Re: [Salon] Letter to the FT: The prob­lems a Trump second term poses for the dol­lar



What about  recycling of the petrodollar. The Gulf countries cannot absorb  the dollars they get from sale of oil? Obvious for them to recycle them in US. This might end the petrodollar recycling and convince the  Gulf countries to just not sell oil in the dollar. This would  damage the economy. Will it recover (specially when unprecedented demographic change is happening and will accelerate from 2025)?  I think US  has become too dependent on petrodollar recycling and this has also fueled the financialization of the economy that has weakened it. 

On Tuesday, July 9, 2024 at 02:53:44 AM GMT+5, Clyde Prestowitz via Salon <salon@listserve.com> wrote:


You are right Paul, but please take a look at the alternative over the long term. We are increasing indebted enormously to foreign interests and lose control of our own. You mention inadequate U.S. savings. That can be solved by domestic tax and other measures. Moreover, it is not necessarily that we don’t save enough, part of the problem is over-saving in much of the rest of the world. Cheers, Clyde

 

From: Salon <salon-bounces@listserve.com> On Behalf Of Chas Freeman via Salon
Sent: Monday, July 8, 2024 1:29 PM
To: salon@listserve.com
Subject: [Salon] Letter to the FT: The prob­lems a Trump second term poses for the dol­lar

 

The prob­lems a Trump second term poses for the dol­lar

Barry Eichen­green’s ana­lysis of how the out­come of the US elec­tion and ensu­ing policy changes might affect the dol­lar (Mar­kets Insight, July 2) was inter­est­ing. He notes that Don­ald Trump’s advisers are con­sid­er­ing ways to weaken the dol­lar to off­set the large trade tar­iffs Trump insists he would imple­ment; and to improve Amer­ican com­pet­it­ive­ness. Such meas­ures might include a tax on for­eign pur­chases of US assets to pre­vent the dol­lar from rising.

Dis­cour­aging for­eign cap­ital flows to the US would reduce one of the most import­ant sources of fin­an­cing the US bal­ance of pay­ments and budget defi­cits. Neg­at­ive res­ults would include driv­ing up US interest rates since the Treas­ury must pay whatever interest rate the mar­kets demand to fin­ance the budget defi­cit.

For­eign fin­an­cing of our defi­cits, which com­pensates for inad­equate US sav­ing and lax fiscal policies, is one of the most import­ant, and least under­stood, aspects of the dol­lar’s reserve cur­rency role. If a future Trump admin­is­tra­tion insists on a weaker dol­lar, for­eign investors would increas­ingly ques­tion whether the dol­lar was a good store of value and slow invest­ment in the US.

They already have new reas­ons to worry about the rule of law that under­pinned the dol­lar’s strength for dec­ades. These include the US Supreme Court’s recent decisions end­ing the Chev­ron “defer­ence” to fed­eral agen­cies’ expert­ise and which ensured even-handed treat­ment of for­eign cap­ital; enabling the pres­id­ent to do vir­tu­ally whatever he wishes without fear of pro­sec­u­tion; and Trump’s threats to dir­ectly influ­ence the Fed­eral Reserve’s man­age­ment of mon­et­ary policy.

This new judi­cial frame­work, plus a new Trump admin­is­tra­tion’s efforts to alter the dynam­ics of for­eign exchange and inter­na­tional trade, would pose ser­i­ous new prob­lems for the dol­lar and for­eign fin­an­cing of our twin defi­cits.

J Paul Horne

Alex­an­dria, VA, 



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