Oddbean new post about login | logout Right now lots of foreigners hold USD for stability so the dollars aren't circulating. Once the dollars come back to the US and begin to circulate, there will be tons of dollars chasing less and less goods and services. That is why inflation will get so much worse. Yes, the right get the new money first before it has deflated and yes other Americans get the money before it moves around the globe and therefore get a little of the benefit before it is fully deflated. Still, so much is just being held in reserves that we haven't seen the full effect.
So how will dollars come back? Like exchanging dollars with other currencies? Right now USA has old infrastructures and has outsourced production. If you invest domesticly maybe you will find a balance. I say maybe because at this point wellfare in USA depends heavily on expolitation of others
Right now foreigners hold a lot of USD either in the bank or by holding US bonds. When they get rid of them (by buying US products and not holding it again) you get lots of USD chasing our little production. Some will probably do well when the money initially comes back to the US because they will sell products for more, but it won't take long for inflation to hit. Yes the US exploits people (Americans and non-Americans) and yes the US politicians have bought votes with taxpayer dollars, but none of that changes the fact that we will have tons of dollars chasing a small amount of production (The US really doesn't produce much of value based on the size of its economy) The US has been able to do a lot of things other nations can't because of the US controlling the world reserve currency, but that advantage is quickly coming to an end. Them weaponizing the currency against their enemies is speeding that process.
Yes i agree of course that especially when you have money and little production you will have inflation, but with a negative trade balance, caused by little production, it seems very tricky the amount of dollars to come back to the USA. That means that since foreigners will hold a lot of USD, which will not be the the reserve currency anymore, or not the only reserve currency, you will not be able to control effectively your currency. Right?
They definitely won't be able to control it. The question is will foreigners be desperate to get rid of dollars and buy anything to get rid of their dollars. If that happens, the US dollar quickly becomes worthless. I think we are seeing it in a very small way, but we will reach a point where the dollar will crash. I could be wrong.