I am not a big online shopper or shopper in general for that matter, but you know when you buy something you don’t need, and you put it in the cupboard and never see it again… In my view that is the USD now. The world doesn’t want the USD as a reserve currency, but they just can’t stop buying it because when the game stops, we all lose. The longer the game is played the higher the stakes become.
Just want to give you some context before making my point
When a country issues currency effectively it is a free form of borrowing. Now after the US saved Europe in the world wars. While we do owe the US a thank you for that, the question is should everyone around the world still be thanking them? They made sure that everyone agreed commodities are priced in USD. It was a brilliant move, and it caused the US to go from a relatively poor country to an economic world power. Likely helped that most other major economies had literally been burned/bombed to the ground. Now as they say, with great power comes great responsibility. What did the US do?
Well, they consumed. They grew to love things, and when money became an issue, they just printed more, because, hey guess what, the rest of the world needed USD to buy goods. Over time it has become a culture of credit (individual and government alike). Credit is essential in creating opportunity, in my view, as capital creates jobs and facilitates innovation. Hence the US has become technologically advanced and a hub for innovation. As they use the rest of the worlds cheap credit and money is cheap, so just keep investing, as you can always get more where that came from. If you are less fortunate and can buy only one bottle of jam, what you do is buy the one you know is decent quality, because if you are wrong, you can’t buy another. Whereas if you are wealthy, you might try something you don’t know, because if you don’t like it you can buy another one. That is where credit is a problem when you buy consumables, and you can just throw them away. Credit then further facilitates this behaviour. Especially when consumables are purchased on credit (clothes, food, vehicles etc.), as it causes a cycle of people believing they can just buy what they want, and there is no need to moderate, as credit is cheap and you can just print more money. What is even worse is the US consumes in an unsustainable manner, being one of the higher emissions countries, but that’s another story.
Back to the point
As noted above, issue currency is free borrowings, and as the USD is used globally the US by issuing USD, is borrowing for free on a mass scale….However there is no such thing as a free lunch! So, who is paying for lunch? We, the rest of the world, are paying for the US to borrow. Using the USD to buy commodities is making America rich, it is as simple as that. Either countries don’t realise it because it is the status quo (seems unlikely, unless the countries economists aren’t really economists ), OR more likely the rich, bankers and finance individuals (as one of my lecturers used to say, “all bankers are evil”) don’t want it to change because when the system works, the rich stay rich. Of course, the American’s don’t want to change and hence they threaten anyone that questions the USD’s dominance. The question people should really ask is who paid the most? In my view, it is very clearly the global south. Colonizers previously pillaged countries by taking their resources and shipping it home. Guess what, the world eventually acknowledged that is bad and some countries even paid back repatriations.
Using the USD to buy resources has the exact same effect. It is a modern form of colonization. As using the USD effectively take away a country’s ability to borrow for free by issue their own currency. The US use other countries’ assets to secure their own wealth back home. What this does is quietly keeps the poor countries poor and keeps the rich countries rich. A couple of years ago I posted on how SA could solve its problems by just selling resources in ZAR. South Africa would become a rich nation with its wealth of resources. Would the world listen, no because who currently benefits wealthy countries.
However now the issue is the rich countries are starting to pay the price for the US’s greed. As they are no longer producing goods to sell in their own currency (well not competitively) and instead must import and buy goods in USD or from China (previously Russia)! Mike Dolan explains part of the issue in his article “Intervention to halt dollar merely gives it legs” on Reuters 20 December 2024.
Guess what, the BRICS have already raised that flag with the idea of a BRICS currency. As with any movement, at first people say it is ridiculous, then they try squash it, and only after it is successful do people look back and go…Oh yes, women should have a right to vote, or of yes slavery is bad etc. What I think is interesting is our friends in the UK and EU are soon going to come to that realization that they are buying their friends across the pond (the US) free lunch every day.
If the US was any other country, the USD would have been burned to the ground, with the overload of debt and anti-rest of the world policies. Now the irony is they want to get greedier, as they realized that they can’t sustain their spending by borrowing more, so they need to sell more. So now that they have starved the world of free/cheap capital, they want to start making the goods and selling it to us, to support their spending.
While MAGA stands for Make America Great Again, it should stand for, we coming for free dinner as the free lunch isn’t enough, so we going to make you poorer. Either you have dinner ready or else…..