Comment by alphazard
2 months ago
Dollars are currently only in demand for short-term use in transactions. Most of the world still relies on dollars for transactions, because that is what all the banking and payment infrastructure uses.
But no one wants to hold them because they devalue and will continue to do so at an accelerating rate. It's a game of hot potato where everyone is forced to hold equities, commodities or other assets by default in order to preserve their wealth, and then convert to dollars to transact. The days of savings accounts are over, and everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world.
Meanwhile, the big players in the current financial system are trying to figure out how to continue playing the current game without resetting everyone's progress. They don't want to lose their hard won position to pay for bad decisions by American voters. It's a coordination problem, and the shelling point looks like it is still gold, same as it has been for thousands of years.
> Dollars are currently only in demand for short-term use in transactions
This is all currencies. You store value in debt. You spend in the hot currency.
> no one wants to hold them because they devalue and will continue to do so at an accelerating rate
Literally what Treasuries are for.
> everyone should think of their checking account as something that they pay negative real interest on for the privilege of being able to transact with the rest of the world
One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
But in today’s economy, you generally can find checking accounts with pay around inflation. And if it really worries you, you can buy TIPS.
> One, you shouldn’t be storing wealth in cash-like instruments, that’s literally using currency wrong (and has been across human history). Cash is for transacting.
Talk to Mr. Buffet and see what he thinks about this with his mountain of cash… Cash being just transacting might be the most insane thing I’ve read here this year, well done
I think it speaks volumes that Buffet has nowhere else to put that ~$382B in cash; that speaks more about current asset valuations ("everything bubble" [1]) more than that US cash is trash. If assets classes are inflated, US treasuries are no longer a safe haven, gold and other precious metals are overbought, where do you go? There is no immediate answer, imho, but only a slow burn as the world reconfigures around the US not being a superpower, the dollar not being a reserve currency, etc. As Workaccount2 comments downthread, "The dollar sucks but everything else sucks more. [2]"
[1] Look around: Bubbles are everywhere. - https://news.ycombinator.com/item?id=46407032
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> Talk to Mr. Buffet and see what he thinks about this with his mountain of cash
When finance types say "cash," we mean cash and cash equivalents. Berkshire Hatahway doesn't literally hold cash, they hold yield-generating cash equivalents.
> Cash being just transacting might be the most insane thing I’ve read here this year, well done
I strongly recommend a home economics course if this is the case. If you want to go deeper, anything about monetary theory
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Does he really hold cash? Or does he hold TIPS for example, and people colloquially refer to it as "cash"? I assumed it's the latter since it makes much more sense.
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This seems a little pedantic, but sure, no one wants to be owed debt denominated in dollars.
> no one wants debt denominated in dollars
Source? Every indication is that dollar-denominated financial assets are tremendously in demand. (What metric are you looking at?)
The Fed has been reducing rates while selling assets, all while U.S. public debt explodes. The Treasury is selling more debt. The Fed is selling debt. Rates went up, and then they went down. That means there is, ceteris paribus, more demand outside the Fed and Treasury than there was when Russia invaded Ukraine.
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A checking account that pays around inflation in interest doesn't net out to that unless you don't pay any tax on the interest.
Try that same argument with a zero coupon bond. It works fine because you don't have any coupon payments, thus no income tax until the principal is repaid at maturity.
> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro, but even that has serious issues for Europe's export oriented economies [1].
> Devalue against what is the main question though, isn't it? The real longer term issue is that the USD is devaluing against the Euro...
I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead. Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Instead think about:
1. The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held. It should have a positive real yield, but right now it doesn't.
2. How much your personal basket of monthly expenses costs in terms of dollars. Ignore a basket that someone on the news told you to care about, like CPI. I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
If you stored value in business or a precious metals in the last year and then converted back, you would probably have more dollars, or be able to buy more stuff, that's all there is to it.
> I don't think that FOREX rates are the best way to think about this, but if you work in that world or otherwise have an intuition for it, then go ahead. Most of us only handle 1 currency, and reasoning in terms of 2 isn't exactly an intuition pump.
Forex rates, balance of trade, and relative strengthening are great ways of understanding international fluctuations. They are exactly the way to understand reserve currency movements
> 2. How much your personal basket of monthly expenses costs in terms of dollars. Ignore a basket that someone on the news told you to care about, like CPI. I mean your personal basket, all the stuff you personally buy, how much is it in dollars, now, a year in the future, a year earlier.
This hits at a major part of the issue: goods that have no importable replacement good (housing and healthcare, namely) are a huge part of what lead to the huge bout of inflation. But those are domestic economics, not international economics.
>The dollar valued against itself a year earlier, and a year in the future. That is the interest rate or yield of the asset if held. It should go up, but right now it goes down.
You’re saying there should be deflation?
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The EUR/USD FX rate has been pretty stable for about 10 years. I think (sadly, didn't check notes before I wrote this), the trade balance between US and EU is well-balanced. As a result, the FX rate should also be well balanced.
> but even that has serious issues for Europe's export oriented economies
Hum... There are no reliable numbers out there, but I don't think the dollar devaluation has been keeping up with the US inflation.
And if so, no, Europe's exports are becoming more competitive, not less.
> Hum... There are no reliable numbers out there, but I don't think the dollar devaluation has been keeping up with the US inflation.
There isn't anything like "dollar devaluation has been keeping up with the US inflation". You are interested in what is called the import/export price index [1] and for imports that has been relatively flat for the past ~24 months(import +.3%, export +3.8% for TTM). So in a sense, imports for a fixed good are relatively unchanged in constant-currency terms.
It's more along the lines of "if the EUR goes to 1.5, what does this do to eurozone economies?" and the answer to that isn't pretty for europe. This would greatly impair the economy of Germany and other large eurozone economies pretty substantially(see this article for why [2]).
And finally, remember: the US actually exports inflation [3]. Most economies cannot simply say no to this effect.
[1]https://www.bls.gov/mxp/ [2]https://www.bloomberg.com/opinion/articles/2025-10-06/europe... [3] https://www.bloomberg.com/news/articles/2022-07-18/strong-us...
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Assets, not other currencies. Equities, commodities, consumer goods.
> But no one wants to hold them because they devalue and will continue to do so at an accelerating rate.
Talk is cheap. Show me the stats.
Why not just google inflation on your own? Or money supply?