I, a foreign entity, have sold something to an american and now have 10 dollars and zero treasuries.

I purchase a treasury. I have zero product, zero dollars and one treasury.

At some point in future i have zero product, maybe 12 dollars and zero treasuries. Presumably i now either repeat the cycle or use my winnings to spend on us output.

GP’s version checks out, your assertion about dollars staying abroad doesnt track? What am i misunderstanding - How did these dollars get abroad, how did they repatriate to buy treasuries, how did a treasury become a reserve, how did the dollars still exist abroad after being exchanged for treasuries?

If dollars were being repatriated, but as investment into financial instruments and real estate instead of purchases of goods and services, then that would not affect the trade deficit, right?

> Strangely enough, this is exactly the opposite of how it works. The dollars abroad tend to stay abroad, as either a more stable alternative to local currencies, or a reserve currency.

I think you have it backwards. The US dollar can be handled as a more stable alternative only if it's actually stable. As soon as the US government starts to deteriorate goodwill and outright be hostile towards the world, not only does the US dolar lose its value as a stable alternative but foreign governments start to be motivated to dump their assets, which further tanks its value. In the past couple of weeks we started seeing countries outright dump their investments in US dolar to derisk their portfolio, and they did it at the tune of billions of dollars. You also started to see political pressure for foreign governments to demand their gold reserves are pulled out of the US, which means this pressure goes way beyond US dollars.

He's not wrong in his conclusion, just not accurate in why. If countries start moving away from depending on the trade imbalance with the US, the demand for USD will dry up. And they are trying to move away from it because of politics, specifically because of US bullying. But more importantly, the US is increasing trade barriers in a naive attempt to reduce that trade imbalance, which is the biggest reason everybody holds so many dollars--they're paid in dollars when exporting to the US, but don't buy enough US imports (individually or collectively) to spend & exchange all those dollars, which is why they park them in treasuries and other US investments. And it won't be long before oil begins receding from the picture (at least relative to total global trade, if not absolute dollars), displaced by renewables. Though oil is odd in that while creating demand for USD to settle transactions even for non-US oil, it's also a significant US export and has the effect of repatriating dollars.

The importance of USD globally was always on borrowed time. Global GDP has exploded in the 21st century, and the size of the US economy relative to the global economy is shrinking, albeit slowly. The US share of global GDP was like 35% in 1985. By 2030 it's projected to be as low as 12%. It doesn't necessarily follow that this would change the dynamic of strong dollar demand supporting US investments and debt, but it makes it much easier for this dynamic to change as countries become increasingly less reliant in relative terms on exporting to the US. In fact, it's kinda idiotic to rock this boat unless/until we're prepared for some serious fiscal belt tightening. As global GDP increases relative to the US, in theory the rest of the world could support profligate US debt in perpetuity.

The US has pointed and fired guns at other countries for moving away from US treasuries, but alternative justifications are produced to reassure our domestic population that it’s really because the foreign leader is a very bad guy.

The international "rules-based order" is a good idea when most nations play by the rules most of the time, and when the most powerful at least pretend to follow the same rules as everyone else.

A world order based on rules makes it possible to live at a much higher level of abstraction.

Abstractions like rule of law, democracy, government currencies and stock exchanges are intangible and imaginary. They're mostly just figments of collective belief. But these wispy and unreal ideas that everyone believes in make it possible for most people to live longer, healthier and less difficult lives.

The "rules-based order" was always partly mythical, but as long as everyone kept pretending, it mostly continued to function.

But when we devolve from the rules-based order to the old order of pure power and might-makes-right, kings and dictators, when there's no more collective belief that the rules apply to the rich and powerful, then the tower of abstractions collapses, and we're back to the cold, hard, brutal and difficult real world.

People will find out that life in the real world is a lot poorer and more miserable than life at the top of the tower of abstractions, even if your brokerage account appears to double.

>demand is still there today

Not all demand the same. There are broadly 2 types of USD buyers

1. price insensitive: sovereign banks, who buys for liquidity/storage

2. price sensitive: hedge funds, private buyer who buys returns

Type 1 buyers are bailing out of treasury. Type 1 are marginal buyers, the close auction regardless or rate, this keeps rates low -> debt servicing low. They artificially depress yield to non market rates, without them rate go up because you have more price sensitive buyers who buy for returns. This increases borrowing costs, hence US debt repayment rising massively.

Type 1 buyers, i.e. US allies (and historically even adversaries) soaked up treasuries are now de-dollarizing / buying gold in lieu of _more_ USD. Type 1s underpin the "privilege" part of exorbitant privilege. The more they de-dollarize the more dollars become exorbitant, aka debt like everyone else. Type1, sovereign held 60% of USD to 40% in last 5 years. This large part of why interest tripled and debt servicing went from 350B to 1T in 5 years. Type1s exit to 20% in another 5 years and maybe interest goes to 5%, debt servicing 2T+. It's the difference between 10%/20%/30% debt servicing as % of federal revenue.

This not to mention USD reserve ticking down at 1% per year means meaningful changes in our lifetimes, and velocity may increase with developments like Saudi no longer locking oil to dollar. Less USD as % of global reserve = more network effects of alternate payment = increased potential velocity of USD reserve drop. This doesn't mean other currencies pickup all slack, i.e. central banks seem to be going in gold / commodities with no counter party risk for new storage. The net result is USD will still be around, in large volumes, but the cost/debt to sustain the system will be "normalized" while US budget is historically is built around USD debt being privileged. AKA difference between borrowing money from family vs payday loans.

>Nearly all commodities are still priced in USD

PRICED as in benchmarked in USD, but =/= USD is being spent to settle them. There's a fuckload of commodities where PRC alone buys 30/40/50%+ of global production, and while quoted in USD, increasingly settled in rmb/CIPS, bilateral currencies, BRI infra or other swaps mechanisms that bypasses USD. This one of the largest source of dedollarization - PRC went from single digit % to plurality of cross-border settlements in RMB/non USD. Though this is just very recent leading indicator that USD is functionally circumventable.

> So if this time is different, I’m not seeing it yet

Compare those numbers to 5 years ago. Remember, this is the timescale of a country, not a beagle. America has run on the strength of the dollar for decades, and the symptoms of that collapsing are likely to play out over decades.

> USD still made up 57% of foreign reserves

Yes, but that's the lowest it's been since 1994, in percentage terms. In dollar terms it's been largely flat for the last decade:

https://wolfstreet.com/2025/12/26/status-of-the-us-dollar-as...

The end of 2026 was remarkably different to the world of today, and it that's logical it is - checks calendar - already 31 days ago. Now imagine another year of this.

That number has been dropping by a percent every year for USD over the last 10 years. It used to be 65% USD in 2015

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> Meanwhile it should have less inflationary pressure on domestically produced stuff like housing.

This is pure fantasy. A weak dollar makes it more affordable for foreign capital to buy US assets, yes, including housing. The president himself recently admitted on video that he plans to make house prices rise.

There is no plan. There is just chaos.

It also increases profits for multi-national US companies since they get paid in other currencies, which they then convert to dollars locally. Basically, they have favorable FX tailwinds.

The "Mar a Lago Accord" plan [1], for those curious. The US debt is one major rationale behind the strategy.

It's a dangerous plan that relies on keeping allies happy and re-establishing hegemony via a Plaza Accords / Bretton Woods 2.0 type system.

It's not going to work if you simultaneously piss all of the allies off.

[1] https://www.youtube.com/watch?v=1ts5wJ6OfzA by Money & Macro, which is a fantastic economics YouTube channel. Patrick Boyle has also spoken about this in pieces.

Who is that "we" backed into corner? USA as such certainly not.

Maybe you mean "pro-democracy anti abuse" people? Those yes. But administration and far right are not in corner. They are in full active act achieving exactly what they wanted.

Eh, it's not a plan, it's make believe.

It's a flimsy back-filled rationale thrown on top the mercurial (and often sadistic) whims of an American Caligula, so the elite enablers can pretend there's something rational - or even good - about the chaos and destruction they are supporting.

There isn't. It's just chaos and destruction.

That's mostly a result of you using percentages rather than dollars and the US being one of the largest countries. 27% of US GDP is 165% of Germany's GDP and Germany is the third largest economy in the world after the US and China.

Become a hermit kingdom to own the libs.

At a certain point we have to ask: what is the point of politics? Who are we doing all this civilisation stuff for? Is a nation an engine of prosperity to enrich the lives of its people, or a life support system for the Dear Leader?

Nonsense. If 27% of GDP is suddenly gone, how US economy could be the largest? (rest of the world can substitute US trade between itself)

>The US is so developed, that even if the country was completely cut off from the world and operated as an internal economy it would still remain the world's largest.

That's a pretty enormous assumption. The US economy tends to crash into a smouldering ruin on the tiniest fluctuation in the inputs. The notion that you could abolish 27% of the real GDP and everything else just continues is not reality based. The US is barrelling towards a natural debt limit and that alone is going to be utter catastrophe for an economy that is fuelled by an insane amount of debt spending. The fact that some of the cons, like Trump and Graham, are trying to extract as much as they can as quickly as they can is telling enough.

The US economy is a tenuous mirage. Like Americans constantly love showing the fun charts demonstrating that various backwater, poor, Methville states with negligible business or industry have a higher GDP / capita than most developed nations. Sure they do.

> Economic crashes are hard to predict.

Some of them are, some of them aren't. An economic crash is pretty much guaranteed if international relations break down in such a way that international partners believe trading with the US is a liability. Dollar going down won't stimulate exports if the cause for it was an aversion to buying US products in the first place.

Whether or when that will happen, and to which extent, is another story, all we can say is that the momentum created by the current US administration moves us closer to that point. Will they come to their mind before that happen? Will they be able to restore trust? Will the lingering effect from the damage already done subside? These are hard questions.

The next crash will probably be a race for assets or hard assets for the people who can afford it. It means the stock market will reach all time high, gold all time high and land prices skyrocketing as people try to escape from the dollar currency. The US President will still be proud the economy is still good because the stock market is at all time high and the people are rich because their homes are at all time high valuation but the middle class can barely afford food because there are no available jobs that pays good enough.

>Trump has no ability to admit mistakes even to himself

Whatever happened to 'TACO'

Still, he'll be gone one day and I am going to be all in on that day. It'll all be hockey-sticks from that moment on.

They can and they do; that's called dollarization.

It's worth observing that dollars that are never supposed to return to the US don't have the same anti-counterfeiting pressure that dollars spent in the US do. I don't know how much of a market there is in counterfeiting USD for dollarized economies.

> I don't think it's even in China's interest to see a large decline of the US, after all they're a big customer.

Yeah aren’t they just Leninist but using us as a signal of what to make? I thought rough shape of the scheme was you get to build a factory using free loans in bullshit money that buys rice and apartments but can’t leave the country, then use that to get real money you can take elsewhere by making shit Americans want to buy. You can’t trade the bullshit money for real money without the factory step.

"Soak the rich" laws were passed around a hundred years ago in the US in response to obscene wealth; worked out pretty well for a long time before they got rolled back and we got a new round of oligarchs.

The trillion dollars a year pumped into the military support the stock prices of quite a few highly-valued companies. A sudden collapse of hegemony would be bad for "the market", but that seems unlikely unless WW3 actually kicks off instead of a few more rounds of opportunistic snatching and bullying by the big countries, and in that case few people would care about the stock market.

He bankrupted 4 casinos. 2 in one swoop.