The US should expect the dollar’s share of global reserves to slowly decline, but no alternatives exist that could completely displace the greenback, Treasury Secretary Janet Yellen said on Tuesday.
The US dollar’s decline. Central banks have been dumping it and replacing it with gold.
I do hope that she is right. Both the euro and sterling’s fate is tied up with the US dollar.
This is a snapshot in time.
I think the USD and Mexican peso do better and better from here. With the USD becoming even more powerful. I think Yellen is going to be proven wrong five and ten years out from here. We are retooling.
As far as Yellen saying that she is taking a position in the context of the budget talk threats.
I do hope that you are right but I fear otherwise.
The fiasco over the spending limits clearly shows that the US dollar is a classic Ponzi scheme that requires more and more ‘new’ money to pay off old debts and current spending, a cycle that has repeated itself many times.
Isn’t Mexico joining BRICS?
Printing money to pay your debts is a Ponzi scheme that will end badly. It’s a question of time.
The Captain
Then again, the US is not alone in the race to zero.
On the bright side, if you guys are correct that means the bond market is wildly mispriced and there is an opportunity for generation wealth in bond futures.
If you are correct, of course.
In a pig’s eye you believe them.
The problem is that The West is so indebted that everyone knows we are running a Ponzi scheme. At the moment we are playing a game of ‘pass the financial parcel’ and when it ends, it could end very quickly.
It’s very much like a nuclear reaction, it first has to reach critical mass and then the chain reaction gets going.
The Captain
If things ever get really bad, then the government will simply confiscate wealth. The top 50 wealthiest people in the US have over $2 trillion (which is more than the poorest 165 million people in the US).
It is easier to nickel and dime the masses but when you really need a lot of money, you have to fish in the deep waters.
Hawkwin
Little wonder that populism is eating away at libertarianism.
We’re not on the same continent as being that bad. The key measure of the ability to service the debt is the interest to GDP ratio. If that number gets too big, then you can’t afford to service the debt. Right now, the interest to GDP ratio isn’t particularly high, and last I checked is actually lower than the 40 year average, and a good bit lower than for a number of those years.
In other words, the debt isn’t any bigger of a deal now than it has been over the last few decades. Could that change? Sure. But another key measure, debt/GDP, while high, has been dropping the last couple years and fairly rapidly too. We had a discussion about inflation in another thread. By most measures inflation is either steady or dropping, so that’s positive too.
On top of that, the debt is denominated in dollars AND we owe most of it to ourselves. And on top of THAT, reverting tax rates to something like they were just a few years ago (a time generally seen as prosperous) would cut the deficit by about a third.
I’ve been hearing rumors of the dollar’s collapse and hyperinflation since 2008 and QE (Monetizing debt!). The problem with this thinking is the conditions required for hyperinflation did not exist then in this country nor do they exist now. Except for the last couple years, we’ve actually seen very low inflation, bordering on deflation.
nah the key measure is GDP growth. Particularly factory output growth. In other words we have failed for 40 years to build a richer nation. That behind us in the coming months the debt to GDP ratio will fall.
However interest rates are now on the move upwards. All that cheap debt will eventually roll over into more expensive debt. $30 trillion at 5% comes out at $1.5 trillion or about 25% of Federal income.
Yes, assuming those numbers remain static, which they won’t. Why are interest rates going up? Inflation, right? Tax revenues will also go up by about the rate of inflation plus GDP growth. In the meantime, that debt is being eroded by that same inflation and becoming smaller and smaller in real terms. As I mentioned in a previous post, debt/GDP is already declining.
On top of that, almost all of the debt held by the public (which is a good bit less than $30 trillion, by the way) is held in notes and bonds of various durations measured in years. A non-trivial portion of that is held in the form of 30-year treasuries. So no, all of that debt will not suddenly reset to 5%.
Sure, it would be great if the debt and deficit were smaller, but at the present and for the foreseeable future they are completely manageable.
Why do you think tax revenues will go up by inflation PLUS GDP growth? Tax rates are indexed to inflation so we should expect them to rise roughly with GDP. However, government expenditures comprise quite a bit of GDP (~40%) so only a portion of GDP growth flows to higher tax revenues.
It is true that long-term fixed-rate debt is constantly being eroded by inflation. BUT, over the last 50 years, our [Federal] government has shifted from issuing mostly long-term debt to mostly shorter-term debt. Every single week, there are rollovers of 4-week, 8-week, 13-week, 17-week, and 26-week bills in the hundreds of billions. Every month, others are rolled over, like the 52-week bills. So, quite a bit of the debt doesn’t benefit much from inflation erosion anymore. For example, the 17-week bill issued this week was at a 5.4% rate, that one isn’t going to benefit from inflation erosion because inflation is lower than 5.4% right now. Same for all the other bills being issued every week/month.
Declining? Compared to what level? Compared to the peak COVID emergency level, yes. But it is still higher than pre-COVID levels, it is still higher than post-GFC levels, and it is still way higher than pre-GFC levels.
Only 14% of treasury debt is in bonds (10+ year maturities). Notes and bills comprise the vast majority of treasury debt today.
I can’t find more recent info, but as of 2017 about half the debt was 5+ years and about half under that. There’s a little animation at this site that shows the trend (again, as of 2017) was going the other way: less short term, more long term.
I’d also note that a sizable chunk of the debt is “debt the federal government owes itself.” Yes, that’s weird. Factoid #4 from the link at the bottom of this post:
**21.8% of the public debt, or $6.87 trillion, is owned by another arm of the federal government itself.** That includes Medicare; specialized trust funds, such as those for highways and bank deposit insurance; and civil service and military retirement programs. But the biggest chunk of those “intragovernmental holdings” belongs to Social Security.
And an interesting factoid is that the Fed owns about 20% of the debt (again, this is debt that the government owes to itself, not to you or me or investors in China)
#5: Today, **the Federal Reserve System is the single largest holder of U.S. government debt.** While the Fed regularly buys and sells Treasury securities to execute monetary policy, it bought Treasuries in [massive quantities] during the COVID-19 pandemic in an effort to keep the U.S. economy from buckling under the strain of shutdowns and quarantines.
Should read GDP growth rate.
The point is the trend is declining. Up above it was posited that US debt is getting larger and larger and will eventually the money will run out and the Great Ogre of the East will come bury us.
However, compared to the size of the economy the debt is actually getting smaller. That does not jibe well with the theory.
The main argument for rates not coming down much even after inflation is tamed. Actually there are a couple of other main arguments as well.