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Samir Jaju's avatar

Let's imagine if there is a fiscal surplus in the US, then where would the foreigners put those dollars? They might invest it in other countries or buy lots of shares in the US markets -- might create bubbles.

Maybe, foreigners stop devaluing their currency, making their exports more expensive. But since US demand has now dropped due fiscal discipline, I wonder if these exporters would want their exports to become expensive.

There is no scenario out of this, I guess, wherein American consumers won't have to consume a little less. Unless, countries simply pay US a tribute to be able to access their markets and using their currency and keep their own population employed.

The primary driver at the heart of it I guess is Americans now want to just consume at really low prices.

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Sri Hari's avatar

The curse of reserve currency-

The United States was experiencing the downside of its success. The dollar's status as the world's reserve currency caused its value to rise significantly, making imports cheaper. As a result, the U.S. struggled to commercialise its innovations quickly enough before China could, due in part to its complex democratic and regulatory systems that slowed the process. Consequently, the U.S. lost its competitive edge in both high- and low-tech manufacturing to China.

On the other hand, China maintained its capabilities in both high and low-tech manufacturing, allowing its commercial engines to operate efficiently. A significant misunderstanding dispelled is the belief that a thriving service industry can exist without a strong manufacturing base.

In the U.S., the standard of living was artificially sustained by a massive annual trade deficit of approximately $900 billion. Reviving the manufacturing sector will likely necessitate a significant reduction in wages and benefits.

The aim should have been a controlled lowering of debt. A $900 billion trade deficit is not sustainable for the US or the world.

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