Josh Hendrickson has a new post that says that the US dollar rash will affect it as an international reserve currency. This is my eyes:
Teached by a typical model of international trade with flexible exchange rates, the discovery of trade balance is as follows. If the country’s RN is a permanent trade deficit deficit, the currency begins to depreciate. Currency depreciation makes foreign goods more expensive. This will tend to reduce imports and boost the country towards balanced trade. The basic point here is that the discussion of typical textbooks tends to adjust flexible exchange rates to balance trade, and these adjustments tend to reduce the trade deficit and direct the country towards balanced trade.
In contrast, US RNs are permanent trade deficits that are not self-corrected. In fact, the dollar is grateful for the time the US has a trade deficit. How can you explain this phenomenon?
The reason the US differs is because the dollar is the main currency used in global trade.
Two comments:
The US is not different. Josh Hendrickson should get a new textbook.
This is the US current account balance as a share of GDP:
So let’s take a look at the UK:
Unfortunately, the British Fred series ended in 2016 and is in moneyless rather than a share of GDP. However, another source confirms that the UK’s current account deficit continues at around 3% of GDP.
And this is New Zealand:
And this is Australia:
To be fair, the recent Fred series shows a short surplus period before returning to the deficit in 2024.
In fact, the United States is a rather typical English-speaking country, depicting a fairly permanent deficit across many immigrants. Outliers are Canada, running surplus of current accounts from 1999 to 2008, but we have seen 52 of current accounts over the past 16 years and 65 years.
Your current account balance simply reflects the difference between savings and investments. There is no reason why it cannot continue indefinitely. It may be related to excessive borrowing, particularly excessive government borrowing, but that is not always the case. (Australia tends to have a smaller budget deficit.)
The US current account deficit is the probability that it is caused by the same kind of factors that explain the current account deficits in other English-speaking countries. Low savings rates, highly productive capital investments, and high immigration rates. Unless you believe that the New Zealand dollar is also an important reserve currency, there is no evidence that the role of the dollar as a currency plays a lot.
Hendrickson continues:
The simple answer is that other countries must be net importers of the dollar and therefore net exporters to the US.
What this means is that the US must implement a sustained trade deficit with other parts of the world in order to provide the world with dollars.
This has not been taken into consideration. The current account deficit is not a net flow of dollars. It is the net flow of assets. You can pay import fees by selling real estate, stocks, and junk bonds. Foreign Couc accumulates US dollar reabs (Ministry of Treasury) by selling assets such as stocks, real estate, and foreign government bonds.
The US current account deficit reflects the contradiction between domestic savings and domestic investments. The US has not “forced” to carry out a deficit even if the dollar acts as an international reserve currency.
I’m not worried about current account deficits, but if the Trump administration wants to address the issue, the government’s budget deficit should be considered (this is a negative savings. The recession could reduce current account deficits by reducing domestic investment.
What made the then poetry Australia accounts more positive recently? Perhaps it reflects cultural changes associated with widespread migration from Asian countries (high savings). But that doesn’t explain Canada.
