Shares? Down. The US dollar? The same. Demand for US bonds? Also fall. That shouldn’t happen – not all three at the same time.
But Barry Eichengreen sees a historical reaction in which there is really a common topic: a collapse of faith in the United States.
“Global investors have come to the conclusion that there is a crazy man in the White House and that the insane has gained control of the asylum,” said Eichengreen, historian at the University of California in Berkeley, the currencies and central banks.
“The damage is clearly outside the repair.”
Washington tries to stick the pieces of a Humpingy Dumpty month back-as US President Donald Trump introduced the highest tariffs for over a century and then declined something, then, dissatisfied with the interest rates, the head of the US Federal Reserve, before they were excluded, even than the staff of the White House were reported to be excluded Study replacement options.
Recent history has shown that political interference A have a in the central bank and interest rates catastrophic effect On inflation.
It is simply not to happen in the United States of America – the largest economy in the world. Owner of the most important currency in the world, a currency that supports the safest investment on earth: US debt bonds.
In the past few weeks, investors who flee from the stock exchange do not have done what they normally do: jump into the safe hug of the US dollars and the US government.
Repair damage
Some analysts compared the combination of events with what they would normally see in a developing economy. Risk assets, secure assets and the currency are fighting at the same time.
“The United States were more than just one nation. It is a brand. It is a universal brand OB it is our culture, our financial strength, our military strength,” said Ken Griffin, a Republican Mega-Donor and CEO of Citadel, on Wednesday in Washington in Washington.
“And we are eroding this brand. We endangered this brand,” he said.
“It can take a long time to remove the start of a brand. … It can be a lifetime to repair the damage.”
There are differences in opinion here. Obviously, the Trump administration tries to repair this damage.
All of these indicators mentioned above have made a little easier in the past few days, since the administration softens the tone in their global trade war and in the Federal Reserve.
According to reports, the administration is considering Cut Some of the Chinese tariffs that are massive and exceed 140 percent in some products and trigger one Wreaking eye help in shipping over the last few days.
On Wednesday, Trump announced reporters that negotiations with China were “active”.
“The collective bargaining is going very well. We are dealing with many, many countries,” he said.
In fact, the United States has a 245 percent tariff on Chinese goods, but not as they might think. Andrew Chang explains how this number was so high and which imports are hit. Is Trump’s approach calculated or not?
But on the same day his finance minister told reporters The USA and China are not yet talking. In the meantime, some countries say that it is unclear what the United States actually wants.
The tremor will not end overnight.
“This is not a short -term adaptation. It is a paradigm shift that we expect far beyond the four -year term of the president,” said a research information this week from Oxford Economics, which relates to the newer, more protected era.
“Indeed, the story shows that protectionist measures such as tariffs and non-tariff barriers are removed, it can take decades to completely regain them as niche groups that form from protectionism into powerful lobbies.”
Debate about the dollar
It is not just that the shares are down – with the S&P 500 over eight percent this year, even after a small rally this week.
The US dollar has overthrown amazing nine cent Against the euro Since Trump started his office. It is even two cent against them Canadian dollarAgainst all expectations.
The demand for US debts seemed shocking and most worrying, with the 10-year-old US financial bonds Half a cent of up to half a centAlthough it is a bit softened.
There are different views of how bad it actually is.
Another expert, Steven Kamin, a fellow of the American Enterprise Institute Think-Tank, agrees with other diagnoses, which unleashed the unusual trade patterns.
Things went “so crazy,” he said, “that investors were afraid and also withdrew from the (us) dollar.”
But he is not sure how far things will go.
The fireplace is not so concerned about the fluctuations in the stock market. And as far as Bonds are concerned, he observes the broader economy to assess whether its current reviews are normal.
Then there is a fundamental problem at the center of the global financial system: the status of the US dollar, the global reserve currency for generations.
The widespread use of Greenback in international transactions and in foreign central bank stocks has created an inexhaustible appetite for this.
This inexhaustible appetite enables the United States to spend more money than it has to continue the debts for the monsters and continue to spend bonds with trust that there will always be buyers.
Kamin, a former director of the Federal Reserve’s international finances, was not worried about this status.
“Obviously the dollar dominates,” he said.
“Some people say that this current episode rings the death blow for their special role. That is very unlikely. … The world cannot turn on a cent.”
The US dollar is still king.
It continues to make up 57 percent of the currencies of foreign central banks. His share has a little back Over the decades and again in last yearHowever, there is no obvious replacement candidate for transactions and bond investments.
In Washington there is a certain debate about whether the United States at least one cheaper dollar, convinced that it would help its manufacturing staff to produce goods at more competitive prices.
But that’s a minority view. The prevailing consensus in Washington is that the United States gains more than from a powerful dollar.
“We still have a strong political policy,” said finance minister Scott Bessent on Wednesday and expressed this view.
“I think the United States will always be the reserve currency in my life. I’m not sure if someone wants it. … it is a lot of pressure for export management.”
The US Finance Minister Scott Bessent, who is organized at an event at the Institute for International Finance, says that the “persistent over-control” of the USA for consumer demand creates an “always unnoticed” global economy and lists China’s exporting economy as a “non-sustainable” model.
Eichengreen may not be a fan of dealing with the economy by the Trump government. But here he agrees to Trump’s finance minister: The strong dollar helps, more than hurt the USA
The advantages, he said, include lower debt costs for the government, the comfort value for US banks and companies that act in their own currency, insurance in a crisis in which it is a rare asset that grows, and the authorization to collect sanctions against the use of their banks.
And he fears that American politicians will mess everything up. When asked whether the United States was in the real danger of losing the status of the reserve currency, he said: “We are.”
“If the competence and even the rationality of a country’s political decision -makers are questioned, his currency loses its safe port and its reserve currency status,” he said, stating that the share of the dollar in the central bank reserves for a quarter of a century has slowly dropped from around 0.5 percent per year.
“We can expect this process to accelerate.”
