The New CS Board

[jumanji0881]

America's Fatal Dependency : https://www.zerohedge.com/geopolitical/americas-fatal-dependency

My Comment : The US is currently running $1Trillion Annual trade deficits. This is not sustainable and will eventually lead to a weaker US$.

Excerpts:
The United States has borrowed $18 trillion from foreigners since the Great Financial Crisis of 2008, a staggering sum that is nearly equal to America’s annual Gross Domestic Product. The notion that the dollar’s dominance in world finance might come to an end was a fringe view only five years ago, when America’s net foreign investment position was a mere negative $8 trillion. Notably, the net international investment position fell by $6 trillion between 2019 and 2022, roughly the amount of federal stimulus spent in response to the COVID-19 pandemic.

In addition to the $18 trillion of net foreign investment in the U.S., foreigners keep about $16 trillion in U.S.D in overseas bank deposits to finance international transactions. That’s $34 trillion of foreign financing against a U.S. GDP of not quite $23 trillion. Foreigners also have enormous exposure to the U.S. stock and real estate markets.

No one—least of all China with its $3 trillion in reserves—wants a run against the dollar and dollar assets. But the world’s central banks are reducing dollar exposure, cautiously but steadily.

For the past fifteen years, American consumers have bought roughly a trillion dollars more of goods each year than America exports. The import-led consumption boom, and the availability of cheap electronics from China and other Asian exporters, fed a digital entertainment boom that inflated the stock prices of Apple, Microsoft, Google, Meta and other U.S. software companies. Foreigners then invested their earnings from exports in U.S. tech stocks, as well as government bonds, real estate, and other assets. The tech boom harmed the U.S. economy far more than it helped it, turning American teenagers into risk-averse recluses addicted to smartphones and social media, while generating stock market valuations never before seen outside of classic economic histories of bubbles.

Overall, net imports of manufactured goods rose from about $60 billion a month prior to the COVID pandemic, to $100 billion a month as of February 2022.

The bubble is so enormous that the entire world has a stake in it, and none of the world’s major economies can extract themselves from it without significant damage.

Nothing prevents the 76 percent of the world’s population whose governments refused to join the sanctions regime against Russia from financing trade in local currency. Asian countries now have $380 billion of swap lines in place, more than enough to accommodate the whole of intra-Asian trade.

By no coincidence, the same central banks who are bypassing the dollar financing system have bought the most gold over the past twenty years, according to the World Gold Council’s data. China and Russia were the biggest buyers of gold, followed by Turkey, India and Kazakhstan.

Gold also represents an option on “Bretton Woods III,” a local-currency regime of trade financing in which some imbalances may be settled in gold. The value of the nearly 32,000 tonnes of gold now held by central banks is a bit over U.S.$2 trillion at the April 13, 2022 price of $1,980 an ounce. That represents about one-sixth of world central bank reserves of $12 trillion. If gold were to substitute for the dollar as a reserve instrument, the proportion of gold in central bank reserves would have to increase, which in turn implies a substantial increase in the gold price. Persistently high inflation in the U.S. and the Euozone, moreover, would lead to an increase in the gold price as well.