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- cross-posted to:
- [email protected]
BRUSSELS — The European Union said on Thursday it was ready to deploy its strongest trade weapon against the U.S. after President Donald Trump threatened to impose sweeping tariffs and scorned the EU as having been created to “screw” America.
“We have an Anti-Coercion Instrument, and we will have to use it,” Agriculture Commissioner Christophe Hansen said in Paris after meeting with his French counterpart Annie Genevard at the Salon de l’Agriculture farming exhibition.
Yeah, so as I understand it, the US is able to have this huge trade imbalance because they can pay for their imports in currency they can print themselves, and other central banks will take the dollars because it’s the reserve currency and because petrol products are traded in dollars. It is a rather delicate balance, that allows the US to consume with unlimited credit, that will work as long as others want dollars.
I understand how other economies would like to break this relationship and get in on the putting everything on the credit card, or to break it just so that the US doesn’t have so much economic power over the world.
What I don’t understand is how an American, much less the president himself, would want this balance upset. Even as a European, I believe it’s in my economic interest that the Americans consume.
Do I have a better understanding of this than the American government??
being the reserve currency isn’t that nice for citizens, though. Other countries and companies need your money, because all the big deals are made in it and you really want some on hand to protect against currency fluctuations (don’t want your 50m € deal suddenly costing 100m€ because it’s denominated in dollars and the exchange rate rose).
but if everyone wants your currency, in large amounts, your government at some point can’t keep up with printing, otherwise inflation goes up too much.
now when you have lots of buyers for your currency, but too little supply, of course the exchange rate will go up. But those buyers also look for alternatives that are almost as good as just money.
well it’s not actually money you hoard, but debts that can be exchanged for money. First government bonds, those are stable and can be exchanged for money easily. Those also have limited supply, so the next best thing, corporate loans. Less stable but better than nothing. Those dry up, etc. and you end up at subprime mortgages. Those suck, but hey, they are still dollars, kind of. So you have more and more financial instruments created that pretend to be actual money.
on the flip side, in the reserve currency country, borrowing becomes easy, Companies and people that should not get this much cash now can easily get it. You have lots of bad investment as no one knows what to do with all that money. Houses get built that shouldn’t be. There’s more and more risk in the system.
Until it fails and blows up. We know what that looks like.
being the reserve currency is first and foremost nice for the government in question. If it’s nice for the people depends on how the government manages it and what it does with the money and how it controls it. And the longer it goes on, the more unsustainable it is. Countries getting too much investment often do worse than countries getting little
You have a better understanding than dumbass trump. He’s surrounded himself with sycophants that will agree to his stupidest ideas so that they can get a greenlight for their pet projects.