The Dollar Is Dead

https://mathmeetsmoney.substack.com/p/the-dollar-is-dead

by nhp_fermi • 12 months ago

259 330 12 months ago

mathmeetsmoney.substack.com

nhp_fermi2• 12 months ago

Three projections that signal the dollar's demise: 1. The Fed has lost control of the Yield Curve, 2. One term presidents will become the norm, and fail to cut deficit spending 3. Powell will be the last multi-term Fed chair, and monetary policy will begin to oscillate in lock step with fiscal policy.

AnimalMuppet3• 12 months ago

I don't see #1, at least not yet. The Fed hasn't lost control of the yield curve compared to the amount of control that the Fed normally has over it (which is less than total control).

For me, the second half of #3 is the real death knell. If Congress or the president is setting monetary policy, the dollar is in for a world of hurt.

d00mB0t• 12 months ago

The Dollar: reports of my death are greatly exaggerated.

k8scottgr8scott• 12 months ago

This is not your parents’ economy

dustingetz2• 12 months ago

i would like to see deeper analysis of similar forces playing out in other countries. A weakening dollar implies a strengthening world, but European policy is even more messed up than American, there is still widespread talent export e.g. european programmers working for american companies, indian asian and russian programmers immigrating to Europe or working remote abroad, and China seems to face financial crises just the same as ours in the US. The US tech sector for all its faults and incompetencies still seems impregnable. So how does all this factor into the weak dollar narrative?

teamweightloss2• 12 months ago

US just put tariffs on every other country in the world, and nothing really happened. Thus, US is strong, not weak. dollar is weaker, US is not.

jrs2352• 12 months ago

And nothing really happened, yet. History is about to rhyme with Francisco Franco.

lisbbb3• 12 months ago

It's kind of too soon to tell how this plays out.

jemmyw• 12 months ago

and nothing really happened

I'm not sure what you expect to happen? Tariffs can be a tool to promote local industry but when used like this they're more of a tax on Americans. I don't think other countries want to play the retaliatory game because it's lose lose. Instead they'll make deals where they can and otherwise get on with things. Trade is going to reorient by itself. That will take time but it's already happening.

In any case, it doesn't show the US is strong. Everyone already knew it has the strongest economy in the world. What it does show is that the US is less stable than partners believed. It's hard to see this benefiting the American economy in the long term. But you know, that might not be terrible, if American workers get more jobs and a larger share of the pie, then it might work out.

agent_turtle• 12 months ago

Trump just fired the BLS chief because the economic data from liberation day onward was terrible..

originalvichy2• 12 months ago

The dollar is weakening because the US institutions are weakening. The EU might not be wealthy compared to the US, but at this moment in time it is more rational and future-proof than the volatile US business environment.

The main reason the US is a hub for well-paid programmers, is that there is a giant pool of VCs that subsidise growth for companies that can potentially find money all over the world thanks to the way the US still is a cultural hegemon to western liberal nations with strong English language skills. As long as a US based tech company leverages cultural hegemony (in a positive way) and deep VC pockets, they can succeed in Europe and the world.

The biggest tech company failing at using cultural hegemony in a positive way is Tesla. European consumers have largely abandoned Tesla thanks to E.M. He single handedly ruined the company's position of strength by thinking that US news and politics do not reach us. He did not understand the hegemonic aspect (or was too high to care).

dustingetz2• 12 months ago

addressing only paragraph 2: American VC funded startups mostly don’t hire overseas remote programmers for two reasons: 1) they don’t need to, they are overfunded and the culture/communication overhead tradeoff is not worth it; 2) they are california biased which has poor timezone overlap with overseas time zones. The companies that historically lean in on overseas workers are the bootstrappers, because they cannot afford market american salaries. The company I founded is one such company.

lawlessone2• 12 months ago

People blamed covid to much for the global economic turmoil.

But we don't have covid this time.

We do have the same guy in the White House again though...

ethbr110• 12 months ago

But we don't have covid this time.

RFK Jr: ‘Hold my unpasteurized beer...’

chasing0entropy5• 12 months ago

I'm assuming you believe COVID shutdown was 2019-2020?

gilbetron• 12 months ago

Covid shutdown was 2020, do you remember who was president?

ofalkaed5• 12 months ago

Is there any other country with both the court system and wealth required to back up being the global reserve currency? I don't think there is and I don't see a viable contender showing up in the near future.

kccqzy• 12 months ago

I agree with you. I don't even think in the near future there will be a single global reserve currency. There will be multiple ones, all of which weaker in terms of power and influence than the dollar.

Ekaros• 12 months ago

Do you even need singular global currency in modern world? Where every transaction can be in essence instant if there was desire. And everything is digital. Overall it is rather different world and things can be done different than before.

ofalkaed5• 12 months ago

I suspect there will be at least two big ones on about the same level but I don't think this will be particularly near future, at least not near future in context of the global economy which is fairly young. It is the logical path for China with their role in the global economy and how much western business relies on them, but this will take decades, they have a lot of work ahead of them.

saubeidl5• 12 months ago

The European Union.

DaSHacka2• 12 months ago

Hah, and people say HNers don't have a sense of humor

treetalker2• 12 months ago

As a counterpoint, confidence in US courts (particularly the federal courts) is rapidly declining — both among the public and among those who operate within the court systems.

ofalkaed5• 12 months ago

This is about how the courts operate with regards to international business disputes, US has proven record about being impartial in these matters.

schrodinger• 12 months ago

That’s true, but doesn’t necessarily contradict the question posed. Is any other country _better_ in both of those dimensions?

A_D_E_P_T2• 12 months ago

As somebody who has been involved in civil actions in Federal Court, I can assure you that it deserves zero confidence and is basically pay-to-win. (Unless two billion-dollar-plus corporations are involved.) This is largely, but not only, on account of discovery taking years and costing unbounded sums of money, plus monetary penalties for not complying with expensive discovery.

827a6• 12 months ago

That depends on what kind of media you consume. Feeling isn't really a good indication of reality.

earnestinger• 12 months ago

Why court system is relevant for the currency?

I assume British courts can enforce contracts that deal in dollars.

simonh• 12 months ago

The court system is relevant for confidence in investing in an economy, and currencies are largely supported by and dependent on investment into the economy of the country. Even government debt instruments are a form of investment in the economy of the country.

ivell• 12 months ago

It need not be a single country. Organizations like BRICS could float it's own currency, and with significant size of the economy of the members, it could pull it off. This is why Trump has been explicitly warning against that.

AnimalMuppet3• 12 months ago

"... with both the court system and..."

BRICS might have the wealth. Would you trust that it's going to be legally stable? I wouldn't.

But, in fairness, for the first time in my life I don't trust the US in that way either. I'm beginning to see it as possible that someday the president could make some arbitrary decision that takes everything I have. (Either this president or another - but it's this president who's making the precedents that make it possible.)

crossroadsguy2• 12 months ago

BRICS word includes India and China. So good luck with that :)

vasco• 12 months ago

Currency is backed by military, not courts. Courts are also backed by military.

crossroadsguy2• 12 months ago

Exactly. I can’t believe there are people on HN who believe the dollar becoming de facto currency had anything to do with USA’s savoury virtues, judicial or otherwise It didn’t “become”, it was forced.

yladiz• 12 months ago

That’s not really true, or at best reductive. The Eurozone does not have a military yet has a very valuable and relatively stable currency. Yes, various counties in the zone do have strong militaries, but it’s not the same as the body backing the currency having one.

Havoc2• 12 months ago

There is no viable alternative

But that doesn’t mean confidence in the dollar can’t die anyway before an alternative is found. Straight up chaos and collapse is a hopefully remote but real possibility.

Remember how the 2008 crisis was stopped? Strong messages from reserve banks that they’ll backstop and people believing them. That trick doesn’t work in the world author it’s describing.

dia802• 12 months ago

Even if the dollar was "dead" the time and effort required by the world economy to switch away from the dollar system would be enormous so not much is likely to happen quicker than a few decades.

saubeidl5• 12 months ago

I think a lot depends on whether the US keeps being an unreliable actor and thus a pain to deal with.

If there's enough pain, it'll outweigh the pain of switching.

dia802• 12 months ago

If you are using the dollar right now, what pain are you taking? None. What's actually happened? US added some tariffs and became a bit more isolationist and the Fed has lost some independence. Might not bode well for the future but has very little impact on today.

827a6• 12 months ago

People read FUD articles like this then start ignoring any common sense, including even their own senses, because apparently the world must be ending and we're all going to die. There's no pain. What pain is anyone (except a couple dictators under sanctions) feeling?

Almost every major currency has lost value relative to the US Dollar over the past 10 years. Not just, like, a little bit. Like, a lot a bit. The Indian Rupee has lost 53% since 2007. Yen, down. Pound, down. Canada, down. That's reality. There is no "switching to avoid devaluation of the USD" when the USD has devalued so much less than almost any other currency on the planet.

One major country that has managed to maintain the value of their currency relative to the USD is China. Who has by some estimates a ~300%+ debt to GDP load (if you think that number is too high, its because whatever estimates you've read before didn't take into account municipal debt, because that's where China hides it). And a 72 year old leader with zero politically-feasible line of succession. And a critically shrinking population. And literally zero global military force projection. Any faith that any country puts into China is going to be destroyed just a few short years after Xi's death; the main thing China has going for it isn't their manufacturing base, AI strategy, or whatever; its that Xi hopefully won't die in the next decade.

shiandow• 12 months ago

Substack has got to be the worst medium for articles with graphs. There seems to be no way to zoom in or view a larger version of tge image.

echoangle• 12 months ago

The graphs are just images, and tapping them opens a lightbox for me. On desktop you could also just right click and open the image in a new tab and zoom there, and on mobile you can just zoom on the page itself.

vinnymac• 12 months ago

I don’t disagree.

I usually pipe Substack to markdown and then just open it in my favorite markdown reader.

https://www.substacktools.com/downloader

daft_pink2• 12 months ago

I think that people and countries not wanting to purchase 30 year long term debt in a zero interest rate environment is perfectly natural. There is far more potential downside than upside and not evidence of demise.

Reality is that there is little motivation to invest in long term debt under 3%, normal motivation to invest in debt between 5-10% and huge appetite for debt above 10%.

Debt with a sub 2% interest rate can only be achieved with significant government intervention. We were living in an unrealistic economoic reality and now we’re going back towards something realistic with interest rates between 5-10%.

crooked-v3• 12 months ago

I think the US is particularly crazy about it because ultra-low interest rates allowed the country to temporarily paper over the realities of the nationwide housing shortage and resulting housing prices, and now everybody's getting slapped in the face with more realistic mortgage terms again.

ethbr110• 12 months ago

Eh. That was only true before the price hikes caused by those ultra low rates.

If everyone has access to ultra low rates, housing supply prices rapidly increase to match demand, and you reach a new equilibrium (albeit with higher price:income multiples).

So it’s not papering over anything — it just goosed housing prices higher.

herbst• 12 months ago

Not wanting is good. From Europe POV the countries got pressured into contracts that they know were bad.

It's closer to a cold war situation than just "selling dept"

lvl1555• 12 months ago

USD strength comes from military. Just as it was the case with all other currencies in the past. Do you see anyone challenging the US in a conflict? China won’t even invade Taiwan because they are afraid. ‘Nuff said.

senko• 12 months ago

What, if I (a European) decide not to buy American treasuries, a squad of Marines is going to bust my front door?

cuuupid• 12 months ago

What will you buy instead? The point is that the dollar is strong not purely because the American economy has been (and continues to be) the largest on the planet, but also because it is not currently possible to topple the US since its global activities are tied strongly to its military.

The only realistic options that exist at the moment are going back to the gold standard (not viable for most countries) or shifting to the yen (which is tied to the dollar as Japan is the largest holder of treasuries).

hdgvhicv3• 12 months ago

If you decided to trade oil in euros then a squad of aircraft carriers parks off your coast

lvl1555• 12 months ago

No, we just won’t rescue you next time you guys do stupid things.

energy1233• 12 months ago

No, but that military might turn a blind eye when your trade routes are threatened, or might decide to offshore balance against you.

Liberals are like libertarians in this regard. Housecats that don't understand what the actual source of stability and prosperity is.

bix62• 12 months ago

My friends in Taiwan think they will be invaded before 2030 so we’ll see

PartiallyTyped2• 12 months ago

There's been a spike in news articles on the invasion the last couple of weeks. Given that the US appears to not hold on to any alliances or assurances, and ~~incontinent~~ incompetent in chief is on the helm, it seems that they've the perfect opportunity. Europe's busy with Russia, US is busy with itself, so honestly, why not?

etempleton4• 12 months ago

If the PRC were to do it, I would imagine you would try to do it under the Trump administration as he is anti-interventionist and sees the world as a series of regional fiefdoms led by the strongest regional player--Asia, to him, is China's region. This is in sharp contrast to every prior US administration and with the Biden administration in particular coming out with the strongest rhetoric regarding any potential invasion.

lvl1555• 12 months ago

They won’t do it until they actually know how to make SOTA AI chips which won’t be for a very long time.

bootsmann4• 12 months ago

The dollar has lost 15% vis-a-vis the euro this year, how does your theory explain this?

TrackerFF• 12 months ago

There's a sitting POTUS that wants to devalue the dollar, in order to stimulate domestic production, and exports.

"But what about the stuff that the factories import, to produce anything?" one might ask. Well, Trump wants no such imports - he wants the people selling stuff to the US, to relocate to the US.

Note: I'm not in favor for what Trump tries to do, but it explains why there's so little concern for the dropping dollar.

lvl1555• 12 months ago

It lost 15% because Trump is undermining the US? What’s there to explain? Does US still have its military? Yes. Do you think currencies stay completely stagnant over even one week? It’s driven by a myriad of market forces.

almost_usual2• 12 months ago

Arguably USD strength comes from geography.

Workaccount22• 12 months ago

The country is getting forced by markets into realizing pain for overspending, and only congress can manage this pain. Manage the pain, not remove it is key here. Manage it.

Conrgess is totally inept and ridiculously politicized, so it's unlikely they will do anything except make the problem worse.

That leaves only the natural fall out of refusing to acknowledge a financial injury before going out on the field to play hard for your voters.

Inflation. The US will be forced, it will not decide, but be forced, to inflate away its debt. Which means that people who cannot bury their wealth in (non-treasury!) assets will pay off the debt.

lotsofpulp3• 12 months ago

Which means that people who cannot bury their wealth in (non-treasury!) assets will pay off the debt.

I.e. people who need to work, which means it disproportionately affects the young.

This is what has to happen in a democratic society with a flattened and eventual top heavy population pyramid that will not vote to reduce old people benefits.

hdgvhicv3• 12 months ago

Workers will see higher wages as there is more work and fewer people to do the work

Everyone will see higher prices as the costs of work increase

Interest rates will be low as there’s no other option

AnthonyMouse4• 12 months ago

I.e. people who need to work, which means it disproportionately affects the young.

In general currency devaluation causes nominal wages to increase along with the price of everything else.

The people who get screwed are creditors, especially creditors who issued debt at a fixed interest rate. Which is kind of not that bad, except that creditors tend to have a lot of political power and then use it to either get bailed out by the taxpayer or get policies put in place to prevent inflation from eroding existing debts even if those policies have harsh consequences for other people.

sciencesama• 12 months ago

But how ??

nostromo10• 12 months ago

The issue is that all governments are in roughly the same situation, so there is no alternative other than maybe gold. The US doesn't need to be great or even good, it just needs to be better than the alternatives.

The issues facing China and the EU make America's spending problem look mild. (And I agree by the way: America has a massive spending problem.)

pavlov• 12 months ago

EU government debt to GDP ratio is 81.8% with a deficit of 2.9%.

US current debt to GDP is 124%, and Trump’s big beautiful bill is projected to increase the deficit to 7% next year.

America has long benefited from a more dynamic and attractive labor market than Europe, but the current administration is actively trying destroy that advantage by driving out the immigrants that were fueling it.

nostrademons• 12 months ago

That's not necessarily true - it's possible for all governments to fail. The winner might be something that doesn't even register as a government today, maybe something like privatized micro-nations out of Snow Crash, city-states, or a crypto-economy.

There are times in history when a government fails, and then there are times when all governments fail, and the world re-organizes (usually after a long and bloody period of multiple wars) into a new system of social organization. The idea of a modern nation-state is only about 150 years old, dating from a series of wars (the U.S. Civil War, the German and Italian wars of unification, the Franco-Prussian War, the Meiji Restoration) in the 1860s-1880s. Before then, the early nation states and concept of nationalism arose out of European Wars of Religion in the early 1600s. Someone who lived under high-Medieval feudalism c. 1300, when the divine right of Kings was a given, would've found the world of the late 1600s quite alien.

lisbbb3• 12 months ago

My budget disagrees--the inflation has been rough. We in the US need to be great, which means forcing our government to change.

phkahler• 12 months ago

Agree. But debt to GDP will continue to rise, and that eventually leads to something very bad.

TheOtherHobbes• 12 months ago

There is no "overspending." There is only undertaxing. The debt is literally just the accumulated difference between spending and taxation.

If extreme wealth was taxed, the debt would be zero. The point isn't even to "pay for spending" but to enforce a functional social contract, and to limit the political and democratic distortions created by extreme inequality.

"Markets" should not have a veto on policy in a democracy.

Making it non-zero is a policy choice. Inflating away this debt is also a policy choice. There is nothing accidental about this.

What will not be inflated away is personal debt. That will remain linked to inflation even after the currency is revalued, and will be captured from personal assets wherever possible.

tobias34• 12 months ago

Yeah, but for taxation you need state capacity to enforce it which was chainsawed/DOGED away.

hilsdev• 12 months ago

Why is the default to tax more and not spend less? Is there really no limit to the amount of spending the government should do? You see no possible use of resources that would be wasteful?

nostromo10• 12 months ago

Europe has repeatedly tried to soak the rich, and the results are always the same: the rich move their wealth somewhere else and you end up breaking even or even reducing your tax revenue.

France: https://www.theguardian.com/world/2014/dec/31/france-drops-7...

UK: https://obr.uk/box/effect-of-the-additional-rate-of-income-t...

Sweden: https://eml.berkeley.edu/~saez/course/seimAEJ17wealth.pdf

It's interesting to note that even when these tax schemes were repealed, the damage had already been done and the wealth did not return.

Here's a real plan for America:

Step 1: have a tax rate that's a little less than our peers

Step 2: return spending to pre-Covid rates circa 2019

alphazard2• 12 months ago

I'm not even sure if this is a serious post, but it indicates a significant misunderstanding.

There is an asymmetry between a government's revenue and its expenses. Revenue can increase arbitrarily if the government is allowed to take out unlimited debt. The amount a government can tax is limited first by the size of its country's economy. There is a maximum amount of revenue you can collect via taxation, and after a certain point increasing taxation decreases revenue. Countries also exist in the context of the rest of the world and there is a market for business. If the tax rate is not competitive businesses and people will leave, although this is over a longer time horizon.

In terms of the possibilities overspending is far more likely than undertaxing because you can spend an infinite amount, but you can only undershoot your optimal tax rate by a finite amount. Both are probably happening right now. The amount that the US government is undertaxing compared to its theoretical optimum might not even balance the current budget.

wtcactus• 12 months ago

Well, I argue with your point with mine then: there’s no under taxing, only over spending.

If extreme spending was cut, the debt would be zero.

AnthonyMouse4• 12 months ago

Federal receipts as a percent of GDP:

https://fred.stlouisfed.org/series/FYFRGDA188S

Basically unchanged for 70+ years, and far lower historically. Meanwhile significant growth in real GDP per capita and therefore real government receipts per capita.

The change isn't that the government is collecting less money. They get more than ever. But growth in government spending has outstripped it, and it has been getting worse rather than better.

NotGMan• 12 months ago

You think that Bezos and Musk have billions in their own personal bank account?

So what do you mean be "extreme wealth"? Companies? Dividend payouts? House? Yachts?

I agree that luxury items that are out of reach of the middle class (eg sport cars etc...) should be taxed highly, but a toy that a rich person can buy vs a rich person investing money into his own or other companies is a problem if you want to tax that since no-one will then create new companies and invest in R&D.

ponector• 12 months ago

> If extreme wealth was taxed, the debt would be zero

With current level of debt it does not matter. Taxes should be rised for everyone if huge cuts in expenses are not done.

amy_petrik• 12 months ago

"Markets" should not have a veto on policy in a democracy.

capitalism is meant to be organic thing like a bacteria. a self-organizing network. one cannot legislate nature, one cannot legislate human nature. Imagine making crimes illegal and then nobody committing crimes. Imagine making it illegal to change lanes without using your turn signal.

a democracy can give an antibiotic by dr. democracy to clear the infection, that is the nature of control here .. but if it's a nasty bug.. the bug will veto the doctor

DrScientist5• 12 months ago

There is no "overspending." There is only undertaxing. The debt is literally just the accumulated difference between spending and taxation.

There is obviously both - as you say it's the difference between two numbers - and sure how you portray that differences is often politicised - just as you are doing now.

Also remember there is borrowing in the equation - it's not just money in the system, but the ability to spend made up money today based on future promises, the with the rich benefitting from the interest on that debt.

ie those with assets benefit twice from a gap between spending and taxation - they get to not pay their way, and also get a nice return on lending the money then didn't pay in tax to pay for the necessary spending!

tnel77• 12 months ago

>There is no "overspending." There is only undertaxing.

This is quite the take.

Do you run your household as “there is no ‘overspending.’ There is only under-earning.”

sershe• 12 months ago

"If extreme wealth was taxed, the debt would be zero"

Do you have numbers for that? Even ignoring the issues with lots of wealth being paper wealth that cannot be translated into any kind of realized gains, and any 2nd order effects, the wealth (stock, can be depleted once) is not even in the same ballpark esp. given the deficit (flow, keeps happening).

aglavine• 12 months ago

Math doesn't support your claim.

SadErn• 12 months ago

You forget the imperialism option

DrScientist5• 12 months ago

The US will be forced, it will not decide, but be forced, to inflate away its debt. Which means that people who cannot bury their wealth in (non-treasury!) assets will pay off the debt.

There is also the chance of capital flight - and hyper inflation. The debt holders could also lose out remember - if the dollar becomes less valuable then any holdings in the dollar ( including debt ) become less valuable.

greyface-• 12 months ago

(non-treasury!) assets

What about TIPS and I bonds?

ksherlock• 12 months ago

Those are based on what the government says the inflation rate is, not on what the inflation rate is. The CPI is published by the BLS. Did you know that? Erika McEntarfer probably knew that.

dlcarrier• 12 months ago

I used to think that the dominance of the US dollar in world trade would fade as technologies like crytocurrencies rise, but the dominance of stablecoins pegged to the US dollar has shown that without, or even despite, policies and practices of the US government, society is adamant that USD be the reserve currency.

A_D_E_P_T2• 12 months ago

It's still early days. If the dollar suffers from any serious shocks, or inflation accelerates, stablecoins will peg themselves to something else, or to a basket of currencies or commodities. I don't see anything that stops them from jumping ship the minute the going gets tough, and it would presumably be irrational not to.

alphazard2• 12 months ago

The timing of a migration away from dollars will depend mostly on US fiscal and monetary policy. Better financial infrastructure on-chain isn't going to do it alone.

The stablecoins will absolutely accelerate the transition, so that when it does happen, it happens more quickly. Anyone with a stablecoin can transact on-chain for something else. And anyone holding stablecoins will be using an app that has familiarized them with the idea of alternate currencies and currency exchanges.

This is probably a good thing. A realistic not terrible scenario is a few year period where you have to pay attention to exchange rates, but your net-worth is mostly unaffected and at the end of it you're paying for groceries with something that's not USD.

s_ting7652• 12 months ago

Stablecoins !== USD.

Also USD's circulation in US markets has nothing to do with maintaining reserve currency status.

seydor• 12 months ago

Reserve currency may maintain its status even after the empire behind it has collapsed. America may decline but the dollar will go on for a number of decades

chasd00• 12 months ago

I’ve been reading this article for decades.

compiler-guy• 12 months ago

NPR’s Planet Money had a podcast about this a few months ago. I see several assertions and claims that it deals with made here without any evidence or discussion as to why.

TLDR: Yes the dollar is weakening as a reserve currency. But the decline has been long and slow and it is not clear what, if anything, will replace it.

https://www.npr.org/2025/05/09/1250191994/reserve-currency-d...

827a6• 12 months ago

But, but, if I say "it'll happen slowly and then all at once" it must be true, because its a pithy, fun phrase that sounds smart!

theturtle• 12 months ago

As my late grandfather would say, "who is this kid?"

bix62• 12 months ago

“The Dollar is Dead. Long live whatever comes next.”

So what will come next? It can’t be gold because we already tried that. I don’t see the West letting BRICS have it. Crypto seems too polarizing.

declan_roberts5• 12 months ago

What comes next is USA 2.0.

herval3• 12 months ago

Why does it have to be a single currency? The single-currency reserve is an artifact from the era where settlements required actual wads of cash shipped around. It’s also from an era where most other countries’ currencies were in flux and the dollar was the only non-risky option. This hasn’t been an issue for a few decades now, with euro, yen, pound, franc, etc proving they’re quite stable

With systems like Brazil’s Pix in place (which is supposedly gonna operate across latam countries soon), you can easily settle cross-bank instantly. Countries will then be able to build spot reserves on whatever currencies they need for trade directly, instead of an intermediate “stable” currency

mensetmanusman2• 12 months ago

Hopefully a basket of currencies, no need for one thing.

sparrish3• 12 months ago

Why can't it be gold again?

It was working pretty well for thousands of years.

cjs_ac• 12 months ago

The part where countries engage in warlike activities against each other to get their hands on more gold sounds like it would cause economic uncertainty.

originalvichy2• 12 months ago

It did not scale.

kesor• 12 months ago

Fiat currencies are like Unicorns and Santa Claus, they stop existing when people grow up and stop believing in them. And there is no need for a "replacement" (i.e. the nothing is better argument) or a need for "enforcement" (i.e. the military argument) or a need for a "system" (i.e. the rule-based-order & courts argument). Fiat currencies simply die off due to lack of trust and belief, and it often happens by way of Gresham's Law.

crooked-v3• 12 months ago

Fiat currencies are the "grown up" result of realizing that everything else in modern society depends on people believing in the social contract, and that doing the same with currency is both more stable and more predictable than having an economy that depends on the amounts currently available of arbitrarily chosen rare metals.

robocat3• 12 months ago

I would be interested to see if we could create an hours-worked currency.

Every person is given a similar amount of lifetime (only a few countries are exceptions).

Time can't inflate or deflate, is understood by all and easily measured, and it can't be stored. Taking it from others or trading it between people is difficult (we use money as a proxy instead).

Some obvious problems: quality of time, the value of different people's time is variable, retirement.

AnimalMuppet3• 12 months ago

For Gresham's Law, there has to be an alternative, which becomes a replacement.

carlosjobim• 12 months ago

As for the almighty dollar, you better believe in it even if you don't – or your country is getting bombed.

SubiculumCode2• 12 months ago

As long as I have to pay my taxes in dollars, I will have need of dollars. That fact gives it an inherent minimum value.

declan_roberts5• 12 months ago

The idea that a basket of foreign currencies or "BRIC+" will replace the dollar is absolutely not going to happen. If the dollar goes down it takes the entire world with it. Nobody is insulated from the risk of a dedollarization.

toomuchtodo6• 12 months ago

I’m somewhat confident in the Euro until India or Africa grows to be a potential competitor. Whether they can achieve a similar risk profile remains to be seen of course.

Russia is a non starter, and China is unlikely to make the political change necessary to be a reserve currency.

throwawaymaths3• 12 months ago

I’m somewhat confident in the Euro

out of curiosity, why do you believe that?

dyauspitr• 12 months ago

India is not going to happen for atleast a few decades and Africa isn’t even on the remotest horizon.

nostromo10• 12 months ago

If you think the US has a debt problem, the Eurozone is much worse. At least America has economic growth along with debt growth. The EU has slightly less debt but zero economic growth and almost zero population growth (and negative organic population growth).

Africa's GDP is tiny and will not a serious contender for any sort of reserve currency status for many decades. I can't imagine a wave of automation will do anything positive for most of Africa.

KaiserPro2• 12 months ago

idea that a basket of foreign currencies or "BRIC+" will replace the dollar is absolutely not going to happen

No it'll be renminbi, with the euro, if they are lucky as a distant second place.

declan_roberts5• 12 months ago

China simply cannot exist without the USA and unlike Russia they have no real natural resources to back up their currency.

tobias34• 12 months ago

China is more in a debt trap than even the US. Their only clean balance sheet is the central government balance sheet.

moogly• 12 months ago

The Swiss Franc perhaps?

satyrun• 12 months ago

It might help if I could actually convert to renminbi.

That is kind of a first step. You know, actually being able to convert from one currency to another.

stego-tech5• 12 months ago

Pretty much this. There is no “spare part” currency to swap in for the dollar and preserve the modern economy, here. The end of dollarization means the end of post-WW2 economic policy wholesale.

So what we’ll end up with is a post-WW2 supply chain but in a world where every currency dynamically floats, even the dollar. It’ll be a decade of price shocks, trade wars, and likely conflict as everyone vies to define the next era of economic power, until a smattering of core currencies (likely the Yuan, Euro, and Dollar) emerge on top for each respective region.

That’s my armchair theorycrafting, anyway.

sparrish3• 12 months ago

Those holding gold and silver may be insulated. Historically, it's a great hedge against hyperinflation (dedollarization).

lossolo3• 12 months ago

Things like this don’t happen overnight, just like the decline of empires doesn’t happen overnight.

Have you heard of the Portuguese real? Or the Spanish real? Maybe the Dutch guilder? They were all global reserve currencies in the past.

If you haven’t heard of them, don’t worry, someday, people will ask “Do you know the United States dollar?”

peterfirefly2• 12 months ago

I wonder what the Maria Theresa dollar of the future will be.

chasing0entropy5• 12 months ago

It's which came first the chicken or egg? The fall of the dollar will happen because anyone(everyone) with significant wealth will divest from the dollar CAUSING the de-dollarization. That's the point of the indicators.

frnkng• 12 months ago

Don’t forget that you also can invest in negative dollar by taking loans. Then, the reduction of purchasing power does actually benefit you.

So, whoever has significant wealth will do exactly this and take out loans to purchase productive assets and then, later on, pay back much less because the dollar lost value in the mean time.

This works out as long as the interest rate is lower then the actual annual loss in purchasing power.

s_ting7652• 12 months ago

If the dollar goes down it takes the entire world with it.

This has happened before. GFC 2008 comes to mind.

senectus12• 12 months ago

yeah but that was a hiccup compared to what may come.

jleyank• 12 months ago

Don't forget, the US is the lowest-taxed Western country, so they have lots of room (and lots of inherent wealth) to tax. Whether they have the political will to do this, or the political will to reduce Defence Spending is an open question. But it's not inevitable. Hell, they can always do what other countries have done and abrogate debt or pay it down pennies or quarters to the dollar. Would work once.

Or, the country can break up with each portion rearranging its financing and resources accordingly. There's a number of options, if people choose to think beyond the next social message post.

nostromo10• 12 months ago

Defense spending, moderate taxation, and a respect for private property is what makes the dollar a reserve currency to begin with.

Taxing wealth agressively and cutting defense would immediately kill the goose that lays the golden eggs.

foogazi• 12 months ago

Absolutely

robocat3• 12 months ago

the US is the lowest-taxed Western country

From 2021 but shows relatively how much tax is taken before you get your after-tax income:

https://www.brusselsreport.eu/2021/07/22/new-study-compares-...

stego-tech5• 12 months ago

One thing I desperately wish the markets would finally recognize is that the call is coming from inside the house: by letting private enterprise capture government, they are destroying the very currency that gives them power through unnecessary subsidies, preferential tax policies, socialization of losses and privatization of profits. Through corporate mass media manipulating voters and outright corruption in donations or associations with politicians, they did this to themselves.

Until markets begin penalizing companies receiving government funding (or whose workers disproportionately rely on welfare due to low wages) with shitty share prices and recognize which sectors should be private while which others should be public, this nonsense will continue unabated.

This is why I loathe believers in the mythos of “the invisible hand of the free market”: if said hand existed, it’s been firing shots into its mouth for decades and everyone in finance has seemed okay with that continuing.

herval3• 12 months ago

Does anyone NOT know that? Devaluing the dollar is literally the key item on the current president’s financial agenda, as they’ve explained repeatedly

stego-tech5• 12 months ago

Listening to my fellow Americans? Lots of them either don’t know that’s the policy, don’t know the consequences of such a policy, or want it because they believe it’ll harm their enemies.

abeppu• 12 months ago

Nit: Is anyone else annoyed by the trend of people using block quote formatting to emphasize their own topic sentences rather than to quote from another source? In addition to being visually annoying, to me it highlights that the author habitually doesn't interact with whatever literature exists (i.e. if they sometimes needed to quote a paragraph from another author, they wouldn't use block quote formatting in this way), which signals that they're more likely to be missing something that's well known to people in the field.

p_ing• 12 months ago

You see it on reddit quite a bit. I wonder where the author learned that style of writing from; certainly no institution that could teach one to properly write to an established literary style.

It's super annoying. There's no reason to bold the chosen text, or any text in this post. I mean, it's on substack ffs.

Worse is when authors use emojis in titles or text. Maybe we can blame tiktok brain rot or just gen-z in general. There's gotta be someone we can toss under the bus and I bet they don't know what cursive handwriting is!

(And technically this violates the HN rules)

mcphage• 12 months ago

Magazines do it a lot.

meindnoch• 12 months ago

Nuclear weapons will be used within our lifetime.

etempleton4• 12 months ago

The only thing saving the dollar is a lack of suitable replacement. Trust in the PRC is lower than even the current highly politicized United States, so the Yuan is out. The replacement could be an index of currents tied to G7 or BRICS countries, but that likely gets complicated.

throwawaymaths3• 12 months ago

specifically the yuan is out because of the capital controls on the currency. because of the massive population in china even a minor shift in currency control could cause huge swings in the reserve value.

SubiculumCode2• 12 months ago

But that is always the case, when one is dominant: No options are nearly as good. Maybe the.dollar is riskier than today, but are there any other countries less risky?

nhp_fermi2• 12 months ago

If the world continues to become more protectionist, does the USD need to be replaced by a single global reserve? It could just be a multi-polar period with a bunch of regional reserve currencies. Global liquidity backed by a single reserve isn't required if WTO dies, and trade is negotiated bilaterally

phillipcarter2• 12 months ago

I feel like there was a lot of analysis of signals in this blog, but at the end is the only thing that matters: The dollar has power if and only if belief in the vast US institutions holds. I would extend that to go beyond our government, as the US private sector and cultural outputs are also incredibly powerful in this world.

bombcar2• 12 months ago

Isn’t that true of all (fiat) currencies? Maybe even gold and silver somewhat, too? There’s a faith that the value tomorrow will be somewhat similar today; otherwise trade becomes much more difficult.

junto• 12 months ago

This is very true. I have confidence in a car driver that has many years of experience, acts consistently and rationally, does not overly hesitate and is confident in their capabilities. I do not trust a driver that appears drunk at the wheel. I would argue that the Fed is the last bastion of sanity in the madhouse. When that goes and no longer acts impartially, the drunk driver is the default.

Luker882• 12 months ago

I am reading the book from Ray Dalio, "Principles for Dealing with the Changing World Order".

This article seems a little reductive in its analysis, but this is actually a huge topic.

I have not finished the book yet, I don't claim to understand all its implications, but I really like it because it analyzes many empires over the centuries, and tries to track multiple determinants for all of them (also a lot of pretty graphs).

Very, very recommended book if you are interested in this topic.

Dalio analysis agrees that today China power is rising and the USA is weakening (duh). It is a slow progress, and the financial aspect is merely the last determinant to show this. Dalio however does not talk much about the future, aside from the obvious initial decline of the USA.

Many point to China as the next big empire, however it might not become it as China does not seem to be too interested in becoming the world money reserve (Dalio uses this as a necessary definition for an "empire"). Also while China has imported many ideas and culture from our world, the language and culture gap remains huge even today, and that inevitably limits influence and power.

These couple of things might allow for a longer time before the big change of power, and even let the west come up again.

What I love about the book is how clear the situation is even without pointing to specific, detailed situations, political or financial decisions.

The decline did not start yesterday, or just 4 or 5 years ago either. Education, competitiveness, inequality, even military paint a clear trajectory. It takes time. Dalio tentatively gives an average of 250 years between rise and fall of an empire, and we seem to have passed the peak decade or two ago.

I'm European, and it's also very clear how Europe will definitely not be the next power, either. Too fragmented, no cohesion, etc.

You can find a few graphs of the book on the web, it should give you a clear idea of the kind of analysis.

simonpure• 12 months ago

He also published animated video versions:

45min https://youtu.be/xguam0TKMw8

5min https://youtu.be/BB2r_eOjsPw

nilsherzig• 12 months ago

So this guy just takes the time and money (I guess that part doesn’t hurt if you’ve got 15 billion) to write a book and produce an excellent video version for a broader audience, just for … what exactly?

According to his Wikipedia his employees are forced to agree to continuous recordings, the NYT claims he does some sort of (i assume perfectly legal) insider trading and just acts like he’s got the perfect system in place, he defended the CCPs actions on multiple accessions and just in general does not seem like the type of guy to provide anything of value for free.

So can someone educate me on the angle? What’s the goal here?

And why would anyone read this and not get the feeling of being scammed. There is no way this guy is in it for the book sales.

Honestly I’m sometimes questioning my sanity while reading the comments of videos like this. There are people acting like he’s a modern Prometheus, sharing the knowledge of financial whatever. I would really be amazed if my cynicism turns out to be wrong on this one.

teamweightloss2• 12 months ago

Dalio analysis agrees that today China power is rising and the USA is weakening

Ray Dalio knows nothing. US just put tariffs on every other country in the world. And threatened China with 145% tariffs to get them to come to the table and open up Chinese market even more, even though China is in its own Great Depression right now.

Luker882• 12 months ago

Underestimate your enemy at your own peril, I guess.

Recognizing that China is much stronger than 10y ago does not mean supporting it.

Recognizing that the advantage the USA has is getting thinner does not mean liking it.

amai• 12 months ago

Ray Dalio is the shortvisioned guy who thinks Putin and Xi Jingping are great leaders to their countries. He probably would have said the same about Mussolini and Hitler.

Why do we keep listening to amoral fools like him?

childintime• 12 months ago

ok, Africa it is.

regnull2• 12 months ago

I think this argument suffers from the same problem as many arguments of similar kind. It goes like this: if A then B. If B then C. If C then D. It all makes sense. Every single one of these steps makes sense. Except, if you have a chain with five steps and every one of them has a 90% likelihood, the whole chain has only 60% likelihood. And it’s probably less the 90% for each step, in reality. So, you can come up with an entirely plausible reasoning chain, where each step is highly likely to come true, and yet be completely wrong with your overall conclusion.

mattwilsonn888• 12 months ago

Why is 90% for each step such an insurmountable probability?

Maybe it's completely unreasonable for you to assume the causation for each step isn't on the order of 99%. Your argument is too abstract to be a relevant rebuttal.

regnull2• 12 months ago

It’s a generic argument that can be applied to a whole class of claims. I see smart people falling into this trap all the time. Someone is making a claim by presenting a series of steps that seem quite reasonable. You then are left in a position where you can either: a) accept the overall conclusion, or b) attack the individual reasoning steps. All I’m doing is pointing out a possibility that your reasoning steps can be entirely plausible while your conclusion is completely wrong.

Esophagus4• 12 months ago

Meh… it’s easy for someone to string together a few charts and make a dramatic prediction. It’s telling that he hasn’t disclosed his positions or portfolio.

If “Skin in the Game” has taught us anything, it’s that if you want to know what a person really believes, don’t read their blog, look at their investment portfolio.

Ok… you think the dollar is going to “melt away in a fire”? How much do you believe that? Enough to put your own money on the line and place your bets? Is your money in real estate, then? Gold? BTC?

Because if you don’t believe a financial projection enough to put your own money into it, do you really believe it?

starmole4• 12 months ago

This article is initially very well written and convincing. And it started to stress me out a little bit! Am I at great risk for having most of my wealth tied to the dollar?

But taking a step back: It is making very strong predictions for a future state of what I would consider a chaotic system. As the author identifies as a Physicist and not a Psychic, why is there no mention of uncertainty? No mention of how you would test or refute the prediction?

Looking at very selectively picked graphs is like reading tea leaves.

If even just a few people read the article and change their investment strategy as a result you already affected the outcome.

saubeidl5• 12 months ago

Am I at great risk for having most of my wealth tied to the dollar?

Well, you lost 15% compared to Euros this year so far...

starmole4• 12 months ago

Lol, yes! I should take my dad's advice and buy forest land in Germany instead of US index funds. And this is not sarcastic - it might actually be the better strategy! But the article does not help me at all making that decision.

IAmGraydon3• 12 months ago

It's pretty obvious when I see this comment or others about the dollar losing value at a historic rate that the person commenting read it somewhere and doesn't actually understand the currency movement and has zero context. Your comment isn't even factually correct either - the USD is down 10.63% against the Euro this year, not 15%. Now to add a bit of context, it's up nearly 40% over the last 15 years against the Euro. The dollar is currently sitting at a level vs the Euro that is higher than 31 out of the last 45 years. It is at the same level it was in November 2021, which is still far above the mean.

Have a look at the dollar index since it's inception in 1967. Does it look like the dollar is plummeting to you?

https://www.tradingview.com/symbols/TVC-DXY/?timeframe=ALL

eric_cc• 12 months ago

Am I at great risk for having most of my wealth tied to the dollar?

You are guaranteed to fail, no question.

The dollar is a corrupted unit of value that is meant to pump assets and exert global control. Look at any dollar buying power chart to see what your future looks like - a never ending chart down.

dnlzro• 12 months ago

Unless you're holding only cash, why would that matter? Your real wealth can grow as long as you are holding assets that appreciate faster than the dollar depreciates.

disambiguation• 12 months ago

Others have looked more towards what a post-dollar world would look like: a gold-backed currency. A basket of commodities. A BRICS+ crypto-alternative. Bretton Woods 3.0.
All of it’s noise — and none of it matters.

I've been reading libertarian de dollarization doom posts since 2008.

The question is, if the system is so messed up, why does everyone continue to put up with it? It's exactly due to the lack of viable alternatives. So long as the American monetary system is the only game in town, it will remain the reserve currency regardless of the debt or strength of the dollar.

dh2022• 12 months ago

A post claiming that the dollar is dead without mentioning Trifflin’s dilemma [0] is not a serious post.

A post claiming the dollar is dead without explaining why a large freely traded currency backed by a large economy (I.e the Euro) did not take the dollar’s place is even less serious.

[0] https://en.wikipedia.org/wiki/Triffin_dilemma

nialv7• 12 months ago

OK. but how do i make money from this?

tim3332• 12 months ago

I don't buy the dollar being dead.

His main arguments are the politics are messy and there's a lot of debt. Such things have been true in the past over its 200 year plus history and yet it goes on. The US remains the world superpower and the center for its most valuable companies and the leader in new tech like AI. Things will go on.

The British Pound has existed since about the year 600, we had 250% debt to GDP after WW2 and all sorts of chaos over the years but the currency continues. Such things don't die easily.

lisbbb3• 12 months ago

But it is--it's been on fumes since the 1970s. We're in the final stages now.

bombcar2• 12 months ago

One minor problem is that we do weird things with “debt” that weren’t done before (like the SSA holding billions (trillions?) in debt, along with pensions, etc). It’s actually hard to make comparisons to 100 years ago in other countries because so many things are now monetized that weren’t before.

tim3332• 12 months ago

It wouldn't surprise me if the debt causes a financial crash a bit like 2006. Crashes happen pretty regularly and things are quite lined up for one of those - all it would likely take would be an AI plateau for example. Currencies dying are rare though. They can decline in importance like the pound, but generally plow on.

lavezzi• 12 months ago

Except this time you have Americans and insiders who wilfully want to kill it.

bawana3• 12 months ago

Why isnt Brazil being considered as an alternative? If they get their act together with Argentina, Chile, and Mexico to form a 'SouthAmerican Union', they could survive and thrive.

mikewarot• 12 months ago

I remember the feeling I had back when our receptionist told us she had gotten a real estate agent license, and was hoping to make more money in that profession, and that "real estate prices can never go down, they aren't making more of it"... Just before the crash of 2008

I get that same vibe when people say that BitCoin, StableCoins, or the US Dollar will be around forever.

While I'm tempted to think that a return to Gold and Silver is in the cards, I suspect that with modern markets, it'll be more than just those 2 metals, and might include MWh of electricity, barrels of oil, tons of coal, and many other commodities with a huge arbitrage market keeping trade liquid. (Much as it is with the various blockchain coins)

WealthVsSurvive• 12 months ago

Thats a funny way of saying killed with obvious malicious intent.

blurbleblurble• 12 months ago

Exactly

rootsudo• 12 months ago

Over the Past 90 days the euro gained 10% over the dollar.

Makes me think.

HumblyTossed• 12 months ago

Can we just skip to the part where we all grab our pitchforks already?

giardini• 12 months ago

This guy is funny: he's making 40-year predictions when we can't get a good 2-year prediction!

thedudeabides5• 12 months ago

Love it when people write a 2k word article on the death of the dollar and spend approximately 0 words outlining a viable alternative, either as the gobal reserve or US domestic currrency.

insane_dreamer• 12 months ago

By 2040, the U.S. dollar will no longer be the global reserve currency.

I would argue "no longer be the _primary_ global reserve currency", but go on, I'm listening ...

It might not even be the default unit of exchange for Americans back home.

This isn't a serious article; I don't have the time to read it.

pikseladam• 12 months ago

Dollar is not dead and not going anywhere. OP is just shocked that World is not fair.

ccorcos• 12 months ago

Can people help to fill in some of the gaps in this article? There are some striking claims that seem to have some basis in reality. But the article leaves a lot questions.

The the US dollar safe for now because of the lack of a viable alternative?

Seems like lowering interest rates and raising inflation is the only viable political solution. Sure, it causes issues with people financing our debt. But also, where else would they put their money?

Are there winners and losers here? Or does everyone lose?

How would the world work in an idealized free market without a reserve currency?

The Dollar Is Dead

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