I agree with the overall reasoning for why we need inflation hedges.
I also agree that US debt poses a risk, as all debts do, but I would view this risk slightly differently, using a historical rather than budgetary lens:
to a large degree, the privilege of the dollar is due to the US being the largest economy, the major world power and a stable government. That makes it “too big to fail”
eventually, the US will not be the largest economy / major world power (looking at history you have to make a strong bet against permanent supremacy). At that point, it will have to come back to Earth and make much more constrained choices like all the other countries have to
this course of events is unlikely to happen because some Fed decision about the timing of interest rates, or because some politician in the 2020s refused to cut back entitlements by a small percentage. It will happen because some other country starts to be seen as the safer option. Prolonged GDP decline, a major military defeat, and/or government overthrow could all help precipitate such an outcome.
The reason this matters is that typical US debt hawks will advocate as a main solution reduced spending on long-term infrastructure, military technology and so on.
However, if you’re concerned with debt, you should be more concerned about GDP (what you get out of the dollar) than government spending (what you put into it, so to speak); about military power than military leanness;and about government stability than government drama (including periodic debt ceiling freakouts). A strong government backed by a strong share of the world economy—that is what investors see in the US dollar. The minute they stop seeing that, the party is over and hard choices will need to be made. (Remember how the markets reacted to Liz Truss’s budget a few months ago? That is what a former empire making economic decisions looks like.)
So if you keep GDP running, prevent China from overturning the world order, and avoid obvious own-goals such as January 6 style craziness the US should be fine for a while longer.
Now, is this US-favourable outcome the most beneficial to the world? I don’t know—it may be better to shift the equilibrium at some point (though on balance, I would tend to say, probably not now). But if it is the outcome you want, those would be the key items to safeguard.
I agree with the overall reasoning for why we need inflation hedges.
I also agree that US debt poses a risk, as all debts do, but I would view this risk slightly differently, using a historical rather than budgetary lens:
to a large degree, the privilege of the dollar is due to the US being the largest economy, the major world power and a stable government. That makes it “too big to fail”
eventually, the US will not be the largest economy / major world power (looking at history you have to make a strong bet against permanent supremacy). At that point, it will have to come back to Earth and make much more constrained choices like all the other countries have to
this course of events is unlikely to happen because some Fed decision about the timing of interest rates, or because some politician in the 2020s refused to cut back entitlements by a small percentage. It will happen because some other country starts to be seen as the safer option. Prolonged GDP decline, a major military defeat, and/or government overthrow could all help precipitate such an outcome.
The reason this matters is that typical US debt hawks will advocate as a main solution reduced spending on long-term infrastructure, military technology and so on.
However, if you’re concerned with debt, you should be more concerned about GDP (what you get out of the dollar) than government spending (what you put into it, so to speak); about military power than military leanness;and about government stability than government drama (including periodic debt ceiling freakouts). A strong government backed by a strong share of the world economy—that is what investors see in the US dollar. The minute they stop seeing that, the party is over and hard choices will need to be made. (Remember how the markets reacted to Liz Truss’s budget a few months ago? That is what a former empire making economic decisions looks like.)
So if you keep GDP running, prevent China from overturning the world order, and avoid obvious own-goals such as January 6 style craziness the US should be fine for a while longer.
Now, is this US-favourable outcome the most beneficial to the world? I don’t know—it may be better to shift the equilibrium at some point (though on balance, I would tend to say, probably not now). But if it is the outcome you want, those would be the key items to safeguard.