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https://archive.is/C0uQr
I may misunderstand but the outcome feels like it would be morally equivalent to the US defaulting on its debt obligations. Asking people to trade existing collateral for a new kind and then revaluing the new kind just feels like over time, the debt holder winds up with less.
China holds $800b of US debt. It has some notional worth noting forex in euros or renminbi. If it's renegotiated into other forms and then revalued, they will hold less in renminbi or euro equivalents.
How does this differ from Greece or Argentina? Is this what the US economists and the federal bank really want?
A related question is how this would improve the Trump family debt and equity. I am guessing there is some plausible massive upside for Trump personally, not just his vision of the US economy.
Certainly after a US dollar is worth less $AUD things like Apple computers become cheap, assuming Apple doesn't reprice them...
The linked Steven Miran paper is worth reading.
https://www.hudsonbaycapital.com/documents/FG/hudsonbay/rese...
The TLDR is Miran sold to Trump US can Plaza Accord everyone, devalue USD to reindustrialize US, draw down US debt/commitments, keep exorbitant privelege... all by slapping tariffs (Trump's fav hammer) to scare countries into signing (converting) existing US commitments to "century bonds" in US favour while tying them to US orbit for foreseeable future. Is US strong enough to coerce others to sign on? IMO doesn't matter, this seems like plan specifically tailered to Trump preferences and ego, so as long as Trump thinks so Miran gets the job.
Thats awesome. It absolutely IS repudiating the existing debt. I wonder if in the current tariff war and 51st state the other economies can be sucked in? I would think most of the EU and APEC are going yea.. nah.
China on the other hand, might actually do the perverse thing. At this point, calling in the $800b probably can't work because Trump would just repudiate it out of hand. But, the conversion into some future debt instrument might recoup some cents in the dollar, so why not? After all, until America wakes up to how foxconn operates and puts people back into factories, they need what china has: cheap labour.
Meantime, trade alliances like the TPP which excluded America because it wasn't tilted in america's favour, seem to be doing ok. Maybe I can stop eating frito-lays made inside the continental 50 and enjoy the cheap knockoffs made in Vietnam?
A lot of headline noise is being made in Australia 'bout how we sucked the toe and did not get let off steel and aluminium tariffs. The net value of these exports to the USA is about 10% of our total. Its chicken-feed. It's lost in noise.
Say we lose them. we lost 10% of sales to a bad partner, and we can probably replace almost all of them selling to Europe or other places which are friendlier.
My reading is the restructuring is based on locking in existing US security+partnership system / hegemonic arrangement, i.e. century bonds primarily targets countries who "should" be paying for protection, i.e. it's not just about trade, it's about security, and notion that partners would still be more prosperous paying under US security model.
TLDR is hegemony too expensive, US moving from client system where US pays priveledges of hegemony (trade deficits, overseas military, security commitments) to a tributary system where vassals pay. TBH the system has logic, but it's a matter of value... people don't like paying for what they got for free, and US industry has learned to be very good at extraction. In the short/medium term, EU/US security partners committed to US military hardware, maybe the gamble is in lieu of alternatives, people would lock in century bonds to renew protection when they have "no coverage", which would be fine if US industries and geopolitics have also not shown to be good at wiggling out of commitments. Regardless 50 year free trial is over, it's subscription model hegemony now.
Either way PRC not going to be in the group. That 800B is going to get slowly wind down over time, but it's like... 2 weeks of GDP it really doesn't matter especially if it goes woosh in TW scenario someday.
I really wonder if the call on USD as a reserve asset class is being over stated. I accept people hold USD. And I accept a lot of trade is denominated in USD. But the EU and China both made overt public declarations of moving away from reliance on the USD as a reserve asset.
De-dollarization is a thing.