Oddbean

Analysis: https://image.nostr.build/b73ea1b6ce06f93c53da2a6686899db353957e3fd206bc93dce1c5415f2e3e46.jpg What could be a winning strategy for Washington? When the US debt spirals out of control, it puts the USD's status as reserve currency at risk. This begs the question - what's the best strategy forward for Washington, whether we're talking about the super wealthy, the leaders of the political class, the deep state, or the whole shebang? I'll take a stab at this question below. But first, let's look at some milestones for the USD as a reserve currency: 1945: The USD seals its reserve currency status when US airplanes bomb Hiroshima and Nagasaki 1973: Nixon saves the status with the petrodollar deal with Saudi Arabia 1991: Washington breeds new life into the status by letting Russia crumble in hyperinflation at the same time as the US makes a "we will buy your cheap consumer goods if you buy our treasuries and stay away from Russia" deal with China. And here is the situation today: - the public debt has spiralled out of control, - the proxy war with Russia in Ukraine is a lost case, - China hates the US and the US hates China, - Russia and China are in love with each other, and - the next likely reserve currency - #Bitcoin - isn't controlled by a nation that the US can bomb to pieces. So what is the dominant strategy for Washington in this type of situation? My take: Convince other countries to have a tight monetary policy, increase taxes, move further with the climate policy and fight against #Bitcoin   , while in parallell make sure that the US does more or less the exact opposite. You see, this strategy comes from an old playbook: In the 1920's the Federal Reserve was greatly helped by Bank of England when they tricked a number of other European central banks into adopting the "parity policy," which was all about rapidly shrinking the money supply. At the same time, the US and the UK continued to print money so that the rich could make bargains at the fire sale in the European countries that crashed their economies in a deflationary nightmare. If you're in doubt about the potency of deploying something similar today - just take a quick glance at the leaders of the European political class. Then you ask yourself if you think they have the combination of IQ, leadership and care for their people that they need in order to withstand the pressure, gaslighting and bribes from the people in Washington. To sum up: The dominant strategy for Washington today isn't to start another war, but to convince other central banks and other governments, especially in Europe, to do really, really stupid things.