But it is badly implemented and in need of drastic improvements. Just see recent comments made by EU President Von der Leyen and head of the ECB Christine Lagarde on how the biggest obstacles to the EU isn't US tarrifs but internal tarrifs.

Counted up they effectively make goods twice as costly as they should be.

A true common goods and finance market in the EU would be a force to reckon with.

The government is a sector of the economy. You can argue that we are borrowing too much, and I would agree, but you are not gonna fix that until you address the foreign capital inflows. That means rolling back the investor rights agreements. As long as foreign nations can print money and use it to buy dollars in order to stimulate their exports, the US is going to have a problem with excessive debt loads. The flipside of that is that the US will not have a problem of foreign investors decreasing their holdings. It will increase every single year, in line with foreign export demands. If anyone tells you the opposite, just look for the error or the lie, because I guarantee you there is one. This article has both.

The ideal would be something like the International clearing currency proposed by Keynes durin Bretton Woods (he was overruled in favor of the dollar as reserve currency since America had all the power at the time).

Here's an Op Ed from Greece's past finance minister in favor of this scheme: https://www.weforum.org/stories/economic-growth/yanis-varouf...

In terms of institutional investors and sentiment, I think you are fundamentally not understanding why the rest of the world holds US debt, it is to support running trade surpluses. That is a core economic need of much of the world, and as long as there is that need, you will see foreign government accumulation of dollar denominated assets.

For some reason people either refuse to understand simple balance of payment accounting constraints or they are deeply offended by them, and want to live in a world in which moral outrage determines things like global capital flows.

But we do not live in that world. The reason why the rest of the world accumulated a trillion of dollar denominated assets last year, split roughly 50/50 between private and public, is solely because China needed to run a trillion dollar trade surplus. And next year it will also need to run an even bigger surplus. That forces everything else.

I think you may have missed the part where Sweden just joined NATO recently. As long as the EU countries are in NATO which is de facto under American leadership, then there will be no strategic autonomy.

Secondly, even if the mood is sour between the US and the EU currently, Germany, Poland and other small eastern states very much still like to have the US as backers if only just for the fact that there is no EU army.

If the EU countries were leaving NATO to form their own military alliance, then I would agree with you but that hasn't happened and maybe never will.

https://www.youtube.com/watch?v=7VBex8zbDRs

The amount of countries with nukes is going to increase dramatically in the medium term. That will mean exponentially more opportunities for a nuclear conflict to break out. I think there is a very good chance we see a nuclear war in the next couple decades, and the odds are dramatically higher than they were pre-trump.

The only spot I sort of disagree is that I think it's an uncomfortably short hop from a moderately sized nuclear war to a global nuclear war, and I think the chances of the latter are uncomfortably high now as well.

I can't figure out a way to parse this sentence that makes sense. Are you saying that "Europe" will "balance" the USA in the Americas? As in, European influence will counteract US influence in the Americas?

Its because bond yields and fixed income in general isn't well understood by the public. Even in finance, its often not correctly understood except by those working in fixed income or the IT teams that support them. Funny thing is, often the devs in those departments understand global finance better than the CEOs running those firms because of how fixed incomes is seen by other departments. Basically, its the lowest department because it doesn't get great yield while ironically requiring the best math and economics knowledge to do.

The story is just another way of saying we’re issuing more debt. Central banks aren’t reducing exposure. They just didn’t increase them with our own finances, which makes sense, our finances don’t increase their reserve requirements.

The the war on Iran (and many years of war on terror) showed we have anything but

Right, which gets back to my point that US GDP per capita growth has been incredibly stable from 1830 to present, both before it had an empire and cheap borrowing and since it’s had an empire and cheap borrowing.

People talked like that before WW I. There hasn't been a major war in Europe since 1870 almost half a century and trade is such a large war would bankrupt all the major powers and so would never happen. The Great Illusion was published in 1909 and was positively received at the time:

> In The Great Illusion, Angell's primary thesis was, in the words of historian James Joll, that "the economic cost of war was so great that no one could possibly hope to gain by starting a war the consequences of which would be so disastrous."[4][5] For that reason, a general European war was very unlikely to start, and if it did, it would not last long.[6] He argued that war was economically and socially irrational[7] and that war between industrial countries was futile because conquest did not pay.

You're right that there have been no great-power wars in the last 80 years. That's about the timescale at which major hegemonic realignments occur: WW1/WW2 from 1914-1945 (England -> US), Napoleonic Wars from 1803-1815 (England -> France -> England), Nine Years War + Glorious Revolution + War of Spanish Succession from 1688-1715 (France -> England), European Wars of Religion from 1618-1648 which created the nation-state system.

But that just means that this is the first major hegemonic realignment after the development of nuclear weapons and drone swarms, which makes me fear for the survival of civilization a bit.

But since the industrial revolution 80 years is something.

I hope it's a trend: but living in Europe right now, I do feel like our strongest ally are giving our enemies reason doubt the deterrence we've collectively built over the past 77 years.

We had to deploy armed troops to Greenland to deter an ally from invasion.

The deterrence to war we've spilled blood building for 77 years.

Economics is part of why we haven't had wars, collective deterrence probably had something to do with it too. Without NATO who is to say how many smaller nations Russia/USSR would have invaded for the fun of it.

It makes no difference in what currency a trade is conducted.

What matters is the jurisdiction in which you store the proceeds.

That selection of jurisdiction drives everything else.

I can declare that all oil must be settled in blue seashells. Who cares? What matters is that I do not keep my profits from selling oil as a pile of blue seashells, I invest those profits in some country. As long as that country remains the US, disproportionately, then oil can be marked in British pounds, seashells, hollywood B-list handjobs, it really makes no difference at all.

But, you object, "Doesn't oil being priced in dollars mean that nations need to have dollars to buy oil?". Nope, there are forex markets. So let's look at a situation in which oil is priced in Euros but Saudi Arabia stores its surpluses in dollars.

Which currency sees an increase in demand?

Japan goes to buy oil, so it sells the Yen and buys Euros. Those Euros are handed over to Saudi Arabia, which immediately sells them to buy dollars.

So the net result is that the euro transactions cancel out and all that matters is the selling of Yen and the buying of dollars. The yen falls against the dollar and the euro goes nowhere. It's a literal null op, in terms of net demand for the currency. It means nothing. The jurisdiction in which the proceeds are stored - that is everything.

Now I would ask you, in which jurisdictions do you think Saudi Arabia can efficiently store the ten billion or so it earns each day from selling oil? Nepal? Where does it store a couple trillion dollars worth of financial assets each year? Argentina? Which nation allows such vast unrestricted capital inflows and outflows? Go ahead, make a list.

So you see, whereas one can literally invent anything in which oil is priced in, to find a jurisdiction that can accept those capital inflows, that limits you to basically a single choice. Now, given that Saudi Arabia needs (not wants, but needs) to store its proceeds in dollars, it makes sense that it would price the oil in dollars to save on transaction fees. But really it can price the oil in anything it wants, no one cares except people caught in dank youtube caverns where the ominous phrase "petrodollar" is scrawled on the walls by torchlight.

But they are the opposites of each other.

So it's fair to say that China is the exact opposite of what it would take issue a reserve currency.

Let China spend a few decades running net trade deficits, let it open its capital market so the CNY fully floats, and allow unfettered foreign capital inflows and outflows for a few decades.

Then we can have a discussion about how it can be a dominant reserve currency.

Historically this is also where we'd insert something into the conversation about who gets to hold the moral high ground, but as you've noted, that's something the current US administration has abandoned entirely.

Finally there has to be a certain willingness from other countries to accept this new currency and I just don't see the EU countries conducting all their international trade in yuan anytime soon.

Finally replacing the USD is just one part. The second part is how to stop the next currency from being weaponized just like the USD is/was. Without the answer to that question, then switching to a new reserve currency is just replacing one problem with another.

The only way for other countries to have the RMB is either China has to start issues massive amounts of bonds (doubt they'll be okay with foreign government owning their debts) or they stop being an export driven economy (this is because all the money goes back to China, and RMB is unable to actually leave the country if you're in a trade deficit with China) . Neither of which seems likely.

It's kind of the historical embodiment of "Owe the bank $100, and you have a problem. Owe the bankers $100T, and they have a problem."

Which is what you'd expect if you're exporting more than importing. Perhaps you meant by some other accounting, which is what I was alluding to regarding the distortion caused by gold convertibility. Ceteris paribus, the trade & account balance will zero out over time in the absence of some kind of regulatory or similar distortion. China doesn't need to be a net importer to become a reserve currency, but if they became one (deliberately or otherwise) and allowed their currency to float than in time their exports would tend to fall and they'd likely become a net importer, at least if they became the dominant reserve like the US. (If they didn't float, you'd get a mess like the US had.) The reserve status can drive the balance of trade toward net importing. Which is precisely why China doesn't really want to become a global reserve currency. They'd certainly like the soft power that would bring, but they don't want the domestic employment disruption the US suffers from. That doesn't stop them from wanting their cake and eating it, too; they can try, but nobody really believes they could, so nobody takes it seriously. Though it's not necessarily an all or nothing deal. I'm not sure the world needs a single reserve currency as dominant as the dollar. We have markets to arbitrage and balance currency valuations, including future expected valuations. A singular dominant reserve currency is helpful to reduce friction, but less so when you have huge, global currency and currency derivatives markets constantly trading.