The USA ready to abandon the “exorbitant privilege” for Bitcoin?

The United States will have to abandon the exorbitant privilege of the dollar if the objective is really to become an industrial power. A good omen for bitcoin.

Remove the trade deficit at all costs

The stock markets are struggling in the face of President Trump's ambition to reduce the huge trade deficit, by the customs tariffs if necessary.

The dollar is also hard, which is however a necessary evil to revive production and exports. In other words, the United States seems ready to mourn its monetary hegemony.

Several senior officials of the United States government are not very favorable to the status of reserve of the dollar. This is the case of Stephen Miran, the president of the small economic council of the White House. For him, a strong dollar weighs on the manufacturing industry by making American exports more expensive.

Vice-president Vance is of the same opinion. There is this idea in the Maga circles that the status of reserve is a double -edged sword which ends with an unbearable debt. Where the rub is that this new approach did not back up the borrowing rates, To the chagrin of the secretary of the Treasury Scott Bessent.

The explanation is due to the massive sales of China, which does not see why it would continue to buy the American debt if the American market closes its doors.

In all, foreign governments hold about $ 8,500 billion in US treasury bills. Not to mention those held by private foreign investment funds. It is a serious sword of damocles. Borrowing rates would fly if the rest of the world were to relieve its dollars. The US government will then have no choice but to reduce its budget deficit in view of its debt which already reaches 124 % of GDP.

Soon an qe?

It should be understood that an increase of 1 % of borrowing rates leads to an invoice representing 1.24 % of GDP to be paid either by an increase in taxes, or by a reduction in the budget. That is to say 360 billion dollars.

Knowing that the government is currently paying nearly $ 1,000 billion in interest. Compare with tax revenues of 5,000 billion for a budget of $ 7,000 billion.

Repeating the double trade and budget deficit will not be easily done. It is even a safe bet that the Fed will have to run the tickets to lower the rates by buying treasure bills.

We speak of “quantitative eating” (qe) in jargon. The result is that the Fed transfers the perceived interests to the government. And since the FED still has $ 4,650 billion in treasury bills, this means that the American government does not pay interest on 1/7 of the entire American debt.

The QE is obviously inflationary since it allows the government to continue to go into debt. That said, the stated objective being to reduce the expenses by $ 2,000 billion, the QE would not be inflationary.

Donald Trump clearly wants a boost from the Fed. Rate reductions would be welcome. Problem, Jerome Powell opposes it because of inflation that could soon fly away because of customs taxes.

Donald Trump will be able to appoint a new president of the Fed next year. Will he wait until then?

Twilight of the imperial currency

The end of the dollar as a dominant international reserve currency is no longer smiling. Deutsche Bank declared at the beginning of the month that the “The properties making the dollar a refuge currency are eroding.”

Capital Economics added a few days later: “It is no longer a hyperbole to say that the reserve status of the dollar is at least somewhat questioned”. The former Minister of the Economy Bruno Le Maire also feels that the wind turns:

We are talking about massive withdrawals from Chinese and Japanese investors of American treasury bills. […] For Europeans, the question becomes: what to do? They can come to the dollar rescue, in a desperate effort to save the international order of 1945, in ruins. The demand comes directly from the White House which invented this smoking idea of ​​treasury bills at 100 years old and without interest. The deal is clear: you finance our debt in exchange for which you will escape the customs prices. Astonishing this new manner of Americans to put the pistol on the temple of their allies. Amazing and revolting. […] For the first time since 1945, Europeans have in their hands a unique opportunity to make the euro a global reference currency.

Bruno Le Maire, ex-minister of the French economy

To do this, Bruno Le Maire proposes that European countries go into debt together. The idea being that China will more willingly make the euro its reserve currency if it can buy “European” obligations rather than Greek or Portuguese obligations.

Another solution would simply be to go back to gold, or better, to embrace its competitor: Bitcoin. We explained it in our article Should you buy gold or bitcoin?

The Master Bitcoin card

America has a big debt problem and the only reason they can afford it is that the world trade in dollar. This is what Benn Steileconomist at Council on Foreign Relations. “At one point, people will seriously consider alternatives to the dollar” …

Blackrock CEO, Larry Finkdid not say anything else in his annual letter to the shareholders. “If deficits continue to inflate, the dollar may lose its status of reserve currency for the benefit of bitcoin”.

Bitcoin is an international reserve currency in power. Even the White House advisers say they want to accumulate as much as possible. The secretary of the Treasury Scott Bessent knows that the Yuan will appreciate strongly if China stops accepting the dollar. However Beijing does not want a strong yuan and will therefore prefer to accumulate gold.

Hence the American strategy that takes shape, namely selling golden stocks to buy bitcoins. Washington would kill two strokes with one stone: weaken his opponents and get hold of a reserve currency much greater than gold.

Don't miss our article: How many bitcoins can the USA buy?