there are other gigantic liabilities that are kept off the books, related to medical care and social security, totalling something like 75 trillion. Described as 'unfunded'.
In other words, the government has future obligations to fund care of its citizens, but hasn't got the money set aside to pay for them. 75 trillion dollars. And rising. Always rising.
Basically like a potentially catastrophic pension fund deficit but for everyone, not just for people who worked for Mirror Group Newspapers.
In Tai-Chi (the martial art), attacking first is usually considered to be a bad idea. Ideally, the best response is decided only after assessing the "incomings". The response in Tai-Chi is never using force against force (based on my shallow understanding.) Instead, the preferred response is to divert and direct the incoming attack back, usually through a loop. The defender's force is applied toward redirecting the incoming rather than against the incoming head-on. Mr. Proud's idea is clearly along this line. Developing economies buy UST as putting money into a saving account. If one cannot sell enough stuff to get enough profit, then of course one has to spend down the savings to keep ends meet. Maybe they can simply hand off the UST to the Gulf countries to pay for the oil, then they don't have to sell UST in the open market. KSA stands on far stronger ground to deal with the surplus UST problems. Say, buying some S-300/S-400 and Su-35?
A potential reduction of US debt is catastrophic for the rest of the world. Countries outside the US have liabilities against each other far in excess of the $36Tril US Treasuries in circulation. This is through derivatives that are off-balance sheet estimated to be around $632Tril in 2022 according to BIS. Mostly bilateral trades. Any move up in the $ cause great stress as seen recently in Japan with the unwinding of the carry-trade. As countries seek to protect themselves through barriers or potential default if they can no longer service their liabilities, they face contraction and deflationwith millions becoming unemployed. This increase instability, social unrest and risk of war. In The US, the situation would not be as bad. Short term disruptions as the country re-adjust to reshoring through domestic investment as well as foreigners trying to capture a slice of the US production. Supply chains will be disrupted, prices will rise but US government can mitigate through government targeted welfare. Stimulus checks can be directed at domestic consumption not buying Chinese good like they had between 2021 and 2023. Not inflationary. Medium term, the country settles into producing and consuming. Happy days. The issue could be longer term as mal-investment grows and productivity declines as protectionism side effects play more and more. It is clear the $ as global reserve currency hasn't work since 2008. Trump is trying to deal with the issue. Only time will tell if tariffs are the solution. I don't think they are as history as proven before, for the reasons mentioned above. The real solution is the creation a global decentralised money ledger. At the moment, the ledger is a superposition of ledgers controlled by banks therefore subject to manipulation and ultimately only US banks can create base money. Until then, the $ will remain king till an alternative emerges and prove to be as successful as the existing one had between 1960 and 2008.
It’s worth considering that Trump may not care about a strong dollar or about maintaining reserve currency status. Those are standard US policy positions but it would not be right to automatically assume Trump will hold to those. In the terms of your argument, maybe his analysis is the same as yours, but he only wants the one cake and doesn’t care about the other. In fact maybe (as your analysis shows) he understands the second cake is the addiction that got the US into its current crisis, and the only way out long term is to kick the addiction.
How do you account for foreign companies lining up to build products here in the U.S.? This has to wash some deficit away while also boosting domestic employment?
You were so close to the right answer - "he can’t have two cakes and eat them both" - but went down the wrong path. Hat tip to Gilgamesh for pointing it out first. Yes, for many years the US "ate the cake" of unbalanced trade and defense spending and current account deficits for lower inflation and reserve currency benefits. But this cake now threatens our well-being and security, by decimating both our industrial base and our middle class while piling up unsustainable debts. There's no painless way out of this. Our security trumps - pardon the pun - other considerations.
Your post is rather dishonest - you point out the benefits to the US of the existing arrangement while ignoring the problems, you skim over the fact that tariffs are indeed unbalanced (even the BBC agrees in https://www.bbc.com/news/articles/cjw4epl1994o), you ignore our inordinate spending on common security (in NATO, US with a smaller population spends 2.5 times more than EU). Europe's reaction to Trump's initiatives on Ukraine and trade reminds one of a partner who's gotten used to being taken care of and now protests when the other side to restore some fairness.
Firstly, we may disagree, but I won't call you dishonest, as I think that would be childish. Happy to disagree though.
I don't see how NATO spending is relevant, although I do agree, quite separately to this issue, that Europe has allowed itself to become too reliant on US security. I would be less concerned if that had made us safer, rather than dragging us into an illegal war in Iraq, needless intervention in libya and provoking a fullblown war in Europe (on which I have actively praised Trump for trying to bring the Ukraine war to an end).
I see no evidence that the US wants to give up its position as the dominant global military power. That the US has piled up a mountain debt is a result of specifically American choices. I've also praised Trump for his moves to tackle waste.
Has the US been taken advantage of in trade? Probably. As a Brit, do I care about potentially heavy tariffs on Europe? Not that much, frankly.
I simply think Trump's approach is boorish and filled with inherent contradictions. And if hardball's the game, then others should play it.
Still love America though, and admire some of the things Trump is trying to do.
I didn't mean to offend, I said your post was "dishonest" because it omitted some relevant information. I admit that "one-sided" would have been a better choice. I think bringing up NATO spending is relevant because here it's the other side of the same coin: internally, Trump is not talking about the current account (most people don't know what it is), he's hammering on fairness in trade and defense. That's something Americans understand and support.
I don't think that Europeans understand Trump: in seeing him as "just a dealmaker" they confuse the mask for the substance. He is an unusual politician, more similar to Teddy Roosevelt or Javier Milei than anyone they dealt with before. To go a level deeper, Europeans and Americans are different. I grew up in Europe but lived in the US for many years and am a fervent believer in the American project. Laugh all you want at "American exceptionalism" but many if not most of us believe that America is not only a country but an idea. When Vance went to Munich and said, "you shouldn't arrest people for social media posts," European leaders took umbrage. But for us it just confirmed that Europeans don't share some of our most deeply held values. I'm bringing this up because I think it's an important context and without understanding it and focusing on tactics (such as tariffs) Europeans and Americans will just continue talking past each other.
I completely agree with your points re: Ukraine, Iraq, and Libya. Many awful mistakes were made by previous administrations.
I agreed with Vance on his Munich speech, by the way. And I agree with you on talking past each other - we've been doing that with Russia for over thirty years.
There are many reasons why Europe is deeply flawed. A key reason, I think, is the progressive erosion of national identity as ever closer union tries to impose identitikit values on vastly different nations, held in place by neo-Soviet institutions with growing powers. Our mantra should be making European countries great again, while keeping the benefits of the single market. But alas.
All that being said, the 'big idea' thesis for America doesn't hold with the catastrophically bad foreign policy choices made by Administrations of both parties. European dislike of exceptionalism is more about American impunity and a base lack of self awareness. Jury's out on Trump. And I'm more pro than the majority.
Alas, the last thirty years of the Western policies towards Russia represent an unmitigated tragedy. Instead of China-Russia alliance there should have been a US-EU-Russia alliance. And we are yet to see the full consequences of the war in Ukraine as Ukraine becomes a failed state that may export weapons and terror to the West.
Of course, America is flawed too and made many mistakes. While the past should not be forgotten, it's best to not live there. The current US administration represents such a drastic change from the previous ones (including the first Trump administration) that people understandably struggle to grapple with it. Is the Western alliance dead? I think it went from an alliance of common values and goals to that of historical convenience - and Trump is treating it as such. Can it become one of shared values again? It would take either America going back to pre-Trump posture or Europe making drastic changes. It's hard to see either one happening in the near future.
I am intrigued by the lack of any mention of Canada in all these discussions. A combination of geography and similar early history has made our economies almost hopelessly intertwined, and again the forces of geography have made our population density only a tenth of theirs, so our chances of holding out against them is about zero militarily. I suspect that Trump views us as "his Ukraine" - his borderlands - and acquiring us, while incredibly complicated legally and probably not feasible in terms of a recalcitrant population, possibly sits on his back burner as a potential distraction from the political fallout from other failures. We haven't got much power on our side. Carney is a flawed candidate (who isn't) but he's got all the financial and economic cred we can hope for at this stage. In what appears to be an existential threat on our side, I am, as I say, intrigued by the complete absence of it's mention in any of the non-North American commentaries. My guess is that our economic, political and military lives and systems are so integrated at this point, that our only hope is that they (the US) either succeed sufficiently in their primary objective such that the inconveniences of a formal takeover would be rendered unnecessary, or that their internal implosion is so great that their resources are needed elsewhere. At the moment, fear of Trump and takeover is completely dominating our election cycle, and he's constantly feeding it, with his near brilliant instinct for WWF- style trolling, confusion, and threats. I guess the rest of the world sees us as US-lite anyway, which I and most Canadians loathe, but we're just the plebs after all, and it's the BIGs (the oligarchs, Matt Stoller's targets) that run us now.
Of course, Trump is trolling and being offensive. And of course it's being done on purpose. People get would up over his antics and miss the likely underlying policies.
Some years ago, I spent a lot of time in Canada on business. I was stunned at the degree of anti-Americanism and protectionism that I have encountered - at the time I have not met a single American who said anything bad about Canada. So, I'm not surprised at the Canadian anger directed this way, I think it was always there like a kindling for the leadership to light up on demand. Between insane immigration policies, general government mismanagement and tensions between provinces, I personally don't see much hope for the Canadian project at this point (of course, the same can be said about the US, but it's much bigger and has a stronger central authority so it can survive bad mistakes). My guess is that Trump is playing for the internal implosion and then picking up the pieces, that's why he doesn't care if Libs or Conservatives win the next election. I would also speculate that American interests up north are 1) access to the Arctic and the passage, and 2) security in view of the CCP's penetration (I mean, you literally have treasonous MPs and you don't even know who they are).
Ireland has a yearly trade surplus of $85 billion, mostly in pharmaceuticals and medical devices which are not produced in the US. Demand for these products is not likely to drop significantly as they are necessary and a 25% increase in their price will clearly affect the US consumer and the US economy.
On top of that, Ireland holds roughly $350 billion of US debt. So, by your correct reasoning, should Ireland instead invest in another currency instead of the dollar, the US would be losing both ways, higher inflation and the loss of a debt purchasing customer, Ireland Inc.
All US policy, along with European and British policy, domestic, economic and foreign, is totally devoid of logic. The inability of the collective west to come up with and stick to a 20-30 year plan is central to the collapse of reasoning, peace and prosperity that is destroying our civilisation.
Couldn’t agree with your more, Eoin.
Much of the $85 billion Irish surplus in pharmaceuticals and medical devices that are ‘not produced in the United States’ are not produced in Ireland either.
In 2022 Ireland exported goods and services to the value of 136% of its GDP. This, as Paul Krugman rightfully called it, is ‘leprechaun economics’.
I’m not a big Trump fan, but when it comes to Ireland, he’s got a point.
So you're telling me that the thousands upon thousands of people going to work in US pharmaceutical and medical devices factories are pretending to make products for the US market. Whether it's leprechaun economics or not, the facts remain the same. Prices for goods and services will increase in the US, while share prices and dividends will remain high for these US corporations who have their European bases in Ireland.
Raising tariffs won't affect Ireland in the short or long term. Look up Medtronic, one of hundreds of medical device companies in Ireland if you want to get a better picture of how the economies of both countries are intertwined.
"So you're telling me that the thousands upon thousands of people going to work in US pharmaceutical and medical devices factories are pretending to make products for the US market"
A quick gúgl of 'Leprechaun economics' flags up the issue as largely Apple-related, so not pharma-related (although it could be, in theory at least)
A quick read identifies the issue as Ireland being used as a kind of conduit to move intellectual property from higher tax to lower/zero tax jurisdictions.
The example given was of Germany refusing to have tax agreements with tax havens like Bermuda etc (Germany, we applaud you), so to get around that the company will just link Germany to Ireland, and then Ireland to Bermuda.
Without going further into it and getting a headache, its just tax dodging dressed up as tax minimisation (the old tax 'evasion' versus tax 'avoidance').
Whatever, it is totally immoral, and really ought to be illegal. There are no guys and gals from Apple or Medtronic or whoever, sitting there in Bermuda inventing clever stuff and then charging Apple or Medtronic in Ireland or Germany or wherever for the privilege of using stuff invented in Bermuda (or another tax haven) to instal in products made in Ireland/Germany/wherever.
It is in essence corporations stealing from their host nations.
It is theft. Let's call it what it is.
What Trump really should be doing is tackling it, not using crude tariffs.
Personally I don't think he has the concentration span to work it all out. Viscerally, he knows there's an issue, he knows it's inherently unfair, and I think threatening tariffs is his way of saying "Look, I don't have time for this shite, there's a massive balance of payments deficit between the US and your country, so you get it sorted or there'll be these punitive tariffs put on you."
It's crude. It's probably not effective and may be detrimental in some ways. But maybe it should be interpreted as a signal that someone in Ireland or Germany or Bermuda (or all three and many more besides) better do something clever cos DT doesn't have the time to go through international taxation scams invented by devious immoral bastards in accountancy firms?
He wants to bring American companies home to provide American jobs and I'm fairly sure that doesn't make him a bad person. He wants the big accountancy firms to stop scamming the US out of corporate taxation revenue and I'm fairly sure that doesn't make him a bad person either.
I think it's best to look at Donald Trump in a 'transactional' way. He'll do some bad stuff. He may even do some good stuff. I'm not a fan of his in many ways but I think people in Britain and Europe need to get a sense of perspective.
I'm very tired of being presented with the latest bogeyman to be scared of.
But will I be fighting him on the beaches if he invades Greenland, or Ireland? Yep. I'll defend dirty Greenlandish oil extraction and leprechaun economics to the death. Where do I sign up?
Trump is a wall street man, what I think he's doing is creating indirect taxes which in the end benefits his buddies.
Economics 101.
Disengaging from the reserve currency is a tightrope walk. All the big players are doing it and have been doing it for years but it must be done slowly and quietly. The answer is obvious: these countries are creditors of the system, and as such, if they withdraw too quickly or too openly they collapse the value of the assets they are trying to liquidate. They all collectively need to avoid triggering a sort of “bank run”. And so the creditors (BRICs etc) are complicit with the debtor (the US).
Of course, though the point I'm making is that the creditors need to up the ante rather than fighting back with tariffs. Clearly, no one is going to sell everything overnight, and this process will take years to unfold.
You might be interested to read Matt Stoller (”BIG” here on Substack). He argues the unorthodox view that tariffs do not necessarily push up prices, but instead are used as a smokescreen by oligopolies and monopolies. He has empirical data for this which is worth looking at. Of course whether his heterodoxy would still hold at Trumpian tariff levels of 50% and even 100% might be in question.
Thanks a lot.
Presently, only a minority - even indside the Beltway - acknowledged that the US is in decline. But what will surly drive a growing recognition of this reality is US's huge burden of debt. This will prevent the contry at every level of goverment, especially federal, continuung to live in the manner to which it has become accustomed. The demand of debt will be relentless and unforgiving. If US has enjoyed the intoxixation of over-consumption for the last four decades, now it faces the prospect of a permanent hangover. The fact that US is paralysed by the political polarization will make the task of coming to terms with the debt crisis that more difficult and protracted
In the end, empires are always about money. One of the key reasons the Roman Empire fell – or perhaps crumbled would be a more fitting metaphor – was its own financial contradictions: vast expenditures on its military-industrial complex, the repeated devaluation of its currency, and persistent tax issues. The wealthy elites disproportionately benefited, leaving the lower classes to bear the burden. In the United States, we are witnessing similar structural stresses; eventually, the house of cards will collapse.
Curiously, China holds nearly $800 billion in U.S. Treasury securities and is deeply integrated into the US monetary system. One reason for this is that by purchasing U.S. Treasuries, China effectively helps to keep the value of the yuan lower compared to the dollar. A weaker yuan makes Chinese exports cheaper and more competitive in global markets. If China were to sell off its U.S. debt, the yuan could strengthen, which would harm China’s export-driven economy. It’s a classic case of the snake consuming its own tail: both the Chinese and U.S. markets are so intertwined that they depend on one another to avoid a mutual death spiral.
Furthermore, China holds over $3 trillion in foreign reserves. The question then arises: where do you place such vast sums of money? The European markets, despite their size, are not viewed as securely as U.S. assets, which, though burdened by debt, still stand as the economic powerhouse of the world, now only rivalled by China’s own burgeoning economy.
Ian has a point about inflation. For the moment, the U.S. can continue borrowing at relatively low interest rates, despite its overwhelming debt, because of the confidence in its ability to service that debt. But as Ian outlines, what happens when a country like the U.S. finds itself in a race to service the interest on its debt? Ill-starred, I’d say.
Perhaps the U.S. will attempt to replicate the Russian model, creating an internal market that caters to its own economic needs. If this is the case, it seems that Trump is attempting to reinvigorate the industrial heartlands through tariffs. However, this is not a short-term project – unlike a presidential term, it will take years to come to fruition. The Russians, despite their enthusiastic embrace of capitalist methodologies post-Soviet Union, still retain a strong state-planning core. The U.S., by contrast, does not. Yes, the U.S. uses its Treasury to flood the economy with fiat money, but this is merely to prop up an inflated stock market and redistribute public wealth to the super-rich via tax cuts – a reverse form of welfare.
Finally, we can all see the contradictions inherent in 21st-century capital accumulation. The last time such contradictions became so stark, we had a world war on our hands. The shadows are lengthening…
The US is entering a protracted period of economic, political and military trauma. Its medium-term reaction may not be pretty: the world must hope it is not to ugly; aka Gaza, Ukraine, Iran...
"Foreign countries put their capital into the U.S. precisely because it is stable and safe"
And also because they have to.
There is an element of compulsion. For instance, the petrodollar.
How safe it is is questionable.
30 trillion is just the debt 'on the books'. I believe there are other gigantic liabilities that are kept off the books, related to medical care and social security, totalling something like 75 trillion. Described as 'unfunded'.
In other words, the government has future obligations to fund care of its citizens, but hasn't got the money set aside to pay for them. 75 trillion dollars. And rising. Always rising.
Basically like a potentially catastrophic pension fund deficit but for everyone, not just for people who worked for Mirror Group Newspapers.
In Tai-Chi (the martial art), attacking first is usually considered to be a bad idea. Ideally, the best response is decided only after assessing the "incomings". The response in Tai-Chi is never using force against force (based on my shallow understanding.) Instead, the preferred response is to divert and direct the incoming attack back, usually through a loop. The defender's force is applied toward redirecting the incoming rather than against the incoming head-on. Mr. Proud's idea is clearly along this line. Developing economies buy UST as putting money into a saving account. If one cannot sell enough stuff to get enough profit, then of course one has to spend down the savings to keep ends meet. Maybe they can simply hand off the UST to the Gulf countries to pay for the oil, then they don't have to sell UST in the open market. KSA stands on far stronger ground to deal with the surplus UST problems. Say, buying some S-300/S-400 and Su-35?
A potential reduction of US debt is catastrophic for the rest of the world. Countries outside the US have liabilities against each other far in excess of the $36Tril US Treasuries in circulation. This is through derivatives that are off-balance sheet estimated to be around $632Tril in 2022 according to BIS. Mostly bilateral trades. Any move up in the $ cause great stress as seen recently in Japan with the unwinding of the carry-trade. As countries seek to protect themselves through barriers or potential default if they can no longer service their liabilities, they face contraction and deflationwith millions becoming unemployed. This increase instability, social unrest and risk of war. In The US, the situation would not be as bad. Short term disruptions as the country re-adjust to reshoring through domestic investment as well as foreigners trying to capture a slice of the US production. Supply chains will be disrupted, prices will rise but US government can mitigate through government targeted welfare. Stimulus checks can be directed at domestic consumption not buying Chinese good like they had between 2021 and 2023. Not inflationary. Medium term, the country settles into producing and consuming. Happy days. The issue could be longer term as mal-investment grows and productivity declines as protectionism side effects play more and more. It is clear the $ as global reserve currency hasn't work since 2008. Trump is trying to deal with the issue. Only time will tell if tariffs are the solution. I don't think they are as history as proven before, for the reasons mentioned above. The real solution is the creation a global decentralised money ledger. At the moment, the ledger is a superposition of ledgers controlled by banks therefore subject to manipulation and ultimately only US banks can create base money. Until then, the $ will remain king till an alternative emerges and prove to be as successful as the existing one had between 1960 and 2008.
So Bitcoin, well, blockchain, fixes this?
It’s worth considering that Trump may not care about a strong dollar or about maintaining reserve currency status. Those are standard US policy positions but it would not be right to automatically assume Trump will hold to those. In the terms of your argument, maybe his analysis is the same as yours, but he only wants the one cake and doesn’t care about the other. In fact maybe (as your analysis shows) he understands the second cake is the addiction that got the US into its current crisis, and the only way out long term is to kick the addiction.
https://youtube.com/watch?v=8DOCZjS_MVc&si=OiuG3Yewf0fJmR5F
How do you account for foreign companies lining up to build products here in the U.S.? This has to wash some deficit away while also boosting domestic employment?
Well, yes.
You were so close to the right answer - "he can’t have two cakes and eat them both" - but went down the wrong path. Hat tip to Gilgamesh for pointing it out first. Yes, for many years the US "ate the cake" of unbalanced trade and defense spending and current account deficits for lower inflation and reserve currency benefits. But this cake now threatens our well-being and security, by decimating both our industrial base and our middle class while piling up unsustainable debts. There's no painless way out of this. Our security trumps - pardon the pun - other considerations.
Your post is rather dishonest - you point out the benefits to the US of the existing arrangement while ignoring the problems, you skim over the fact that tariffs are indeed unbalanced (even the BBC agrees in https://www.bbc.com/news/articles/cjw4epl1994o), you ignore our inordinate spending on common security (in NATO, US with a smaller population spends 2.5 times more than EU). Europe's reaction to Trump's initiatives on Ukraine and trade reminds one of a partner who's gotten used to being taken care of and now protests when the other side to restore some fairness.
Firstly, we may disagree, but I won't call you dishonest, as I think that would be childish. Happy to disagree though.
I don't see how NATO spending is relevant, although I do agree, quite separately to this issue, that Europe has allowed itself to become too reliant on US security. I would be less concerned if that had made us safer, rather than dragging us into an illegal war in Iraq, needless intervention in libya and provoking a fullblown war in Europe (on which I have actively praised Trump for trying to bring the Ukraine war to an end).
I see no evidence that the US wants to give up its position as the dominant global military power. That the US has piled up a mountain debt is a result of specifically American choices. I've also praised Trump for his moves to tackle waste.
Has the US been taken advantage of in trade? Probably. As a Brit, do I care about potentially heavy tariffs on Europe? Not that much, frankly.
I simply think Trump's approach is boorish and filled with inherent contradictions. And if hardball's the game, then others should play it.
Still love America though, and admire some of the things Trump is trying to do.
I didn't mean to offend, I said your post was "dishonest" because it omitted some relevant information. I admit that "one-sided" would have been a better choice. I think bringing up NATO spending is relevant because here it's the other side of the same coin: internally, Trump is not talking about the current account (most people don't know what it is), he's hammering on fairness in trade and defense. That's something Americans understand and support.
I don't think that Europeans understand Trump: in seeing him as "just a dealmaker" they confuse the mask for the substance. He is an unusual politician, more similar to Teddy Roosevelt or Javier Milei than anyone they dealt with before. To go a level deeper, Europeans and Americans are different. I grew up in Europe but lived in the US for many years and am a fervent believer in the American project. Laugh all you want at "American exceptionalism" but many if not most of us believe that America is not only a country but an idea. When Vance went to Munich and said, "you shouldn't arrest people for social media posts," European leaders took umbrage. But for us it just confirmed that Europeans don't share some of our most deeply held values. I'm bringing this up because I think it's an important context and without understanding it and focusing on tactics (such as tariffs) Europeans and Americans will just continue talking past each other.
I completely agree with your points re: Ukraine, Iraq, and Libya. Many awful mistakes were made by previous administrations.
I agreed with Vance on his Munich speech, by the way. And I agree with you on talking past each other - we've been doing that with Russia for over thirty years.
There are many reasons why Europe is deeply flawed. A key reason, I think, is the progressive erosion of national identity as ever closer union tries to impose identitikit values on vastly different nations, held in place by neo-Soviet institutions with growing powers. Our mantra should be making European countries great again, while keeping the benefits of the single market. But alas.
All that being said, the 'big idea' thesis for America doesn't hold with the catastrophically bad foreign policy choices made by Administrations of both parties. European dislike of exceptionalism is more about American impunity and a base lack of self awareness. Jury's out on Trump. And I'm more pro than the majority.
Alas, the last thirty years of the Western policies towards Russia represent an unmitigated tragedy. Instead of China-Russia alliance there should have been a US-EU-Russia alliance. And we are yet to see the full consequences of the war in Ukraine as Ukraine becomes a failed state that may export weapons and terror to the West.
Of course, America is flawed too and made many mistakes. While the past should not be forgotten, it's best to not live there. The current US administration represents such a drastic change from the previous ones (including the first Trump administration) that people understandably struggle to grapple with it. Is the Western alliance dead? I think it went from an alliance of common values and goals to that of historical convenience - and Trump is treating it as such. Can it become one of shared values again? It would take either America going back to pre-Trump posture or Europe making drastic changes. It's hard to see either one happening in the near future.
I am intrigued by the lack of any mention of Canada in all these discussions. A combination of geography and similar early history has made our economies almost hopelessly intertwined, and again the forces of geography have made our population density only a tenth of theirs, so our chances of holding out against them is about zero militarily. I suspect that Trump views us as "his Ukraine" - his borderlands - and acquiring us, while incredibly complicated legally and probably not feasible in terms of a recalcitrant population, possibly sits on his back burner as a potential distraction from the political fallout from other failures. We haven't got much power on our side. Carney is a flawed candidate (who isn't) but he's got all the financial and economic cred we can hope for at this stage. In what appears to be an existential threat on our side, I am, as I say, intrigued by the complete absence of it's mention in any of the non-North American commentaries. My guess is that our economic, political and military lives and systems are so integrated at this point, that our only hope is that they (the US) either succeed sufficiently in their primary objective such that the inconveniences of a formal takeover would be rendered unnecessary, or that their internal implosion is so great that their resources are needed elsewhere. At the moment, fear of Trump and takeover is completely dominating our election cycle, and he's constantly feeding it, with his near brilliant instinct for WWF- style trolling, confusion, and threats. I guess the rest of the world sees us as US-lite anyway, which I and most Canadians loathe, but we're just the plebs after all, and it's the BIGs (the oligarchs, Matt Stoller's targets) that run us now.
Of course, Trump is trolling and being offensive. And of course it's being done on purpose. People get would up over his antics and miss the likely underlying policies.
Some years ago, I spent a lot of time in Canada on business. I was stunned at the degree of anti-Americanism and protectionism that I have encountered - at the time I have not met a single American who said anything bad about Canada. So, I'm not surprised at the Canadian anger directed this way, I think it was always there like a kindling for the leadership to light up on demand. Between insane immigration policies, general government mismanagement and tensions between provinces, I personally don't see much hope for the Canadian project at this point (of course, the same can be said about the US, but it's much bigger and has a stronger central authority so it can survive bad mistakes). My guess is that Trump is playing for the internal implosion and then picking up the pieces, that's why he doesn't care if Libs or Conservatives win the next election. I would also speculate that American interests up north are 1) access to the Arctic and the passage, and 2) security in view of the CCP's penetration (I mean, you literally have treasonous MPs and you don't even know who they are).
https://substack.com/@mattstoller