Massimo Portolani <[EMAIL PROTECTED]> wrote: > > I'm not sure what you mean, but do you believe that USD preeminence in > > world trade is a key *determinant* of the US "economic power"? > > I think it certainly allows a level of indebtness that others can't > have, > it allows inflating the world rather than a local economy, it is not > a little issue.
Not little with respect to what? The rents the US gets from the USD being the main unit of account, means of exchange and reserve in the world markets are mainly in the form of seignorage tax, inflationary tax, and low interest rate/stock market inflation (and, I guess, US banks having more business). Compared to the bulk of the US economy, not to mention the world economy, all the estimates I've seen indicate these rents are peanuts. In fact, one would expect that the smaller these rents are (say, because USD inflation is low and seignorage can be minimized by clever reserve management), the more foreign central banks, etc. would want to hold reserves in USD denominated assets. And vice versa. Those are the bounds we agree on. On the other hand, if these international rents get too hefty (and/or parking on the USD becomes too risky), competition would kick in. So we'd expect the EU proposing a new world currency, China trying to turn the RMB into a convertible currency, etc. Having the USD as the world currency restricts the Fed as well -- and that's evident now. And if the US doesn't get its act together in a reasonable period, then we'd expect to have a period of relative flux, with several competing regional currencies, etc., until eventually one of them proves to be more reliable and convenient (because as Marx used to say, having two monetary standards defeats the purpose of having a standard altogether). While we cannot rule out sharp adjustments (and that can mean a lot to central banks, currency speculators, and small countries that have many of their eggs in a single basket), I think that -- for the most part -- the shift from one world currency to another will happen gradually and over a protracted period of time. Arbitrage of this kind takes time, because it is not only a shift in currency or financial markets. It's a shift in commodities markets, etc. There are "transaction costs" involved. A lot of people need some time to adjust, and they will adjust at different paces. It's true that things move faster nowadays, but the history of the British pound suggests this. After all the USD is going to continue to be convertible and the share of the US economy in the world economy will continue to be substantial. > In my opinion the fact that most people in the world accept 'US paper' > in change of real goods and of their work it is not something that > should be neglected Yes, but we need to see why "the world" does that, and up to what point they are willing to do it. After the Soviet Union imploded and a constellation of circumstances helped the US have its boom, with China and India still untested as economic locomotives, with Russia in shambles, with Latin America traumatized by the debt crisis and left behind by Southeast Asia, etc., the US looked like a good place to park the little you had. Well, now things have changed. > But it seems to me that if you control the currency, in a market > oriented world, > more and more influenced by the financial community, you have an > important advantage. Yes, but is that advantage *decisive*? Can it stop the relative decline of the US in the world economy? I think we're seeing that it is NOT decisive. And it can't stop the US relative decline. > I am not certainly thinking that things are held as they are by force > alone. Sorry. I didn't mean to imply you did. > I am not so sure of this, it appears to me that the Sterling pound > suffered 2 wars and the collapse of its empire, it didn't give up > voluntarily. Right. No, I don't mean to say that the US will just give up this convenient way of siphoning rents from the rest of the world. They may be small for the many, but they're certainly big for the connected few. Still, I don't see how it can stop foreigners from shifting to other currencies either... unless the US does get its act together quickly. I don't know -- I have to say that the "victories" of the Bush administration may be symptomatic evidence that the US is fundamentally unfit to lead the capitalist world in the coming decades. The US means a lot to the rest of the world, but -- in spite of the 1990s -- the rest of the world still means little to the US. And that asymmetry may be the underlying reason why the US just doesn't get it. What are they going to do -- really? Threaten us all with a nuclear Armageddon? Best, Julio
