It looks like the world is trying painfully and reluctantly to move away from Dollar Hegemony.
America's huge trade deficit puts a downward pressure on the value of dollar. But the dollar doesn't collapse because of the huge demand for US assets pushing the dollar upward. This huge demand for US assets is the major reason that America can expand its economy far beyond its own strength. But the problem is that for such a long period, American economy is fuelled by such a huge amount of foreign capital that it finally becomes too big for its own. America loses the chance to go through some normal economic circles the other countries all do: Trade deficit, depreciation of the currency, rise of interest rate, slowing down consuming and investment, increasing public and private saving, trade surplus and so on so forth. It's like the whole world altogether feeds the body of American economy regardlessly and finally the body becomes a monster too heavy for its own two legs: America needs to walk on the legs of other countries' financing and otherwise it will break its own bones and fall flat on the ground.
There're only two options to this situation:
First: gear up protectionist trade wars, force trade deficit to shrink, rise up interest rate to bust the economic bubble, default lots of treasuries, allow economy to slip into recession to slim down itself and kill off the over demanding on the America’s asset market. Politicians won't buy into this though, because this strategy won't buy them seats in the parliament cause it won't improve American’s already luxury living quality fuelled by these cheap foreign capitals.
Plan B: accept the reality of globalization and the fact that outsourcing and trade deficit are just the consequence for being the only superpower on this planet: America has the majority of the major global corporations which are purely after higher profit, lower cost and therefore outsourcing. This is not about patriotism and leaving the job at home. America has the largest economy on the world,so monstrously large that America has to consume the bulk of world resources, energies, and capital to survive. America needs trade deficit and the capital inflow coming with it. Trade deficit spells disaster to any other countries but not USA because of the safe haven effect. You can not turn the globalization around. Outsource to cut cost and make more money, import goods to spend less and buy more. It's that simple. Any protectionist policy is just to help you pretend to be blind to the globalization. Being blind still can't wipe out the reality: outsourcing and trade deficit is just the consequence for being the only superpower country on this planet: America has the majority of the major global corporations which are purely after higher profit, lower cost and therefore outsourcing. This is not about patriotism and leaving the job at home. America has the largest economy in the world, so monstrously big that America must consume the bulk of the world resources, energies, and capital to survive. America needs trade deficit and the capital inflow coming with it. Otherwise America can force itself into a recession to slim down the size of such an enormous economy to become a slim kid to eat less and grow less. But then again, America won't be such a free and great country as it is today. It's time to accept the reality and happily live with it. The success of America today owns a lot to the efforts from all around the world. So when you think of America, don't be too patriot because today's America is not simply America's America, it's the whole world's America. When you think that way, you'll make the most out of the current situation.
Consistently make America a safe, free, efficient, and profitable asset market. That's the free way to sustain America's success. Consistently focus on the technology innovation to keep hands on the upper-end of global productivity. That's the key to keep the control of the global economic. America innovates, the world will follow.
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