Some material bits here - the US can’t run out of dollars so they can repay all of this debt, since it’s denominated in US dollars. The foreign countries can’t force the US to give them dollars in place of the bonds they hold, as far as I’m aware, since those bonds have predefined maturity dates. The US only has to pay their value in dollars as they come due. Which they can always pay. So bankruptcy from foreign debt isn’t on the cards. What foreign countries could do is not buy new US debt with the dollars the US pays them as bonds mature. That would leave the above mentioned dollars in international circulation and therefore devalue the dollar. And that would have implications on what the US can buy from other countries. Arguably this is the intended goal of Bessent and Miran. Although they were hoping to achieve it by getting other countries to appreciate their currencies against the dollar via Bretton Woods-style agreements.
Yeah that’s a related effect as far as I understand, but it depends on how the domestic debt market reacts, as in whether it absorbs the difference. Also it depends on whether the US government continues the policy of issuing debt when creating dollars. They could just stop doing that. They don’t need debt to finance spending, they’ve just historically done so. That said I don’t know if they’d actually do that since they’re ideologically opposed to this sort of monetary policy.
You are correct. “Bankrupt” is a little strong. But selling existing bonds back into the market while the U.S. is trying to issue new debt would not be great for America. I think dollar devaluation is 100% in the cards.
The us issues many different kinds of bonds some you can’t sell for 6 months at which point you can turn them in for cash at any point or wait forbthem to fully mature
They can certainly issue new dollars to pay them, but if they flood the market with new dollars, the value of the dollar drops, and inflation rises and market loses even more confidence in the value of the dollar.
The value of having a stable economy with stable dollar was ability to issue bonds on that amount. Nobody wants to get Russian ruble bonds atm. That isn’t quite the case for the USA, but the market of buyers has shrunk.
The reduction in value of the dollar relative to other currencies would occur pretty certainly and that’s something some in the Trump admin want because it would make US exports cheaper and therefore they expect it to reduce trade imbalance. Whether the extra dollars result in inflation is an open question. Increasing money supply does not automatically produce inflation. Inflation only occurs if the economy is at absolute capacity, that’s no more additional units of goods and services could be produced or rendered. This is rarely the case. In this case we’re talking about new dollars appearing outside of the US. Unless the US cannot export more units of goods and services than they do today, the prices of those goods and services wouldn’t increase as a result of the extra dollars. Instead the extra dollars would allow other countries to buy more goods and services from the US. E.g. more MS Azure cloud contracts, more OpenAI service contracts, more soybean, etc. That’s what Bessent wants. Whether these countries would do that or decide to just stash the dollars, or burn them, or use them to trade with other countries is an open question.
Firstly, the value of the dollar decreasing will increase the cost, in dollars, of all imports. The tariffs on top will add to this inflation.
Printing money doesn’t automatically lead to inflation but in a recession environment where less is being produced, it certainly does. The quantitative easing and money printing workdwide, due covid, led to the crazy inflation we saw. Certainly supply was a problem, but a reduction in trade between 2 giant economies is also going to cause those kinds of bottlenecks.
Add loss of faith in the dollar and this multiplies. Trump is destroying the dollars purchasing power which leads to inflation. All the while he’s killing jobs in public sector and private sector at the same time.
Firstly, the value of the dollar decreasing will increase the cost, in dollars, of all imports. The tariffs on top will add to this inflation.
Yes
Printing money doesn’t automatically lead to inflation but in a recession environment where less is being produced, it certainly does. The quantitative easing and money printing workdwide, due covid, led to the crazy inflation we saw. Certainly supply was a problem, but a reduction in trade between 2 giant economies is also going to cause those kinds of bottlenecks.
Disagree on two points. Depending on what the cause of a recession is, printing may or may not produce inflation. If a recession isn’t caused by a shortage of some real resource (e.g. oil) or reduced production capacity (e.g. physical destruction, mass death), printing money while there’s slack in production capacity does not cause inflation, it increases production via increased aggregate demand. The pandemic was a perfect example of having reduced production but no reduction in production capacity. The monetary stimulus kept aggregate demand from collapsing and production rapidly increased close to capacity once we reopened. That leads to the second point of disagreement. A few good analyses I’ve seen on this clocked stimulus at causing up to a quarter of the inflation we saw while the rest was caused by the significant increase in oil prices and corporate price gauging (record profits and all that). The outlets I’ve seen claiming it was mostly due to spending have typically been ideologically driven. Take that as you will. I won’t change my mind on this as I believe I’ve seen enough information on it. No hard feelings. ☺️
Add loss of faith in the dollar and this multiplies. Trump is destroying the dollars purchasing power which leads to inflation. All the while he’s killing jobs in public sector and private sector at the same time.
More for some items, less for others. It’s going to increase prices of imported goods as you said in your first point. It won’t increase the prices of domestically produced items. Of course many domestically produced items have imported components. Those that have more are going to go up to more than those that have less. And anywhere in-between. It’s probably impossible to accurately gauge the result but inflation is definitely going to occur as a result of the devaluation of the dollar within the US. With that said, and you’re not gonna like this, Trump would be able to offset that by printing money to increase wages to compensate for that. And that likely won’t cause additional inflation because the production capacity would remain unchanged. In fact he’d have to do it to avoid a decrease in the aggregate demand due to the reduction in real wages from the devaluation. Now I highly doubt his people are competent enough to do this and to do it right, as they could easily over or undershoot. 😂 They might even be ideologically opposed to doing it.
But don’t get me wrong, on the whole I think it’s going to be a shit show and they won’t be able to pull off what they’re trying to do and the US is gonna go into a dumpster fire stage. From the horribly targetted tariffs and the other damage unrelated to the trade war they’re doing. If anything I’d be losing more confidence in the US because of the latter, since tariffs can be reversed more easily than say the long term effects of destroying education on their labor force among other things.
Some material bits here - the US can’t run out of dollars so they can repay all of this debt, since it’s denominated in US dollars. The foreign countries can’t force the US to give them dollars in place of the bonds they hold, as far as I’m aware, since those bonds have predefined maturity dates. The US only has to pay their value in dollars as they come due. Which they can always pay. So bankruptcy from foreign debt isn’t on the cards. What foreign countries could do is not buy new US debt with the dollars the US pays them as bonds mature. That would leave the above mentioned dollars in international circulation and therefore devalue the dollar. And that would have implications on what the US can buy from other countries. Arguably this is the intended goal of Bessent and Miran. Although they were hoping to achieve it by getting other countries to appreciate their currencies against the dollar via Bretton Woods-style agreements.
There’s also the issue that the US needs to sell bonds at higher and higher yields just to convince them it’s worth the risk.
As far as I understand it (not an economist), that might lead to a debt spiral.
Yeah that’s a related effect as far as I understand, but it depends on how the domestic debt market reacts, as in whether it absorbs the difference. Also it depends on whether the US government continues the policy of issuing debt when creating dollars. They could just stop doing that. They don’t need debt to finance spending, they’ve just historically done so. That said I don’t know if they’d actually do that since they’re ideologically opposed to this sort of monetary policy.
You are correct. “Bankrupt” is a little strong. But selling existing bonds back into the market while the U.S. is trying to issue new debt would not be great for America. I think dollar devaluation is 100% in the cards.
Depending on the type of bond you absolutely can turn it in for dollars early.
Oh. Is that the kind of bonds the US government issues?
The us issues many different kinds of bonds some you can’t sell for 6 months at which point you can turn them in for cash at any point or wait forbthem to fully mature
They can certainly issue new dollars to pay them, but if they flood the market with new dollars, the value of the dollar drops, and inflation rises and market loses even more confidence in the value of the dollar.
The value of having a stable economy with stable dollar was ability to issue bonds on that amount. Nobody wants to get Russian ruble bonds atm. That isn’t quite the case for the USA, but the market of buyers has shrunk.
The reduction in value of the dollar relative to other currencies would occur pretty certainly and that’s something some in the Trump admin want because it would make US exports cheaper and therefore they expect it to reduce trade imbalance. Whether the extra dollars result in inflation is an open question. Increasing money supply does not automatically produce inflation. Inflation only occurs if the economy is at absolute capacity, that’s no more additional units of goods and services could be produced or rendered. This is rarely the case. In this case we’re talking about new dollars appearing outside of the US. Unless the US cannot export more units of goods and services than they do today, the prices of those goods and services wouldn’t increase as a result of the extra dollars. Instead the extra dollars would allow other countries to buy more goods and services from the US. E.g. more MS Azure cloud contracts, more OpenAI service contracts, more soybean, etc. That’s what Bessent wants. Whether these countries would do that or decide to just stash the dollars, or burn them, or use them to trade with other countries is an open question.
Firstly, the value of the dollar decreasing will increase the cost, in dollars, of all imports. The tariffs on top will add to this inflation.
Printing money doesn’t automatically lead to inflation but in a recession environment where less is being produced, it certainly does. The quantitative easing and money printing workdwide, due covid, led to the crazy inflation we saw. Certainly supply was a problem, but a reduction in trade between 2 giant economies is also going to cause those kinds of bottlenecks.
Add loss of faith in the dollar and this multiplies. Trump is destroying the dollars purchasing power which leads to inflation. All the while he’s killing jobs in public sector and private sector at the same time.
Yes
Disagree on two points. Depending on what the cause of a recession is, printing may or may not produce inflation. If a recession isn’t caused by a shortage of some real resource (e.g. oil) or reduced production capacity (e.g. physical destruction, mass death), printing money while there’s slack in production capacity does not cause inflation, it increases production via increased aggregate demand. The pandemic was a perfect example of having reduced production but no reduction in production capacity. The monetary stimulus kept aggregate demand from collapsing and production rapidly increased close to capacity once we reopened. That leads to the second point of disagreement. A few good analyses I’ve seen on this clocked stimulus at causing up to a quarter of the inflation we saw while the rest was caused by the significant increase in oil prices and corporate price gauging (record profits and all that). The outlets I’ve seen claiming it was mostly due to spending have typically been ideologically driven. Take that as you will. I won’t change my mind on this as I believe I’ve seen enough information on it. No hard feelings. ☺️
More for some items, less for others. It’s going to increase prices of imported goods as you said in your first point. It won’t increase the prices of domestically produced items. Of course many domestically produced items have imported components. Those that have more are going to go up to more than those that have less. And anywhere in-between. It’s probably impossible to accurately gauge the result but inflation is definitely going to occur as a result of the devaluation of the dollar within the US. With that said, and you’re not gonna like this, Trump would be able to offset that by printing money to increase wages to compensate for that. And that likely won’t cause additional inflation because the production capacity would remain unchanged. In fact he’d have to do it to avoid a decrease in the aggregate demand due to the reduction in real wages from the devaluation. Now I highly doubt his people are competent enough to do this and to do it right, as they could easily over or undershoot. 😂 They might even be ideologically opposed to doing it.
But don’t get me wrong, on the whole I think it’s going to be a shit show and they won’t be able to pull off what they’re trying to do and the US is gonna go into a dumpster fire stage. From the horribly targetted tariffs and the other damage unrelated to the trade war they’re doing. If anything I’d be losing more confidence in the US because of the latter, since tariffs can be reversed more easily than say the long term effects of destroying education on their labor force among other things.