Trump’s war and global de-dollarization
A major bulwark protecting the US economy has been that the dollar is the world’s reserve currency. Now, Trump’s “excursion” (don’t say “war”) is looking to change that.
“A senior Iranian official has told CNN that Tehran is considering allowing a limited number of oil tankers through the Strait of Hormuz — but only if cargo is traded in Chinese yuan, not US dollars. The condition, if formalised, would represent the most significant challenge to the petrodollar system in its fifty-two-year history, striking at the financial architecture that underpins American global power rather than at US military assets.”
*snip*
“What makes the Iranian proposal structurally significant is not simply that it challenges the dollar — de-dollarisation rhetoric has circulated for years without materialising into meaningful change. What is different here is the mechanism. Tehran is not merely proposing that some bilateral trade occur in yuan. It is proposing that access to the world’s most critical energy chokepoint be conditional on currency denomination.
“The practical consequence, if even partially adopted, would be a bifurcated global oil market: yuan-denominated barrels flowing through Hormuz for those willing to pay in China’s currency, dollar-denominated barrels rerouted at significant additional cost and time for those who are not. The war premium that Western energy importers are already absorbing would become structural rather than temporary.”
The reason the US can sustain almost unlimited borrowing is because US treasuries are backed by the good faith and credit of the US in the form of the dollar. When that goes away, borrowing will be much more expensive. US citizens will have to deal with this either through higher taxes or inflation. Trump is driving us over that cliff. The long-term cost to America would be incalculable.
Trump’s war and de-dollarization
“A senior Iranian official has told CNN that Tehran is considering allowing a limited number of oil tankers through the Strait of Hormuz — but only if cargo is traded in Chinese yuan, not US dollars. The condition, if formalised, would represent the most significant challenge to the petrodollar system in its fifty-two-year history, striking at the financial architecture that underpins American global power rather than at US military assets.”
*snip*
“What makes the Iranian proposal structurally significant is not simply that it challenges the dollar — de-dollarisation rhetoric has circulated for years without materialising into meaningful change. What is different here is the mechanism. Tehran is not merely proposing that some bilateral trade occur in yuan. It is proposing that access to the world’s most critical energy chokepoint be conditional on currency denomination.
“The practical consequence, if even partially adopted, would be a bifurcated global oil market: yuan-denominated barrels flowing through Hormuz for those willing to pay in China’s currency, dollar-denominated barrels rerouted at significant additional cost and time for those who are not. The war premium that Western energy importers are already absorbing would become structural rather than temporary.”
The reason the US can sustain almost unlimited borrowing is because US treasuries are backed by the good faith and credit of the US in the form of the dollar. When that goes away, borrowing will be much more expensive. US citizens will have to deal with this either through higher taxes or inflation. Trump is driving us over that cliff. The long-term cost to America would be incalculable.
Trump’s war and de-dollarization
My comment this morning at a C & L article: Wait until the government tries paying for this Trump “excursion” with bond sales. We’ll learn then what the world thinks of this “excursion”.
I am no financial mind but I do not understand how the financial minds in this nation are not hearing the sirens blaring. Wall St was up today? News is reporting on the realignment of trade agreements? England and Germany told US to shove it regarding joining the “excursion”. Ukraine is now offering to show US how to cheaply shoot down the $50K/copy drones without using $2 million dollar missiles?
And no one in the Republican movement, the Wall St club thinks they should do something about the Trump administration and Republican congress!
Powell and the Fed’s thought they had a problem with inflation! Ha!
Daniel:
“If China were to sell all of its US bonds, it would likely cause U.S. Treasury prices to fall and interest rates to rise. Borrowing costs (and interest rates) would increase for mortgages and businesses.
More likely than not the FED would intervene by buying the bonds to stabilize the market. China still depends on the stability of the United States which would cause them to be careful with their actions so as not to do something which would have an impact on them.
The $Dollar is still the exchange money globally. Too many nations depend on US stability. As a result, the US is likely to remain the source of an exchange coinage for some time to come and out living myself.
In spite of all of this? Trump is not going to listen to anyone.
I have no idea how all this will play out. The only thing I know is that there are and will be consequences that no one currently pretending to lead this country has foreseen or knows how to forestall or correct once realized. What concerns me is that this country is now so riven with bitter stupidity that any destabilization of expectations or assumptions is immediately misunderstood as evidence of the other side’s weakness or wilfull misreading of reality.
Everyone who looks back at what was once the Unites States of America will pick a different iceberg as the culprit but it’s pretty clear this ship is foundering. We’ve got the hot air band playing loudly on deck, telling the “false news” folks it’s all because of their traitorous reporting; the lifeboats don’t exist because who needs lifeboats on an unsinkable enterprise?
Deb:
There is no one person which can flounder the ship yet. It would take more than one four-year term. I believe the fixing of what Republicans (#1) and Trump (#2) have caused will take a decade to put back in place. There is severe damage to the economy and who it helps.
The nation has established an upper class and then there is the rest of us funding them.