Comment by layer8
7 days ago
One thing I don’t understand here, genuine question: If, hypothetically, US manufacturing was to become so competitive that the trade deficit would go away, would that have the same disastrous effects for the US dollar as a trade/reserve currency? Or how would that work?
It's impossible for both things to be true. For the dollar to be the reserve currency countries need to accumulate dollars. They can't do that unless more dollars leave the US than come back.
The problem is that countries don't just take the dollars and sit on them. We're on the third iteration of solving this intractable problem:
Try 1 was gold. The US was running out of gold and Nixon had to end redemption of dollars for gold.
Try 2 was assets (think the Japanese buying everything in the 80s). That was unpopular and the Plaza Accords put an end to it with significant damage to the Japanese economy
Try 3 is government debt. But it's the same fundamental problem. The US isn't ever willingly going to give back assets for this debt. Everyone agrees with the polite fiction that the US will and so things are fine. But if they ever expect actual stuff for that debt it will all break down again.
Thanks. These hints led me to https://en.wikipedia.org/wiki/Triffin_dilemma.
US manufacturing is better than it ever has been by all measures except number of people working in them. This means that there isn't much need for someone to get good at putting a nut on a bolt and other such mindless work that is skilled only in that with a lot of practice you can get really fast as doing it. People who don't want to spend a lot of years in school are thus not doing very well because there isn't much need for people who don't want to use their brain.
Not all measures: https://www.marketwatch.com/story/this-chart-shows-the-drama.... It may not have declined in absolute terms, but it still hasn't kept pace with the rest of the economy.