I think a lot of the reason for the war on taxes is the exorbitant privilege [1] of owning the world reserve currency. It lets America print as many dollars as it wants, and borrow in a currency it controls entirely. In a normal country this would result in severe inflation, but because America borrows and prints a currency that is necessary abroad to conduct international trade, it is able to "export" a large part of its inflation.

In such a system, it is rational to cut taxes as much as possible and instead rely on borrowing and monetization of debt. It allows America to limit the load on its own citizens, who in turn enjoy "exorbitant privilege" in the colloquial rather than economic sense, and then have the costs spread amongst the billions of people who don't live here. Privatize the gains, socialize the losses.

The flip side is that if the U.S. dollar ever loses its reserve currency status, that is literally the end of the United States. It will no longer have the ability to fund the government, which is fed by debt that is largely snapped up by foreigners who need a place to park the dollars that move abroad from the persistent trade deficits needed to sustain reserve currency status. It will also no longer have a citizenry or economy capable of doing anything other than moving capital (finance) and jobs (tech) around in the global economy, since in the current reserve currency economy, those are the only sectors that are profitable to go into. If it happens, expect basically a collapse of society and multi-sided civil war.

[1] https://en.wikipedia.org/wiki/Exorbitant_privilege

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bigbadfeline 2 days ago | parent | next [-]

> It lets America print as many dollars as it wants... its own citizens enjoy "exorbitant privilege" and have the costs spread amongst the billions of people who don't live here.

This is a popular and tearful story of privilege but it's untrue today. In order for the "privilege" to exist, the foreign holdings of US debt must increase every year by amounts equal to the yearly US shortfalls... however, since around 2015, foreign holdings of US debt have been falling to flat. Nowadays, not only there isn't any "exorbitant" privilege, there isn't any privilege at all.

The shortfalls are funded by the US population at large via internal debt and inflation.

There's a slight uptick of foreign holdings this year due to instability but any public benefit from that is dwarfed by the losses caused by inflation and tariffs.

The yearly data for foreign holdings of US debt are easily found online.

	▲	nostrademons 2 days ago \| parent \| next [-]
		Foreign debt doesn't have to increase by the U.S. deficit if US currency used in foreign trade makes up the difference. The U.S. approach since 2009 has generally been to monetize the debt [1], having the Federal Reserve buy it and issue new money in its place. Normally this would result in inflation per the money equation PQ = MV; if you hold velocity V roughly constant, an increase in the money supply M either needs to be backed by an increase in real goods transacted Q, or it results in a higher price level P. Per the FRED graph, M2 money supply has been growing significantly faster than real GDP, and so we should've been seeing significant inflation over this time period. But the dollar is used for 60-80% of international trade [2]. Many dollars don't stay in the U.S. to be transacted among the locals; they go abroad, and are held as foreign currency reserves or transacted between other nations for international trade. Under these conditions, the relevant Q in the money supply equation is the value of international trade denominated in dollars, which has been growing close to the increase in money supply. The dollars are getting soaked up for international transactions, preventing severe inflation at home. I'm trying to model out what happens if the volume of dollar-denominated international trade declines, which seems to be the situation we're entering now and is the stated policy of the Trump administration. Certainly one consequence is that the stock market would crash by ~70-80%, which is the component of major S&P 500 companies earnings that are earned abroad. I suspect that this would trigger major chaotic effects (like WW3 or a revolution in the U.S.), that make future economic predictions irrelevant. [1] https://fred.stlouisfed.org/graph/fredgraph.png?g=1UTPn&heig... [2] https://www.brookings.edu/articles/the-changing-role-of-the-...
	▲	kldavis4 2 days ago \| parent \| prev [-]
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davideg 3 days ago | parent | prev | next [-]

Ah your comment finally makes me understand the premise of MMT[1], which seems to presuppose that the US will always have this special status. Makes the current administration's geopolitical recklessness even more terrifying.

[1]https://en.wikipedia.org/wiki/Modern_Monetary_Theory

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senordevnyc 2 days ago | parent | prev [-]

What’s the basis is for claiming that only finance and tech are profitable sectors in the US economy. Energy? Healthcare? Manufacturing?

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nostrademons 2 days ago | parent [-]

Here's the list of S&P 500 companies by market cap & weighting:

https://www.slickcharts.com/sp500

Going down that list, the first 9 are all tech (the "Mag 7" plus Broadcom). The first non-tech is Berkshire Hathaway at #10, but that is financial services. The top 10 together are 38.63% of the index. Then you have Walmart at #11 and 1.57% of the index, then 2 financials (JP Morgan Chase and Visa) and a pharmaceutical (Eli Lilly). The rest of the top 30 includes 6 more tech companies (Micron, Oracle, AMD, Netflix, Palantir, and Intel) and 2 more financials (Mastercard and Bank of America).

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senordevnyc 2 days ago | parent [-]

Your claim wasn’t that many of the biggest US companies by market cap are in finance and tech, but rather than nothing else is profitable. Do you see the difference?

	▲	nostrademons 2 days ago \| parent \| next [-]
		Here's the list by earnings: https://www.tradingview.com/markets/stocks-usa/market-movers... It is even more dominated by finance and tech: the list is Alphabet, NVidia, Apple, Microsoft, Amazon, Berkshire, Meta, JP Morgan Chase, Bank of America, and then the first non finance/tech comes in at #10 with Exxon. Exxon's earnings are less than 1/4 of Alphabet's. The reason to prefer market cap over earnings is that market cap includes investors' view of the company's future earnings power, but they both tell the same story.
	▲	fatata123 2 days ago \| parent \| prev [-]
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