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The US deficit HAS to grow as long as it is the global reserve currency. It cannot be reduced. This is called the Triffin Dilemma [1] and was ultimately behind the 1929 Great Depression, where the Pound Sterling couldn't keep up with the demands on a global reserve currency. It took 20+ years to find a new balance and while BANCOR offered the sustainable solution, the US dollar simply replaced the Pound Sterling at Bretton-Woods. and now Triffin is back, it seems 2/5

[1] https://www.imf.org/external/np/exr/center/mm/eng/mm_sc_03.htm

The dilemma was manageable as long as the US was seen by market participants as the global leader. And they were for many years. But that has changed, slowly but steadily over the past 20 years. Markets have shifted and China took over the role of the global producer. But without "owning" the global reserve currency. Triffin. So what now? There were a lot of discussions since many years, but Trump changed the picture in a few days and chaos is about to emerge, IMHO. 3/5

I guess you all have read the news by now. The tariffs are not the problem. They are a (potent!) distraction. The real problem is that the bonds market shifted. The yield on 5 and 10 year US bonds skyrocketed (comparably, it's a very sensitive market), indicating a loss of trust in the US economy and leadership. THAT caused Trump to blink. Because that change means that borrowing money will become more expensive in the US economy. With unclear consequences, globally. Triffin. Again. 4/5

Keynes predicted at Bretton-Woods that all of this could happen and that the only solution is to switch to a global equilibrium system called BANCOR [1]. His ideas and proposals deserve to be studied again. Because his arguments are sound, even after 80+ years. 5/5

[1] https://en.wikipedia.org/wiki/Bancor

Addendum: This graphic might help in understanding the fundamental problem. When your currency is the global reserve currency, but someone else is doing most of the trade, you have a (growing deficit) problem. Triffins Dilemma. https://social.lol/@major/114336142328498436

"Such a continuing drain to the United States in its balance of trade leads to ongoing tension between its national trade policies and its global monetary policy to maintain the U.S. dollar as the current global reserve currency."

https://en.wikipedia.org/wiki/Triffin_dilemma

Addendum 2: In 2010, after the 2008/09 crash, there was quite some interest in switching to the "old" Keynes plan. The IMF (International Monetary Fund) published an influential paper, discussing how a "modern" BANCOR could look like and how it compares to the "basket" approach. Interesting reading, IMHO, for those interested. https://www.imf.org/external/np/pp/eng/2010/041310.pdf

Sounds almost prescient: page 8. This is the big change that Trump is trying to do. Move away from incurring debt. In the context of this paper it is clear that the „reserve issuing country“ is the US and the US alone. And it failed at growing exports.

@jwildeboer

(note that I really don't like the guy, nor his political ideas, but he certainly has statesmanship, and SDR/Bancor is indeed a sound idea)

@lienrag I don’t do conspiracy theories.

@jwildeboer Oh, and of course, here's a link for those not wanting to search for data right now: https://www.visualcapitalist.com/ranked-the-top-20-countries-holding-the-most-u-s-debt/