Friday mailbag, anyone?
Question: wishing for benevolent creditors who will accept negative real rate for decades is like wishing for true love; aka why i wrankle with some of @LukeGromen narrative
if it ain't true love then it's pretty close
The US$ has been fully formed for c.100 years. First 50 it was a benevolent CREDITOR. 2 world wars eviscerated wealth in RoW. Imperilled foreigners begged for $s to fund much needed investments as they sought to rebuild their economies having pursued the monstrous folly of war.
The US duly obliged - it ran CA surpluses. Our modern world was built on the yankee dollar
But with Europe and Japan largely rebuilt by the end of the 60s, the RoW no longer needed dollars and our generous hedgemon simply shrugged its shoulders and pivoted. It's like it transformed itself from Goldman Sachs into Northern Trust Bank. let me explain.
Foreigners no longer needed greenbacks or US savings; their wealth had been rebuilt and savings were no longer scarce. Almost by definition neither were $s. The dixie had peaked. It has essentially hung around 100 ever since with the wides being 130 and 80
The American hegemon didn't really throw a fit or criticise its trading partners. It accepted that the mission had run its course and friends and even foes had been restored to vitality.
What johnny foreigner wanted now was a safe repository country to park its precious wealth and Atlas duly delivered : America's permanent surpluses became permanent deficits. The RoW demanded the surety of Uncle Sam and there hasn't been a single year of CA surplus since 1971
80
