Comment by cbdevidal

Comment by cbdevidal a day ago

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There is another type of demand that I rarely see mentioned. Not only does the United States owe trillions of US dollars, other nations do, as well. They hold many trillions worth of loans denominated in US dollars. They must be repaid in US dollars and not in any other currency.

And not just to the United States but to other nations, as well. South Africa owes US dollars to Australia, Australia owes US dollars to Brazil, Brazil owes US dollars to Argentina, etc.

These nations are hungry for every dollar we print. Even if every trading partner dropped the dollar for trade tomorrow, and if everyone who owned Treasuries all sold them at once, there would still be demand for US dollars to repay their loans.

The IMF made them an offer they couldn’t refuse, and spun a sticky web of a debt trap as a result.

Three minute video: https://m.youtube.com/watch?v=_SaG9HVXMQg&pp=ygUQZG9sbGFyIG1...

maxglute a day ago

>They must be repaid in US dollars

IMO this one of those cases where dollars is ultimately benchmark than requirement, IOU/settlement forms can always be restructured/renegotiated if USD is no longer lender of last resort, i.e. alternative payment systems enables take it or leave it deals in medium/long term.

USD/reserve status snowballed because US controlled techstack postwar which US leveraged (along with military hegemony) to USD controlling primary energy (petrodollar). Civilization/modernity was locked behind USD. Money followed existential goods provider, that's the real USD / unipolarity moat. There's no take it / leave it from US company scrip because leaving eurodollar system = technical default (most usd loans hardcoded on newyork/english law) from eurodollar western financial system = death sentence. Once that lock/dependency erodes all kinds of force majeure geopolitics can rationalize breaking dollar contracts. AKA multipolarity.

If alternate techstack/payment systems pops up and reach tipping point, country A can just say to country B who only wants USD (due to alignment or whatever), I don't have enough USD, here's RMB & cips/Brics+ & mbridge basket of equivalent value. This geopolitical layer, if BRIC+ can offer fossil, food without US and PRC can offer renewable energy, capital goods, consumer goods, technology, including 80% as good semi and civil aviation... etc if chokepoint goods are no longer exclusively under USD perview, then USD enforcement mechanism simply dies.

If we're talking about loans/aid, IMF is really pittance, low hundreds of billions. It's why PRC is now using their 3T USD surplus to basically do their own shadow USD lending without IMF conditionalities... countries now don't need to buy USD from US. And somehow PRC currently lending / providing swaplines with their USD at lower rates than US treasury. Incidentally, this dollar recycling also lowers demand for new USD bonds, further reduce type1 margin buyers. This circles back to other nations own trillions of USD to each other... when you remove type1s, you're left with type2 private sector / non bank financial institutions - these are the buys where each USD bought increases triffin burden, i.e. they are the exorbitant curse / payday loans traps that makes USD reserve more expensive to maintain. Their demand is a trap, not a benefit.

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  • AnthonyMouse a day ago

    > If alternate techstack/payment systems pops up and reach tipping point, country A can just say to country B who only wants USD (due to alignment or whatever), I don't have enough USD, here's RMB & cips/Brics+ & mbridge basket of equivalent value.

    Alternate payment systems aren't even required for this. If other countries are trying to divest US dollars and country B is owed "US dollars" and country A wants to pay in something else, country B would want to accept the something else of equivalent value because it's trying to reduce its US dollar holdings and would just be immediately turning around to resell them anyway.

    Conversely, if country B is insisting on US dollars for alignment reasons while other countries don't want them then that's only providing country A with the opportunity to divest its US dollars by using them to pay the debt. Then country B ends up with them, but now what is it supposed to do with them?

    The real reason those sorts of debts result in stability is that all the countries owed a lot of US dollars are going to do what they can to prevent the US dollar's value from declining.

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    • cbdevidal 21 hours ago

      > The real reason those sorts of debts result in stability is that all the countries owed a lot of US dollars are going to do what they can to prevent the US dollar's value from declining.

      That’s the crux of it. Nations can proclaim they are ready to dump the dollar—and indeed, it is happening slowly—but politicians still have a strong appetite for USD-denominated loans.

      I am not optimistic for the dollar in the long run, but I no longer fear waking up tomorrow to see hyperinflation.

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  • cbdevidal 21 hours ago

    > alternative payment systems enables take it or leave it deals in medium/long term.

    Assuming of course that the lender is interested in the alternative payment currency. Or that the borrower is willing to accept the consequences of default.

    I don’t see accepting other forms of currency to be relevant in the short term—there is little use for the Yuan outside of China, for example. I suppose creditors can use them to buy more trinkets, or trade for dollars with people who want more trinkets.

    And defaults can happen at any time, but the credit rating system is still widely respected.

    Things can certainly change, but I doubt overnight.

    > It's why PRC is now using their 3T USD surplus to basically do their own shadow USD lending without IMF conditionalities... countries now don't need to buy USD from US.

    So they’re using US dollars, not Yuan.

    That trend is changing; before 2021, most of China’s loans were in USD. After COVID, loans denominated in RMB have grown to 20%.

    Again, I can see how that would change conditions in the long term, but not overnight.

    I am not optimistic for the dollar in the long term but I used to fear waking up one morning to hyperinflation. Not anymore.

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    • maxglute 19 hours ago

      Yes, hence "medium/long term", though for me that's potential 10-20 year horizon.

      > buy more trinkets

      RMB buys capita goods, energy goods... and as PRC domestically moves way from oil, it still has massive refining/petchem infra generating surplus, so they'll likely be net hydrocarbon seller (refined products), as in RMB can even buy oil / oil products. This part important, 2025 PRC has parity/exceeded the US as worlds largest crude refiner by capacity. Together with massive, massive SPR for storage... aka they have like 1B+ barrels of oil in storage which gives them pricing power (as in they have artifical oil field to influences oil prices). They will not be retiring all the oil infra as they electrify, they'll use freed up surplus for reselling hydrocarbon in rmb. Right now, outside of high end commercial aviation and semi conductor, PRC can underwrite 99% of development goods for affordable prices. This not 10/20 years ago where countries still had to through host of western industries to get factory/city off ground, PRC more or less one stop shop now. The TLDR is rmb buys entire physical layer that enables modernity.

      > credit rating system is still widely respected.

      Respecting western credit rating =/= fear of being locked western credit rating. People don't default from eurodollar because they fear losing access to energy, food, commodities. Things already changed in the sense RU has demonstrated BRICS makes surviving outside of western finance system feasible. Fear is what enforces/maintains system. Respecting is about keeping options open not avoiding death sentence anymore.

      >US dollars, not Yuan.

      They're doing both, refinancing or inking new contracts in RMB. But main point is PRC shadow dollar lending is part of their dedollarization effort = getting rid of / recycling / lending their surplus USD at expense of US treasury. People may keep using USD, but US gov not getting exorbitant privilege. As long as USD is being used, and as long as PRC can maintain trade surplus, PRC can feasibly maintain pool of USD to ensure USD liquidity remains costly. It's like the oil/SPR reserve, PRC having pool of USD to reprocess/recycle gives them some pricing power to undermine oil/and USD.

      >hyperinflation

      IMO this more likely than not, and not really something to fear. Not end of society hyperinflation but if US debt gets too unsustainable, geopolitically much better to inflate away debt and fuck creditors than default. Like it's still reputationally technical/soft default, but less "embarassing", and more importantly, because dedollarization takes time, mechanically US can inflate debt faster than holders can ditch USD without crashing value. If things get desperate to that point, USD has the dollar is our currency but your problem nuclear option. Not saying this good for US, but least bad for US.

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