The United States, through the role of the US$ as the reserve currency that has not been linked to an underlying hard asset (e.g. gold) since the early 1970s, has been able to simply print money and exchange that money for foreign goods. The need for foreign central banks to hold US$s to facilitate foreign exchange transactions such as paying for imports, provides an ongoing bid for US Treasury bonds that would not otherwise be there; keeping US interest rates lower than they otherwise would be. Restricted in what US dollar assets they can buy, exporters to the US have tended to recycle their dollars into US Treasury bonds. As have the monarchies of the Gulf Cooperation Council with their oil and gas earnings, plus purchasing US weaponry, to gain “protection” from the Western imperial core. After decades of such munificent benefits it has been easy for the US to abuse the reserve currency status. Running never-ending current account deficits that turned the country into a net external debtor in 1985, with a net investment position in 2025 of -US$27.6 trillion (liabilities US$68.89T vs assets of US$41.27T), not far from the size of the US economy at US$30.6 trillion. This negative net asset position has grown rapidly in recent years, from only US$14T in 2020 and only about US$7T in 2015; heavily driven by the large US government deficits. But because those foreign asset holders have been so heavily pushed into buying low yielding US Treasuries, while US foreign assets tend to be higher yielding, the US primary income (earned income) was pretty much in balance in Q3 2025! The secondary income balance was a net negative of US$53.6 billion, reflecting the cost of US military and other state spending abroad. A net capital inflow of US$400 billion, as other nations recycled US$s back into US assets, more than offset the current account balance of US$249.2 billion. As the US government continues to stoke US consumption with large government budget deficits, and low interest rates which the Trump administration is looking to drive down even further, the current account deficit will continue; perhaps with some decrease due to the new tariffs (or not if the Supreme Court rules against the across-the-board tariff increases of the Trump administration). Without the reserve currency, the US would be the subject of the kind of “structural adjustment” programs that the US Treasury has forced upon so many other nations. On March 17th, 2012, the US bullied the Belgium based SWIFT (US-centric international payments system) to cut off Iranian access to the system. Suddenly, Iran could not make payments for imports, or receive payments for its exports. Instead, it had to make other arrangements that took many years to put in place and did not fully make up for the loss of SWIFT access. The US state also assigned extra-territoriality to its sanctions regimes by considering that any US$ payment, anywhere in the world, was subject to its sanctions. The US$ payments system was being weaponized, but it was only Iran and the odd other small country that was affected. The came the Ukrainian proxy war in 2022, and all of the Russian US$ (and Euro) central bank assets were China’s holdings of US Treasury bonds had risen steadily up to a total of US$1.3T in 2011, reflecting its ongoing trade surpluses with the US and other nations. They stayed at around that level until the middle of 2016. In 2017, the first Trump administration came into power and started imposing harsher and harsher financial sanction on Venezuela, while also stealing Venezuelan state assets in the US (the Bank of England did the same with the Venezuelan gold reserves). At the same time, that administration started to escalate technology sanctions against China. From mid-2017, Chinese holdings of US Treasuries started to fall in earnest, to only US$618.2 billion by November 2025. A continuous measured divestment, designed not to create a financial crisis while reducing Chinese exposure to the US financial system. Also in November 2025, China’s official state gold holdings had increased to US$310 billion. As China’s trade with the US is falling, due to the second Trump administration tariff war, a continuing reduction in its US Treasury holdings can be expected. Jacob King on Twitter China is also continuously working to reduce the role of the US$ in its international payments and receipts, through bilateral trading agreements and the facilitation of Yuan-based foreign loans. With the Yuan used for a greater share of Chinese inbound and outbound trade than the US$ in 2025, a trend that will certainly continue. With Russia, North Korea and Iran not having access to the US$ financial system, and China consciously moving away from it, continental Asia is becoming less and less dependent upon the US$ and the US financial system. Then came the utter lawlessness of the second Trump administration, with the even more open and enthusiastic support for the Gazan genocide, the tariff bullying of friend and foe alike, the kidnapping of a head of state, and now the attempted blackmailing of the Danish government to hand over Greenland to the US. If supposed The European elites are too co-opted, weak and spineless to even just stop buying any more US treasury bonds, but other nations can see the writing on the wall. The US oligarchy has gone into full empire mode as its power has declined relative to BRINCISTAN (Belarus, Russia, Iran, North Korea, China, Iraq and the “Stans”), with the US$ payments system, tariffs and sanctions being the go to weapons of choice. While at the same time, the Trump administration maneuvers to take complete control of the Federal Reserve and drive down short term US interest rates while musing about even more deficit spending on such things as the US military. The only positive balancing item that the US has is the AI bubble that has sucked in foreign capital due to the higher (for now) stock returns than those available in other markets. But what happens if that gets popped, as looks increasingly certain? The Trump administration is running the US into a massive financial crisis with its fiscal, monetary and foreign policies; combined with an utter lack of any substantive regulation of the US financial markets. Such a crisis could rapidly become self-feeding as even just a slowdown in investment flows weakens the dollar and leads to higher long term interest rates, which may then then pop the AI bubble leading to investment outflows and a lower dollar. The timing of this crisis cannot be definitively arrived at, but the Trump administration is pushing harder and harder on the door that says “do not enter”. The increased buying of the precious metals points to central banks and some investors starting to hedge against such a crisis; added to in the case of silver by ongoing supply deficits. Whether it be later this year, in 2027 or even 2028 that crisis is coming and with it quite likely the loss of US$ hegemony, and with that a much reduced US imperial centre. Invite your friends and earn rewardsIf you enjoy Geopolitics And Climate Change, share it with your friends and earn rewards when they subscribe. |