Trump wants to have and sell his dollars. Chip Somodevilla/Getty Images
Amid all the talk of tariffs, something far bigger is happening in the United States. Donald Trump’s current trade war is just one part of his team’s radical plan to realign the entire global economy and the dollar’s relationship in it — the biggest shift since Bretton Woods.
It is hard to exaggerate the role of the dollar in the global economy. It is the currency that holds the financial world together “in its inmost folds”, as Goethe put it in Faust. Since the Forties, the US has been the anchor of the global financial and monetary system. It’s a set-up that made sense at the time. It did so all the way up until the collapse of communism. But this millennium, it has become more like a Faustian bargain. It has allowed Europe and Asia to specialise in industrial production and dump their trade surpluses onto the US, and to a lesser extent the UK and Australia. America, meanwhile, has been only too happy to play along, running large trade deficits against the rest of the world. But this came at the cost of de-industrialisation — arguably the very reason Trump was first elected.
Economists mostly do not care about such imbalances. David Ricardo’s theory of comparative advantage suggests that everybody is better off when they specialise and open the borders to trade, and let the deficits and surpluses fall wherever they may. This Faustian bargain works until it hits big political obstacles. Obstacles like Trump.
The irony, then, is that even as it created the conditions for his election, the continued success of the global free trade system depended critically on Trump not getting elected. It depended on him not imposing tariffs on steel and aluminium, for example, or on threatening retaliatory tariffs over 200% on French wine and champagne. Now that part of the bargain is crumbling.
Trump is clearly not worried about global imbalances, or the sustainability of the global economic order. He thinks of trade balances like business deals. The country with the surplus is the winner. This is without a doubt the wrong way to think about, but Trump’s crude trade policies may be the only thing that spurs change. There is no way that China or Germany would ever voluntarily refrain from running export surpluses. They, like Trump, define their economic models in terms of trade balances. It will take a political sledgehammer to force them to change, which is what is happening right now.
The tariffs, though, are only one part of the story — the visible part of the bargain and the one that is receiving most of the media attention. But there is another, more important side to it, the financial side, in which the dollar underwrites the entire global economy. The current system means that when, say, Porsche exports a car to the US, two things are happening. The car moves from Germany to the US; the dollars move in the opposite direction. You could think of the transaction in a different way: Porsche is buying US dollars, and pays for the dollars by delivering cars. So when countries dump their exports on the US, they are buying US dollars. Accordingly, when a lot of foreign companies do this, the value of the dollar goes up. The dollar accounts for almost 60% of central bank reserves, but the US only accounts for 14% of the world’s economic output, if measured in purchasing power. But the dollar is not only the biggest currency. It is also one of the most overvalued. The two concepts, the global role of the dollar, and its relative value, are not the same, but they are linked. And this is where Team Trump sees an opportunity.
If the dollar is devalued, Porsche, in our example, would still get the same amount of dollars, but these dollars would be worth less. And Porsche would be powerless to do anything about it. This makes devaluation far more effective than tariffs from the US perspective. Tariffs are legally and procedurally complicated. Countries can, and do, retaliate. It is much harder to retaliate against a devaluation.
When I first heard that Trump’s finance team, led by Scott Bessent, the treasury secretary, was trying to devalue the dollar, it seemed that they had not thought this through. I thought this was the Achilles heel of Trump’s economic agenda because it seemed to have conflicting goals — to keep the dollar’s global predominance and reduce its value at the same time. How on earth could they do both? I put this down as an unresolved contradiction in Trump’s head. Like the English cake aphorism, you could describe it as having your dollar and selling it — something only Trump would do.
The reason Trump cares about having his dollars is not to support the global economy, but because of its geopolitical power. There is no other currency that could take its role. The second largest currency in the world is the euro. It accounts for some 20% of global reserves. But the Europeans are not equipped to play the role the US is now leaving vacant.
I hear a lot of nonsense about the EU as the new leader of the Western world. But Europe has ageing populations, and its economy is much less innovative than those of the US and China. The EU depends on other countries to buy its exports. It does not suck in foreign capital as the US has done. Unlike the US, the EU does not have the equivalent of US treasury securities, government bonds with a reputation of being the safest assets on earth. The EU has a monetary union, but it lacks a political union. Nor does it have a large capital market. It lacks the infrastructure of a global economic power.
Given Europe’s weakness, Trump’s goal to devalue the dollar and to maintain the dollar’s global role might not be as contradictory as at first seems. It does beg the question though, if the world diversifies away from the dollar, and if the euro cannot absorb this, who else will?
Enter crypto-currencies. Is this perhaps why Trump has just signed an executive order to create a strategic crypto reserve, very much like the strategic petroleum reserve which the US set up in the Seventies after the oil crisis? Crypto is purely ethereal, not backed by any assets. Fiat money, like the US dollar, is also not backed by assets. Our currencies are issued by governments. Money, whether fiat or crypto, relies on trust. The French philosopher Jean-Jacques Rousseau talked about money as a social contract. I always thought of this as a more useful definition than the much narrower point of view of economics, which defines money as providing three services: to act as a medium of exchange, a store of value and a unit of account. This does not capture the bigger picture: if we lose trust in our own money, we use someone else’s. Given the central banks’ failings since the crash, it is perfectly reasonable for people to be sceptical about money. It is also rational for people to be sceptical about crypto currencies like Bitcoin. They are highly volatile, so they are not really a store of value. They are definitely not a unit of account. And you cannot go to most shops and pay in crypto.
But crypto currencies have one killer feature: their supply is fixed by algorithm. People still dig for gold and find some. They might even find some on Mars, if they started digging there. But they are not going to find any Bitcoin. There is no central bank in the crypto universe. There are no economists involved — perhaps one of the reasons economists hate crypto with such a passion.
Crypto, then, is well placed to play an important part in the global dollar detox story, as we move towards a different monetary system. Apart from setting up a strategic crypto reserve, the US administration and Congress are about to implement a regime of ultra-light crypto regulation. This may be the answer to how Team Trump is going to address the dollar-cakeism problem. If foreigners diversify away from the dollar and move towards crypto, then the US would stay in control: the dollar remains the number one fiat currency, and the global crypto market is also concentrated on the US. Either way, Trump wins.
Such tactics are borne out by the emergence of what is sometimes referred to as the Mar-a-Lago accord, whereby the US will no longer play the anchor of the global monetary and financial system. Europeans will not only have to wean themselves off the US for defence, but also for finance and trade. It would be the biggest shift in the global economy since the 1944 Bretton Woods accord. That system went through various mutations, originally based on gold, but throughout this entire period, the dollar was the lynchpin. Before the Americans, the pound was the global reserve currency. But before that, there were no backstops. From the Greek empire all the way to Napoleon, European rulers issued coins made from precious metals, mostly gold and silver. With the US no longer willing to shoulder the responsibility of keeping the system going, we may well be returning to that world, except in today’s world, crypto is the new gold.
The brains behind this transition is Bessent. He is the guy who did the critical analytic work that allowed George Soros to carry out his infamous assault on the pound in 1992 — one of the most devastating acts of financial speculation of all time. Earlier this month, he stated clearly that “international economic relations that do not work for the American people must be re-examined”.
It’s a realignment that carries serious risks. It reminds me of that point in Christopher Nolan’s Oppenheimer when a scientist asked whether a nuclear bomb could unleash an atmospheric chain reaction that could destroy the world. The answer he gave was: possibly, but unlikely. Similarly, here, nobody can rule out the possibility that the sudden withdrawal of the US as the global financial anchor could lead to a catastrophic financial meltdown. It might be possible. It might be unlikely. But what is significant is that for the first time in 80 years, someone is seriously trying to make it happen.
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SubscribeHmmm. Fiat currencies and crypto differ in one very important aspect, the former are backed by economies, the latter by absolutely nothing. When you buy a dollar you are buying the expectation that the US economy will continue to growth and thrive and that the Fed will not renege on the interest on its T bills. Bitcoin is just a bunch of ones and zeros.
That said, I wonder if there is really any strategy at all with Trump administration; it looks a bit like a scrabble bag of letters being pulled out randomly to spell some policies. A falling dollar would be bad for China as it would reduce their ability to export their deflation. It would be bad for the EU because a strong euro destroys much chance of productive and export driven recovery in the eurozone, so they may be forced into competitive interest rate reductions just when they need to fund increased defence spending. Frankly none of this feels very stable. Challenging times ahead I fear, so the UK is lucky to have a world class government of all the talents to navigate the nation through the choppy waters ahead …. Oh, wait ….
(at this point the author retired to his study with a bottle of whisky and a revolver.)
I do think people sometimes try and read too much into Trumps actions, as I can’t for one second imagine he’s gone in for anything as remotely complicated and insecure as this chain of events.
I think it’s simply he sees trade as a zero sum game, whereby if you don’t have a surplus you’re losing and he wants to correct that.
Being born a billionaire means he’s never had to worry about his companies failing so he’s been able to be very aggressive (to the point of recklessness) in his business dealings, knowing 9 times out of 10 the other company would blink first. I’m not sure how successful a strategy this will be though when dealing with nations of indignant voters
Agreed. Too many picture Trump as some kind of “Bond-villain” type genius character. I find I get closest to predicting what he is going to do when I picture him as a 300 pound orange toddler.
You might just have a bias.
Trump clearly sees de-industrialisation and the US (and our) growing dependence on Chinese technology as a security threat. And he is correct to do so.
I’m sure putting tariffs on his allies such as Canada while threatening to annex Danish territory will really help put the Chinese in their place!
Allies? – you seen the street price of junk, meth and even weed in CA – they may never match the Mejicanos for courage, wit and energy but for some strange reason they can sure as hell beat them on price. There was a sitcom in UK long before the regime outlawed free speech – the PM was aghast about a security breach that showed UK nukes to be Potemkins (fake) His chief adviser said we must close this down and unite against the common enemy. The PM says, in hushed tones: “What, the Russians?!” his lackey responds: “Nooo, the French”. Keep your friends close and your enemies closer, the generals told Sun Tzu. CA govt is a serious security threat to all free peoples of the world from Taiwan to Seoul (heading east). I do not think the Canucks themselves are a threat – like the Germans in the 30s they are as much victims of their leaders as their external opponents. Danish govt is only a threat if you are unlucky enough to be in the dairy industry – their govt & farmers union runs arla which undercuts other countries dairy markets only to destroy them. IMO firms like that do not need tariffs, they need gaoled – in El Salvador.
And how much of that stuff comes from Canada or Europe?
Drugs come from Mexico into America, guns go from America to Mexico. Perhaps the yanks need to secure their own side first?
China to Canada to America. Apparently.
Well IME Canada is way richer than Mex but for some reason their drugs are cheaper both in actual and per capita income terms from street to reseller to distributor. Production price is similar BUT re-sale is cheaper? WTF – its the reverse of economies like Norway or UK where its costly to make and more so to sell.. maybe CA dealers are all wokie CO-OPS and sell for free, maaaan!
Shave off Mme Trudeau’s brownface beard and in the words of Scooby Doo “Yikes Shaggy. it was the Sherriff all along” . I would advise readers to open a TOR account, get on ” a well known online market” and acquaint yourselves with prices. Doesn’t stack up. Esp CA/NSDAP having no legal basis to exist: No freedom of arms against state violence YET: Loads of 1%er gangs in CA who disagree – nor sure what the CA version of Appalachia is but i doubt they destroy their neighbour for a dime bag? (aplogies to Darrel Lance Abbott). This is a replay of reagan v crack, bushes v afghan smack biden v latam coke. Fake. Yet the govts will always lose ffs?
Almost no fentanyl crosses the border from Canada to the US. It’s a totally made up excuse.
Elon is first buddy though.
I’ve spent the better part of the last decade considering Trump as a bumbling oaf who had almost no idea what he was doing and no understanding of anything. After the past year or so, I have begun to hedge my criticism. The people Trump has gathered about him are a formidable team. I can’t imagine them joining him if they thought he was simply an unpredictable fool who would run the US into the ground. Why would one hitch one’s wagon to a dead horse? I suppose they could ALL be idiots, but this becomes hard to sustain with people like Bessent, Rubio, Vance, and Musk who are clearly not fools.
Further, Trump has already dealt with one nation of indignant voters, turning their anger into his own movement. The media, the establishment, the internationalists, chose to fight him and sought to destroy him. I can’t help but notice that he’s still standing, and they’re not. The legacy media have damaged their credibility in a way that can’t be undone and the American people distrust Wall Street and corporate America to such a degree that they are becoming toxic politically. What his plans are internationally I do not know, but I think it unwise to underestimate him more than I already have.
I think it’s more that they thought he would win so hitched themselves to his campaign accordingly.
Much like how Starmer went from championing Corbyn to kicking him off the Labour benches, or Vance went from calling Trump a nazi to serving as his attack dog. The bulk of them are driven by nothing more than their own ego, and see a chance if advancement if the hitch themselves to the winning team
My thoughts too.
A very realistic comment, especially on crypto but also on strategy. What this article fails to mention is that the US cannot live within its means and continue with low taxation. Trump is a brand manager driven by the desire to be revered. He wants everything he says to make an impact. It has succeeded in getting him to where he is. There is no Trump ideology. There is an ideology in Project 2025 and its adherents are embedded in Trump’s team. It has an objective to take the US back to the values of the 1950’s. It supports slash and burn to speed the process up. It does not support tariffs. It focusses defence against China but wants Europe to support it, in part by looking after itself. It is concerned about Russia. It will not confront Trump, not yet at least. It will discreetly steer him away from the outrageous. It is focussed on the next presidency and wants the mid terms to keep control of Congress – using the Trump brand if its rating is still high.
People have been predicting Bitcoin’s doom for a dozen years now and it seems like it will continue. In the crypto universe, Bitcoin is in a league of its own. There are thousands of cryptos in the marketplace and thousands more to come. In my view, most of them are worthless or pump-and-dump scams with near limitless supplies in most cases. And, as the author says, currencies, fiat or otherwise, run on trust and, in my opinion, relative value. For instance, during scarcity, the value of goods increases relative to currency, which is expressed in terms of absurd price increases. Hence, the value of currency is the value the market imputes to it. Bitcoin’s been winning the battle with USD at least up to now.
One thing NONE touches on Bitcoin – its fine night asset hence there will be time when program runs into 0. No more mining of it so it will remain an asset of sorts but never sound money. Gold is and remains as only sound money.
And has lost against gold in the last while.
Great start – but why not answer your own question? and why would a falling $ hurt China? -cos they own a large % of the T Bills. Its a Mexican stand off with the powerful actors like PRC and India, EU sort of in the middle. UK and Russia and others like them are just bit part players – economies smaller than many big US and Saudi co’s. Lots of noise but really empty vessels
The suggestion that Trump understands what is going on in international finance markets is absurd. He is brainless, incompetent and doddery. He is like a kid with a six shooter taking pot shots at anything that moves. Financial markets remain stable when there is some predictability on their movement, what Trump has created is the very opposite. None of this bodes well as we drift into a period of the blind leading the blind and no one has any idea of where it may end up. It’s just a poker games with big Macs on the side, and make believe money on the table.
Is there a clever Unherd Reader and a dumb one? Whatever. Please change your user name.
There are in fact two posters using the same handle.
Excellent essay. I don’t understand nearly any of it, but it’s the type of heterodox argument that makes publications like Unherd so interesting and informative.
That was exactly my reaction to this essay even though I can’t assess the author’s thesis. I do wonder, though, how anyone “controls” crypto? Isn’t one of its features is its totally decentralized? How will it be to the long-term benefit of the US if crypto becomes a dominant currency? For now, the major crypto markets are run by US companies (I think), but that could change.
Bear in mind the author is inumerate so can’t understand that “value” is subjective at the asking price stage of the transaction and becomes objective once the transaction is formalised. Is a 20s Bugatti really worth $millions ( Not IMO – a cycle car with a de-tuned Miller straight 8?) But it gets worse – you could build a local hospital for the price of some “painting” that to me is simply kindling and i’d soomer wipe my behind with a leaf. The writer’smentality puts him in that world – not the real world of steel, copper and alli and their spot and future prices. Perhaps he should reach out to the offices of Steve Witkoff or DJT for assistance?
The author arrives at a number of conclusions based on false assumptions. I dont have the time to reassess the conclusions with the correct assumptions, but it might be worthwhile exercise for someone:
1 US imports from Germany, Europe, elsewhere etc are not dumped. Their rich wealthy consumers LOVE Porsche cars and lots of other things America don’t or aren’t very good at making. The self pitying assumption of ‘dumping’ is incorrect.
2 When the dollar devalues, the price of a Porsche goes up, in dollars. So that the amount of Euros received is the same. Its what happened during Brexit, with Pounds.
3 I live in Switzerland, there are many multinational corporations, many well educated people from many different backgrounds and countries, I try to keep on top of global events via WSJ, Times, Unherd etc and I have NEVER heard a lot of nonsense about the EU as the new leader of the Western world.
4) Fiat currencies are backed by a variety of concrete assets including transport infrastructure, education infrastructure, professional skills, wealth producing corporations, annual value of GDP etc. The authors assumptions are incorrect.
My assumptions are that the author hates Europe. Thats his problem, but he should try to keep his reporting accurate and not let his emotions cloud his judgement, unless his objective is to simply get other people to hate Europe as much as he does.
Yes, your point 2, I thought the author is completely misinformed.
3) I suspect such nonsense is limited to Brussels and von DL’s fantasies.
4) Again, spot on, whereas nothing backs crypto apart from a lot of techbro nonsense. But they say the same thing about AI, and how we’re all going to be unemployed tomorrow.
But the number of people now willing to pay the increased dollar price decreases, i.e. demand decreases, so the price of Porsches will go down…
Good point, although its product dependent. I doubt that would apply to a Porsche, although it might apply to goods which lower income families buy. In the case of German exports in general, that’s less likely to be the case, I would assume.
W/O govt subsidies Porsche sadly would not exist – pity as a flat out 935 thrill can only be matched on two wheels IMO. Sadly for F Porsches Snr and Jnr( both convicted war criminals) the 904 was probably the best old school and 917 thru 962 were the best overall. The value of collectors Porsches in USA far outweighs the GP of the VW subsidiary as it now exists. Nothing says “i’ve been burned” better than when your 997 door lock fails and it turns out to have an Audi A3 control unit and microswitches. I didn’t mind the beetle drive shafts and T2 anti roll bars on my 930s – they were low tech, did the job and smoked any Mk2 escorts, Ferraris or BMW E9s around. Bit gutted to then get shown the way home by Cosworths, Darrians and the odd Ginetta but tha’s engineering for you – the rest as, hamas linacre says, is politics.
IKR – AI FFS … Deepmind, Watson and very modern DCS systems are machine learners – so do match the basic definition of AI. Wordsearchers, predictive text or even fault tolerant IEC 60515 safety systems are NOT AI – they are designed and built by humans who are fallable, unless like the Pope Putin and Schturmer they pretend they’re not. Dare you to play me at chess herr schturmer! Loser has to drink hemlock.
Old, fake news – last time Stuttgart made a better car than a Mustang, Challenger or Corvette – it was air-cooled. I know, i’ve owned 930s, (great) 996s/981s (OK but unreliable/poorly made) AND SRTs/ 7gen ‘stangs. 2. See 1 above. 3. i’ve worked in (Deutsche) Suisse and OMG so far behind even the low tech Germans – never mind it being illegal to hang out your washing or play table tennis on sundays, i’ve seen things at well known skin care and food manufactures in Suisse that would make your toes curl – must’ve been all those Somalis, Middle Easterns and Indians they hired as “Engineers”. 4. All currencies are fiat, only barter is not.Some fiats are govt backed ( top down eg $s or Yuan) Others are independent -(bottom up eg heroin, gold or BTC) Your pays your money and takes your risk. The dumping is a consequence of both EUK/PRC/Can anti-USA practices and when there is an anti USA govt – eg Obama, O’bama and then O’Biden in USA they join in. The dumping is not of value added product eg cars or computers – its the raw materials and labor that make these products, which are illegally subsidized in E-UK and PRC.
The entire article is preposterous, an A-Level paper on ‘what I think on the dollar and money’.
”””I hear a lot of nonsense about the EU as the new leader of the Western world. ”””
Really? From who? The EU is ‘The sick man of Europe’, haha (the old name for the Ottoman empire before it dissolved into balkanized poverty and chaos) Everyone I watch says Europe and UK are doomed economically, and (and culturally) as Pepe Escobar (top international journalist) calls the European nations – yapping Chihuahuas.
But where to start on the Dollar as Reserve… well how about ””Euro Dollars””? Do you know most USA Dollars out in the world Never even saw USA? There are called Eurodollars – you see International Banks originate Loans in Dollars outside US! Money, Currency, is ”Loaned into Existence”, That is how it is created. Trillions of USD, $, are loaned into the international world.
Look – say you want to open a mine in Peru – you have to borrow $100,000,000 because all equipment, contractors, wages will have to be paid in $. A Non-USA international bank loans it, made in $. Now a hundred Million $ is ‘Created’, loaned into existence. NOW this must be serviced in $. So the owner has to get $, masses and masses of them to service his $ debt, and USA never had anything to do with it. It is part of what is called the Eurodollar economy. You could say ‘The Dollar has escaped into the wild’.
For Crypto, haha, watch Peter Schiff. This guy says they are unique because the total can be limited. BUT NOT how many Crypto Kinds! Millions of different cryptos can be conjured out of air! Tens of thousands have been – virtually every one worth Zero! This writer is thinking Bitcoin as it has actual prices on the market – but why? Just make ‘Bitcoin Mark 2’, or ‘The Son Of Bitcoin’ and why is it not valuable? It can be identical but for the name. It is a fagauzi, it is nothing, it is an illusion, ones and zeros.
But I rant away…. This article is agenda, not reality….. it just takes sniping shots at different things, but can not make sense of anything.
“When the dollar devalues, the price of a Porsche goes up, in dollars.”
I think he meant the price of the Porche your’e buying stays the same in dollars, but the price of the NEXT Porche you buy goes up in dollars.
“Crypto is the new gold“. Crypto isn’t the “new gold”. Gold is a real thing. Crypto is a fake “asset” created by criminals for their own purposes (which explains why so many people at the “pointy end” of crypto are criminals).
Well, crypto per se is as real as the blockchain (ie as real as the mathematics that runs your iPhone or PC); but getting money out of the maths and into your pocket is where I get nervous, because that is where the pointy end criminals make their living.
Time for Tyburn methinks.
Gold will never work as a currency backing the way it once did because it’s now also a commodity used in electronics manufacturing. Gold came to be used as a medium of exchange and a symbol of wealth and value because of it’s permanence. It doesn’t rust, decay, or tarnish as quickly as other metals do, thus can be held as an asset nearly indefinitely. On the other hand, it’s too soft for tools and weapons. It’s not even all that practical for everyday use items like utensils, bowls, glasses, etc.. That’s the reason we have ‘silverware’ rather than ‘goldware’. People came to use it for ornamentation because it became symbolic of wealth and power, so by gilding the walls of their mansion, they could show how much wealth they could afford to waste on frivolities. Now that gold is actually used for something, and it’s use is increasing, it’s basically a commodity like all the others. Backing currency with gold would be no different than backing it with steel, lithium, silicon, lumber, water, grain, or any other commodity, or backing currency by government fiat, which in essence captures all these things and more under the umbrella of a national economy.
Crypto might work, but I don’t trust the people running that system, either. There’s really no way to sever currency from risks of inflation/deflation or political chaos these days. One can invest, and gold may or may not be a good investment, but there’s essentially no way to guarantee the integrity of any currency.
“But crypto currencies have one killer feature: their supply is fixed by algorithm”
The supply of any given cryptocurrency may be fixed, but the number of cryptocurrencies is not.
And as long as the people taking care of the infrastructure aren’t fiddling with the algorithm in some way. Who would we trust with that?
So no different to fiat money then.
Well, these theories are speculative, but they are informed, and take into account the bigger picture, so they might be right. My thoughts are that Trump is focused on bringing inflation down inside of America, and he believes that cheap energy (brought by “drill baby drill” ) is the chief engine of doing this. That along with deregulation, a vision for and promotion of the internal American spirit of building, creating, manufacturing, inventing greatness.
Where the masses of Americans are that have just been waiting for the opportunity to finally spread their wings and move forward in the Trumpian manifest destiny of making America great again, I don’t know. The work ethic, the education system, the freedom of thought and hope for the future required within people to get up and go do these things has been long suppressed, misdirected, even punished.
Still, people are resilient, especially young people, and with the right vision and leadership perhaps things will turn around, but there are a lot of headwinds, including the whole former system and people associated with it that hates all of this.
As far as Trumps global economics. I think BRICS dedollarization scared him. If China suddenly dumped all its remaining US treasuries this might create a fire-sale of them around the world and crash the US economy. So, I see the strategic reserve and crypto first as Trumps emergency backup plan first, but if Trump decides to monetize all of the strategic assets (revalue gold?) including leasing land, there is the possibility that a big chunk of the debt (the highest interest debt for example) that is hanging over the US could be retired. This would give the Trump admin a little more economic headroom.
A weaker dollar is better for paying off debts accumulated with a stronger dollar for sure, but weak dollars can buy less goods, which there is another name for this, inflation. The big issue right now is a recession is already under way in the US that’s going to become more profound in the months ahead, so they’re going to need to do monetary easing, which will be great for weakening the dollar, but it comes with the price of greater inflation, so it’s a sort of catch 22. This will give Trump’s adversaries a lot of ammunition to attack him and seek to chip away at him. Still, underestimating Trump always proves to be a huge mistake, and it often plays to his advantage.
That is exactly what PRC said when Bush Jnr threatened to storm the Khyber pass because PRC wouldn’t fight the Taliban ( had their hands full with US and Russian backed Uigers). Burn the US bond certs with the coal was a frequent cry on PRC social media. Yes that would, in the immediate term, crash the $, but the knock on effect esp on the é and £ would be worse. Also 2nd para i hope is wrong. As Tom Jones remarked – “they told me Elvis is dead – well not in my house he isn’t”. Sure the visible meedja wealthy white reverse oreo yankees are thick sheeple, but the vast majority of US citizens have to work to keep the lights, the phone and their partners turned on ( thx, Coe, D.A) Thats a lot of people against a small no of inadequate deviants and wierdos who have no cred outside their perverted bubble. Even their Islamist and Russian allies hold them in contempt. Try explaining in Moscow or Jeddah how a many with a p***s and a hairy ***hole is a lady?
Bitcoin is not the way forward. Nothing stands behind it and its blockchain is massively expensive. Consider a thought experiment: the “ounce” is a currency which uses a permissionless blockchain identical to bitcoin’s but it is backed by a billion ounces of real gold. Would you rather have an Ounce, or a Bitcoin, backed by nothing? But then look at the ledger they both use; the transaction costs to cover the mining necessary for the permissionless blockchain amount to some 15%. Currently this is subsidised by the bitcoins awarded to miners, but not for much longer, but 15% transaction costs blows the Ounce (and Bitcoin) out of the water. Meanwhile traditional currencies are backed by the economies of the states issuing them. The Ounce, backed by tokenized gold, would have a future on a permissioned blockchain as a stablecoin, but Bitcoin is an accident waiting to happen, no substance backing it and a hugely expensive ledger.
Wise words – blockchain is anti-enterprise in terms of it’s operation when combined with the BTC mining system. BTC needs to periodically rig the “entry” price of newly mined BTCs to prevent an ever inflationary spiral of BTC and a subsequent crash…This then unbalances transaction costs as well as enriching miners. EG if i bought $50 worth of drugs using BTC my network fee would likely be $5-10, due to the time + energy taken to mine the coins and process the blockchain. If i bought $500 worth it would be c$1.50. There was a coin called BitGold that did as you describe but IIRC it was a con? i made a few $s on it early on but got a tip off it was another Mt Gox, and bailed, for U$Ds lol. The arrivistes got burned. Blockchain works for transactional management based on regulated currencies – i use banks in UK, EU and USA who use the system – but purely as tracing reference numbers for back office transactions. So no risk of mining costs or network fees disrupting our trades. Same system exists for traceability in medicines and stock trades – if you see eg a617e10aea62df9875c300a4fef9856eb737b791c2ba597476acc23abf5b2ea96 as a ref no its probably blockchain. BTC may reform, or fail. More likely to reform if it becomes too big to fail – current mkt cap $ 1.66trn so its defacto too big to fail already?
Good article. Just a couple of points. Bitcoin is the only relevent “crypto” here. The others have consistently failed relative to it. Etherium is the best example – once up near i think 60% market cap of bitcoin it is now around 10%. Bitcoin dominates ” crypto” because it is decentralised and simple.
I also think gold is relevent to the new system. US gold is moving out of Europe at present and soaring in value so i see more of a move to gold in the short term.
Ultimately, like the author, I dont foresee how this will play out internationally. But if we do move to a neutral money that governments cant print, you do want to have industry, raw materials and a peaceful unified society pulling together. I think the Trump team know this. They hope to have a 5 year period to reshore and reindustrialise as the doller ( and treasuries) fails as a reserve asset. So probably time for another round more quantative easing while assets, bitcoin and gold soar, the us buys its own bonds and then at some point we move back to hard money under the weight of inflation ( basically noone will want the doller even as everyone borrows it to buy hard assets.
Ricardian trade theory only holds in the long run if an economy has comparative advantage itself in sufficient goods to generate an income to pay for the goods in which it hasn’t. The US has defied this by the simple mechanism of paying for its imports in IOUs for which it maintains an artificial demand at gunpoint and other mechanisms via the petrodollar regime. The UK, equally incontinent, pays it way by selling off its prime assets to foreigners and being the money laundering capital of the world. Not a sustainable strategy.
The question of what might replace the dollar as a global reserve currency is misplaced – it is not obvious that it would be replaced directly. I suggest it more likely that we break up into trading blocks, with the dollar continuing to dominate its vassal states aka “The West”, whilst the rest of the world weans itself off the dollar. Overuse of dollar sanctions accelerate this process, as does the move to confiscate Russia financial assets in the West. The latter has provoked sharp reactions from countries with at least a foot in the Western camp like Turkey and Saudi Arabia little reported in Western media. If the deal that the US has with the Saudis broke down – charge for oil in dollars and recycle it back to us – it would be a significant step toward eroding dollar hegemony.
Lastly, there is no need for a global reserve currency – as Keyes pointed out at Bretton Woods. His suggestions had no hope simply because the US wanted to dominate the post world financial system.
True but incidental to the ecomonic war against the US being waged by its “allies” in EU-K, CA, Mex etc and its foes in BRICs?
“The sky is falling, the sky is falling”. I now look forward to these ubiqutious possible doomsday articles, which provides my morning chuckle. If you believe every article like this, hit piece against Trump or not, you might as well give up and just wait for armageddon. Of course, these folks are paid to sow panic, anger, etc, etc, and etc. Chill, relax, and use some critical thinking skills to guide your family and you through the next year or so. Things will change, my take is for the better but there will be disruptions. That is what the world needs at this point, a good audit of how things are really working and what we are going to do to fix them.
This Summer: Trump Speedman in Fiat Scorcher VI: Global Meltdown.
“Here we go again…again.”
Trump’s mere presence has triggered meltdowns for more than 8 years now, so the overreaction to anything he says or does is hardly new. The shock to the system is from someone who came to office from outside of the usual halls of power. The fixation on the man ignores the reasons why someone like him was considered viable.
Like it or not, people notice govt dysfunction, whether it’s the DC uniparty or what’s happening in Europe, and erasing outcomes in which “far right” parties do well does not fool anyone. Bessent’s saying that “international economic relations that do not work for the American people must be re-examined” is something that any high-ranking official in an influential nation could say. If his counterpart in China said it, the smart money would take notice. When the Saudis talked of moving away from the petrodollar, that was not something that could be ignored.
….okay! Let’s hear it from The City boyos then!
Bessents number 1 personal holding is gold. He has said this. On the last pages of the recent bill to create a strategic bitcoin reserve is a mandate to revalue the gold certificates on the Treasury’s balance sheet from the current statutory $42.22/ oz to market ($3,000). The bullion banks are clearly under orders from US government to publicly destroy the LBMA, importing tons of gold into the Comex, to the extent that if it were anyone other than the US government, Comex would have changed the rules, like they did on the Hunt brothers. Central banks the world over have been buying record amounts of gold for years now. This author is missing a lot of signals/info here. Attention should be paid to gold, not crypto. Perhaps crypto was invented to get people to “look over there” not here at your rapidly devaluing dollar, until US is finished reshoring what it has lent out over the decades. A gold backed dollar on the blockchain may be a possibility.
Another couple of points: 1. The US is sitting on the largest amount of bitcoin seizures by the state …. 210k bitcoins and 2. Bessant will also revalue gold. This is not a binary policy; the administration is pulling several levers at the same time in order to achieve a wide range of objectives. Fintwit is also speculating that a recession is deliberate to 1. blame it on Biden before that excuse is lost and 2. get the Fed to bring down interest rates which will help with the debt burden. As Munchau says they are going to have to be lucky, but Bessant is super smart and Trump is a holder of multiple four-leafed clovers. Fascinating to watch the method in their madness.
When we say, “economists mostly don’t care about such imbalances,” we’re relying on our own theories, assuming everyone will play by the same rules. But the game is no longer between allies—it’s adversarial. That assumption is shortsighted.
People often claim the average person doesn’t understand economics. In reality, they do better than any journalists. Economics is just a more complex version of sports—high stakes, but the same principles. Strategy, counterstrategy, and control over the pace of play determine the winner.
Take an NBA analogy: America is on offense, China on defense. When two teams play with opposing strategies and can’t even agree on the rules, the team controlling the pace has the upper hand. Defense can slow the game, force mistakes, and dictate the tempo. That’s China’s advantage—it holds cryptocurrency and a trade surplus, while America has neither.
In the 1970s, tying the dollar to oil gave America control because China wasn’t yet a major player. But today’s China is a different entity altogether. Writers—especially at UnHerd, including you, Wolfgang—need to think beyond a Western perspective. Put yourself in the shoes of Chinese economists instead of assuming Western rules still apply. The world has changed, and if we don’t adjust, we’ll keep repeating the same tired arguments, like a cow chewing its cud.
There’s also a problem with Bessent-style thinking—the belief that one person can “fix” everything. Bessent succeeded in 1992 because he was operating in a world where markets were open to the U.S. The same logic applied to stopping Japan’s rise with the Plaza Accord.
But today, the game has shifted. We’re not dealing with open markets anymore. China isn’t fully accessible to the U.S., and that changes the strategy. China only needs to play defense—slow things down—while America, stuck on offense, keeps hitting a wall.
This isn’t a new revelation. Tariffs are canceling out the G7’s power. In the Plaza Accord, Europe played a role in the power game, but now it no longer can. The G7 is effectively neutralized, setting the stage for the U.S. to fight for a win from a very disadvantaged position otherwise, we would not even have this discussion if US was in a position of advantage!
Good read but most “crypto currencies” do not work like Bitcoin in being fixed in supply. And, Bitcoin is backed by the immense computational energy used to mine it, hence “proof of work”. Be good to dive into this before talking about it to avoid alienating your audience.
Yea… but… proof of work, say the pyramids made with slaves and donkeys took immense human/animal energy. But now days?
Computational energy is on the move too. AI will get fast at this, maybe fusion for energy too –
I have gold and silver, but my fear is AI will read every map of resources, learn to use new satellite and drones to find millions and millions of tons of metals and robots mine it, and poof – it is also not money.
Non-productive work. Like some kid spinning till he’s dizzy, or burning money.
Bit like the Canucks this guy struggles with year 3 math: If you sell me 4 units of product and i add 25% tariff the cost becomes 5. If i sellyou 2 units and you add 25% tariff the cost becomes 2.5. What difference is bigger in actual terms, 0.5 or 1.0? Worse for the inumerate child-activist – the money used to pay for the subsidised Canuck product is borrowed – so as well as Trump’s tariff your metaphorical Canuck has got to borrow his funds, whilst USA just prints T bills. But it gets worse – the US exports more “market priced” product to CA in % and actual terms than CA exports its subsidized product to USA. Now try and work out who is the loser here when US, unlike CA, can sell to anyone else willing to buy?
Canadian govt is pro Islamist, pro Hamas etc – and therefore they do not have an excuse – integers 1-9 are called “Arabic Numerals” for a reason.
You’ve swallowed Trump’s nonsense. Go and lie down.
It’s never been clear to me why running a surplus is a good thing, except as a proxy for “you’ve probably got an industrial base”.
If America gets away with exchanging printed dollars (which can be further devalued at will) for real goods, China and Germany look like the losers.
But economics is generally mysterious once you get beyond the micro level, with widespread disagreement among economists and no end of failed predictions.
Tangentially related:
How big does a country or trading bloc have to be before autarky is not noticeably worse than global free trade?
It seems to me that if Trump can achieve his apparent ambition of bringing the Americas firmly under US control, natural resources won’t be the limiting factor to growth and the rest of the world can go hang.
Even if he only manages to consolidate US power over North and Central America, how many goods couldn’t be produced within that bloc?
“global crypto market is also concentrated on the US. “
This is wrong , DeFi and many centralized exchanges exist outside the USA or just on the web
If regulation is easier the companies behind many of the projects will gladly move there
All of which goes to show, once more, no one understands state-global finance. Not even central bankers. Too many mystical imprecisions.
To me cryptocurrency is like someone burning stuff and then claiming the ashes somehow have value. It’s witchcraft, or alchemy. It’s deeply wasteful and could never be the basis of a healthy economy.
That being said, I suspect this analysis of the American strategy is correct.
“The country with the surplus is the winner.”
This is not such a stupid perspective as the author appears to imply.
Another article by UnHerd simply dismissing the economic and political power of Europe.
The US has massive debt – not one single memtion of this in the article!!!. See here:
https://www.pgpf.org/national-debt-clock/?gad_source=1&gclid=Cj0KCQjwkN–BhDkARIsAD_mnIoQUCvnZPHJ_G5x__bPI6Mawbfk35I2X8M8tbNaIX0H54Uy1QBCLswaAjzBEALw_wcB
It is over USD 106,000 per person in America.
So forget about the US being the financial top dog. Europe is stable, has a well fuctioning tradong bloc and is not sinking under huge debt repayments.
Why else do you think the Trump administration are now scrabbling around to make savings wherever they can? As Musk says, if ghey don’t do this the country is going bankrupt.
What are the corresponding debt figures for the EU / selected EU countries?
We certainly have no shortage of debt (national, municipal, corporate and private) in the UK, though I haven’t checked recently to see how it compares globally.
…The EU is going to have to rebalance its trade with the US though, which is one objective of the US tariffs. But the most important objective is to devalue the dollar to address the US debt. Trouble is, that is not a policy that pays to be said out loud.
Tariffs inflationary, lower US dollar inflationary for the US, government cuts and layoffs and shrinking the fiscal deficit recessionary. Trump policies will lead to stagflation or recession or even depression if they go further. Business investment will stagnate as companies wait for the outcome, they need stability and less uncertainty to make long term plans, especially if a recession causes lower profits. The US consumer has benefitted greatly from low prices and trade deficits, if this reverses consumption will decline as prices rise and consumer confidence collapses. A recession will also increase government deficits and debt. The combination of all these policies could become catastrophic for the US economy.
It will also cause a stock market crash and maybe a financial crisis. Americans are not prepared for what’s coming in the next year or 2.
Trump’s idiocy on trade and inflation is extremely dangerous, and few can see this underpinning anything better as consequence.
What’s that in English?
At a guess: President Trump doing a great job in rather trying circumstances.
Yes by creating even more trying circumstances
Nope. What Trump says on trade and inflation doesn’t make sense. As far as we can see, therefore, he is running unquantified risks that he doesn’t understand.
Why?
He’s creating huge uncertainty for investment and consumption in the US economy. There are also very real risks to raising tariffs as he is doing, which he appears not to understand.