Please help me understand what is wrong with this understanding. If the financial sovereign prints limitlessly to pay its debts... 'cos it can't run out of money as you explain. Will not the currency devalue relative to foreign assets? I suppose that if I lived entirely in US dollars then I might not notice 'cos I still have the same number of dollars. But if I want to sell my house and move to Paraguay, I will be able to buy less house in Paraguay. So the govt's profligacy has impoverished me... essentially, taken my wealth... re all actions outside my country.
yes that should happen under normal circumstances, that's a variation of a soft default I described in the essay; there's nothing wrong with that understanding. if country A was printing/spending a lot and country B was disciplined, country A's currency would lose buying power relative to country B.
however in the US's case that currency weakening is not happening like it should, USD is significantly stronger than it ought to be considering the deficits the US runs. the reason for this is due to the reserve currency status; it allows USD to stay strong when it should be weakening/inflating relative to other currencies. stuff like this keeps demand high even as the quantity of dollars grows:
88 % of all global transactions involve USD
64 % of total outstanding global debt (sovereign + corporate) is in USD
54 % of all invoices globally are in USD
58 % of the world's global reserves (what all countries hold) are in USD
also, there is more USD-denominated debt owed by foreign entities than there is the US. this creates massive demand for the currency:
U.S. Treasury debt: $36.2T
Foreign USD obligations: ≈ $30‑33T (derived from BIS aggregates)
this omits off balance sheet USD debt, which when you add these in make foreign USD obligations substantially higher than US government ones, potentially as high as $100T (estimated, it's hard to measure). see more here: https://www.bis.org/publ/qtrpdf/r_qt2212h.htm
Please help me understand what is wrong with this understanding. If the financial sovereign prints limitlessly to pay its debts... 'cos it can't run out of money as you explain. Will not the currency devalue relative to foreign assets? I suppose that if I lived entirely in US dollars then I might not notice 'cos I still have the same number of dollars. But if I want to sell my house and move to Paraguay, I will be able to buy less house in Paraguay. So the govt's profligacy has impoverished me... essentially, taken my wealth... re all actions outside my country.
yes that should happen under normal circumstances, that's a variation of a soft default I described in the essay; there's nothing wrong with that understanding. if country A was printing/spending a lot and country B was disciplined, country A's currency would lose buying power relative to country B.
however in the US's case that currency weakening is not happening like it should, USD is significantly stronger than it ought to be considering the deficits the US runs. the reason for this is due to the reserve currency status; it allows USD to stay strong when it should be weakening/inflating relative to other currencies. stuff like this keeps demand high even as the quantity of dollars grows:
88 % of all global transactions involve USD
64 % of total outstanding global debt (sovereign + corporate) is in USD
54 % of all invoices globally are in USD
58 % of the world's global reserves (what all countries hold) are in USD
also, there is more USD-denominated debt owed by foreign entities than there is the US. this creates massive demand for the currency:
U.S. Treasury debt: $36.2T
Foreign USD obligations: ≈ $30‑33T (derived from BIS aggregates)
this omits off balance sheet USD debt, which when you add these in make foreign USD obligations substantially higher than US government ones, potentially as high as $100T (estimated, it's hard to measure). see more here: https://www.bis.org/publ/qtrpdf/r_qt2212h.htm