Foreign holding of US treasuries has also increased last year. That is not explained by increased deficit, but by net increase in demand.

To be fair, while accelerating isn't necessarily what you want per se, you must maintain airspeed in an aeroplane if it loses engines. The instinct is to preserve altitude since hitting the ground is the key thing you don't want to happen - but if you preserve that altitude at the cost of losing airspeed (and now that you don't have engines you can't keep both) you will experience aerodynamic stall and fall out of the sky anyway.

I could kiss you!

gravity... is working against me... dream of ways... to throw it all away...

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

View looks great from up here. Any peanuts?

> the concept of strategic autonomy is getting traction in the rest of Europe.

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.

The point is that the entire article is wrong, factually.

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.

There are an excess of dollars floating around internationally and only so many ‘risk free’ dollar-denominated assets. US Treasuries will continue to be purchased. There are plenty of buyers who are obligated to buy risk-free assets and US Treasuries are the vehicle of choice.

The £ was backed by UK's (perceived) military might just as $ is by the States'.

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

Wouldn't the more relevant point of comparison be the difference between long-term government bonds. The exorbitant privilege is that it's easier to fund US government debt because trade in USD means that large institutions around the world need USD and store those dollars in the form of US treasuries, which in turn lead to lower bond rates and cheaper debt.

European, living within the EU, who loves the idea of the conmon market.

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.

This seems right to me. Nuclear proliferation could very well end up being the most consequential legacy of this administration. Their malicious incompetence in this area has dimmed the outlook for humanity to a material degree.

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.

> America getting potentially balanced by China and Europe in the Americas

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?

> But there have been no wars between major powers in the last 80 years. Maybe people in power have realized that all-out wars are no longer productive.

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.

The biggest Thucydides Trap wars were WW1 and WW2, which happened specifically as Britain (the first major power to industrialize) lost its hegemony over industrialization and faced competition from Germany, Russia, Japan, the US, etc. Thirty years of some of the most brutal war the world has ever seen followed, which only ended with the U.S. re-establishing hegemony because it was the only one whose homeland hadn't been bombed into oblivion.

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.

In history 80 years is nothing.

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.

Hopefully not. We've lived that movie already with currencies tied to gold. It significantly slowed down past WW1 reconstruction, and is in general makes it very hard to adjust the money supply to enable economic recovery.

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...

You are confusing being the world's biggest net exporter with being the world's biggest net importer.

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.

China probably has the fiscal firepower to replace Eurodollars, but while their financial system remains split between "internally used currency" and "currency for everyone else" and while external investment is treated with deep suspicion and harsh rules, it would be limited to liquidity and exchange purposes. Nobody wants to hold a currency like the yuan over an appreciable period of time. That might be enough; that confers a lot of power and influence to the currency issuer. But definitely different ground than US Treasuries cover.

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.

No, China's economy is not setup to be a reserve currency. To be a reserve currency other countries need to have a stockpile of it to trade with 3rd party countries.

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 will not be China as it doesn't have a floating currency. That is one of the prerequisites for becoming a reserve currency, that and removing capital controls.

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 real dumping has happened from Japan, which is fighting to defend the yen, and China, which is obviously repositioning though to a way lesser degree than a nation dumping an adversary’s bonds would.

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.

By paying down the debt, you mean issuing less debt over time? The US government is not an uncle that pays off his debt so he can retire and move to Florida. An individual does that, but the household sector as a whole does not pay down debt, because for every uncle moving to Florida, there is an Aunt borrowing for a new house. So instead, we talk about things like sectoral debt ratios and do not use language like "when will people in Maine finally pay down debt, I'm sick of seeing people in Maine owing debt".

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.

If true, this would change the narrative. But I wouldn’t base anything on rumors. China is also rapidly building its supply of bullion and is attempting to shift trade away from the USD, so it would make sense for it to be drawing down on USD reserves. (Not that it will ever eliminate those reserves completely.)

RoW is not opaque. It’s widely used especially in academia. Acronyms exists for a good reason. If you like everything spelled out please stop using apostrophes while you’re at it.