Why is the dollar so strong when the US prints so much money?
Finding certainty in a world full of uncertainty is undoubtedly a formidable challenge.
Since Donald Trump took office as US President, with the slogan of “America First”, the US has changed its traditional approach of foreign strategy. It has not only frequently withdrawn from the group, causing trade disputes between China and the US, but also wantonly attacked its traditional Allies and even ignited disputes around the world.
These practices seem so perplexing that some scholars see America’s recklessness as a natural symptom of its decline.
In fact, the fact that The United States is picking fights and making enemies is not a sign of decline, but of its continued strength, or the willful use of that strength. Generally speaking, the United States has the following three purposes.
The first is long-term: destabilize the world, or even cause great chaos and instability in the world. Only then can we act, proving that the world needs the US and that the US is still the “big one”.
The second is medium-term, with two main objectives: one is to reshape the global economic and trade rules, and the other is to restructure the global industrial chain or value chain. The two objectives are highly focused, namely “de-Sinification”.
It should be pointed out that, the developed countries or regions such as the United States to Europe day trade on with its distinct the purpose of a trade dispute with China, the former is “to promote”, forming a containment to China, to build “desinification” the rules of market economy the alliance, “poison pill” clause (the u.s.-mexico and agreement) is so. Thus, the most dangerous problem facing the world today is not so-called “anti-globalisation” (globalisation is inherently irreversible), but a breakdown of the “globalisation consensus” among the major powers, an unbridgeable breakdown that must lead to a reordering of the rules.
The third is more recent: to encourage the repatriation of dollars.
On the one hand, the United States promotes the return of industrial capital through tax cuts and other means to promote the development of the American manufacturing industry; on the other hand, it makes use of the hedge function of the DOLLAR in the period of global turmoil to promote the return of DOLLAR capital, in an attempt to lower long-term interest rates, ensure the low cost of domestic capital, and achieve financial market expansion and economic prosperity.
Obviously, the current trade disputes between the United States and other countries, especially China, are not only supported by its strong political, economic, technological and military backgrounds, but also by its strong financial and monetary advantages. This is something we should not ignore when thinking about and responding to us trade protectionism.
Dollar system formation and development is the change of the 20th century the world economy is the most core, makes the United States built a totally different world with previous hegemony countries control system, exploitation and control more secretive of the world, more importantly, changed the human society has long pursued the financial logic, the today’s world economic development and great changes in the world pattern.
How did the US tamper with financial logic?
To repay debts was the invariable financial logic of human society. It enabled human society to make slow social and economic progress even in the pre-civilized jungle age.
In today’s world, every time a country a major fiscal, financial crisis, the international monetary fund (IMF), the world bank and a variety of global and regional economic organizations to implement rescue, one of the prerequisite is required by the fiscal tightening in host countries, namely, through savings, strengthen the function of recycling economy, improve the ability to repay the loan, Greece, Italy and Spain are among the five countries in southern Europe.
But there is only one country in the world that can continue to expand its economy with astronomically high debts and no external constraints other than an internal limit imposed by its congress on the “debt ceiling”.
That country is the United States.
Why can the United States be so unique? The key lies in the fact that the United States has changed the financial logic of mankind in its debt relationship with the outside world and implemented it through the dollar system established after the collapse of the Bretton Woods system.
So far, the academic analysis of the financial logic of the dollar system or the dollar hegemony basically boils down the behavioral logic of the dollar system to the existing hard power and soft power of the United States, but fails to see that its essence is the change of human financial logic, that is, from “creditor logic” to “debtor logic”.
It is well known that in the process of building the Bretton Woods system from the second half of 1943 to July 1944, there was a famous “White Plan” and “Keynes Plan” debate.
It is generally believed that the key of the dispute between the two is that Britain, as a declining empire, tries to guarantee its own status and interests, while the United States, as a new hegemonic power, needs to safeguard its own interests, that is, the focus of the dispute between the old empire and the new empire is the interest dispute.
One of the centrepieces of the Keynesian plan was a return to multilateral clearing, with surplus countries taking responsibility for adjusting their balance of payments. In contrast, the White Plan insisted on a dollar-centric approach, with deficit countries taking responsibility for balance of payments adjustments.
Fortunately, although the United States won the “White Plan” with its powerful political, economic and military strength, the Bretton Woods system based on it still adhered to the “creditor logic”, which requires deficit countries to adjust the imbalance of international payments and take austerity and other adjustment measures with the interests of creditors as the core. Thus, it laid an important institutional foundation for the stable and rapid development of the world economy after world War II.
With the operation of Bretton Woods system, the contradiction between liquidity and credit of a country’s currency as the key international currency, namely “Triffin problem”, began to emerge gradually.
Americans used to be extremely worried about the excessive expansion of the US national debt and its political consequences. Paul Kennedy, a history professor at Yale University, once regarded the total national debt reaching 1.8 trillion DOLLARS in 1985 as the performance of the excessive expansion of The US credit and held a pessimistic view: “The only other major country in peacetime history to have issued so much debt was France in the 1780s, and its fiscal crisis led to a domestic political crisis.”
But experience later proved that such a large expansion of debt under the “creditor’s logic” was indeed dangerous, whereas under the “debtor’s logic” such fears were unnecessary.
The root cause of the collapse of the Bretton Woods system was not the “Triffin problem”, but America’s unwillingness to follow the “creditor logic” of its debts, as Britain did after the first world war: that the US no longer played by the rules.
As the problem of gold outflow becomes more and more serious, American politicians and academics begin to discuss how to get rid of the “gold curse” and realize the path of unrestrained expansion of the DOLLAR. In March 1968, the disintegration of the “gold base” and the division of the gold market made the world enter the “dollar standard system”. By the time the Paul Volcker Task Force report came out and then-President Richard Nixon closed the “gold window,” the United States had achieved the largest default in human history.
Thus, the change in financial logic in the US was not sudden, but “long planned”.
The nature and power of the dollar system
The formation and development of the dollar system, on the one hand, changed the principle of urging deficit countries to recover and strengthening policy constraints, enabling them to take expansionary economic policies regardless of the debt scale and reasonable level; On the other hand, floating exchange rate system makes the current account of deficit countries such as the United States continue to expand, and leads to the spread of unconstrained policies from deficit countries to surplus countries, which undermines the stability and efficiency of world economic growth.
Why is the dollar so strong when the US prints so much money?