The U.S. dollar — being the world’s reserve currency — protects the U.S. from seeing consequences such as a devalued currency and higher interest rates.
This is false. It is difficult to claim that a strong dollar creates increased trade deficits and that devaluing the currency would be a problem unless one assumes that we “must” always source materials and goods from outside the domestic economy. All countries that don’t have a currency of trade status manage to acquire a balance that works for them, so I’m pretty sure we could manage it as well.
If imports become more expensive we will simply create more goods and source more materials domestically which will increase our GDP. What protects us from the damage many others would realize from such deficits is the fiat nature of our currency. We exchange dollars that we can pull from our backsides on demand for real resources and labor without the resource drain or pollution costs involved in their production. This is only a mistake if we deny the need to properly fund consumers/labor, which we have done since ’80. A commitment to 100% employment at a livable wage with benefits realized via a federally funded job guarantee would make the trade balance totally a moot point and set the bar for domestic employers.
The interest rate paid on our debt is never controlled by investors. The Fed, having a combined balance sheet with Treasury, will always hit its target rate within very small margins, and the natural rate for a fiat currency is anything above zero. Fed pressure is always upward. Treasury bonds don’t “fund” our federal spending anyway as excess reserves needed to purchase bonds can only come from deficit spending. It is more accurate to say that federal spending funds bond purchases than the reverse. Bonds are a currency “drain”, not revenue, and the interest paid on them is just another form of spending that allows leverage for the Fed to set rates and provides a floor (welfare?) for investment portfolios.
The current administration has been enforcing protectionist measures to reduce the trade deficit.
Translation: The current administration has been imposing needless taxes on domestic consumers that are paid from the nation’s economy, already under assault from deliberate wage stagnation to bolster profits.
Tariffs can only reduce the debt. This could be argued as a benefit if we were still revenue constrained by a gold standard and gained “policy room” to spend into the economy as a result. However, sans a gold reserve to defend, the “debt” is nothing more than a record of currency created by Congress and not yet used to pay a federal tax obligation. That makes it the “net” money supply after private bank debt and reserves are settled. There is no scenario where reducing the money supply is good for labor/consumers, but it does drive demand for bank credit and generate private sector debt.
The current level of the federal debt has been strengthening the dollar as more foreign investors purchase treasury bonds, which means U.S. exports might become less attractive.
Please pick a side and stick to it.
You can’t posit that deficit spending will inflate the dollar while also stating that Treasury bonds strengthen the dollar. Bonds are a direct result of deficit spending. They are nothing more than a liquidity swap for excess reserves.
