Brent Johnson was recently interviewed by Longview Economics about his position on the USD, and why the doom and gloom surrounding the USD may be overstated:
The host brought up Charles Kindleberger’s seven conditions for losing reserve currency status, and it does seem that there are a lot fewer than he purports:
|1. Over Indebtedness
|The US is highly indebted, but other countries have worse debt to GDP and slower growth.
|2. Energy Dependency
|The US is a net energy exporter. The two next largest economies (EU / China) are energy importers.
|3. Foreign Policy Overstretch
|This may be true, but the US is pulling back, and its geography means it benefits from isolation more than the rest of the world.
|4. Move from Industrial Economy to a Financial Economy
|This has been a trend in the US, but it is still the second-largest manufacturer in the world, and is in the process of reshoring it’s manufacturing base. Robotics, automation, and the information age may mean that this is less relevant.
|5. Political Corruption/Breakdown/Bi-partisanship
|This has been happening, and of all the points, this may be the most applicable.
|6. Currency Debasement
|While this also has been happening in the US, unlike at other points in history, there are no major sound money economies, and the USD is currently historically strong compared to other fiat currencies like the EUR, JPY and RMB.
|7. Loss of Technological Leadership
|Even though the US has outsourced much of is manufacturing, foreign manufacturing is still dependent on the technology of US and its allies. Recent export restrictions have shown it still controls much of the high-end technology space adding to its lead in other areas such as cloud computing, biotech, and AI.