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There are no fewer dollars in the US dollar currency area after the sale than before… but those dollars are worth less than before. If capital has not left the

There are no fewer dollars in the US dollar currency area after the sale than before… but those dollars are worth less than before. If capital has not left the area, it has been destroyed. That’s not to say that the US economy is inevitably doomed… but you sound very bullish.

neilwilson 1y ago
They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. And the exchange rate of barrels to tomatoes hasn’t changed as that is a productivity issue. There is no universal chart against which value is determined. Instead there are ever moving currency zone orbits, possibly shifting financial savings around. What there won’t be is any “shortage of capital”
- morcus 1y ago
  On the mortgage and tax bill specifically, sure there is no impact. But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. I understand this might be the intended effect, but it's not good for me.
  - neilwilson 1y ago
    But that’s because you decided to take on currency risk without hedging or having a matched foreign income stream. That’s not what anybody with scale will have done. And now you have to reevaluate the cost of that service relative to the alternatives - including letting them know they need to take fewer Euros to retain your custom vs the competitive alternatives. Customers are hard to come by. Are they prepared to let you go?
    - morcus 1y ago
      You're just shifting the goalposts here. I will still stick with them because they're better value than the American alternatives, but that's beside the point. You were arguing that the same number of dollars will get me the same number of goods and services, which is not true.
      - neilwilson 1y ago
        "You were arguing that the same number of dollars will get me the same number of goods and services, which is not true." In aggregate within a rational competitive framework. It is true for those that are rational and subject to competition. Where else are they going to sell their stuff? Why would you agree to pay more? Your behaviour will change, as will everybody elses - and you're the customer. So you go back to them and say no I won't pay any more. Haggle. Are they going to turn you away? Why is you agreeing to pay more more important than the other person who decides it is too much and cancels the service? Changing the goalposts is assuming you, and everybody else, are always a price taker, passively accepting what you are given. That's describing a monopoly/oligopoly scenario. I'm sure that isn't the case.
  - coldtea 1y ago
    >But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. European services would be the least of issues. The main issue would be the tons of foreign imported food, cars, products, clothes, gadgets, and so on - including tons of component parts for "american" products (not to mention materials and tooling to make even the increasingly rarer "100% made in US" products).
    - neilwilson 1y ago
      Wouldn't that be their problem? Where else are they going to sell all that stuff given there isn't an untapped source of demand to absorb it (or that demand would already be serviced). So what you have is a production glut, and nowhere to shift it to. Which usually causes a price collapse and production collapse. Which then causes unemployment in the source nation and interest rate cuts...
      - coldtea 1y ago
        >Wouldn't that be their problem? Not as much, as they can route around the issue, selling elsewhere. The import (or things "made in USA" but depending on imports) represents like X% of US good consumption, but each players' US exports represents a much smaller (and falling) share of their total exports. The world is much wider in 2025 than it was in the 1980s or even in 2000 or 2010. 2025 United States's Share of Global GDP: 12.7% (project to fall to 11.x in the next 5 years). It was around 40% in 1960s, and 25-30% in 1990. US represents in average 20% of China's exports across various categories. The max % seen is about 25% for consumer electronics segment. The rest is cope.
- dave4420 1y ago
  You sound like Harold Wilson. I don't mean to suggest that the current American devaluation is as large as the UK's 1967 devaluation, at least so far. Just that your reasoning here is wrong: when your currency falls, that has a domestic inflationary effect precisely because your currency is worth less than before.
  - neilwilson 1y ago
    Was Bretton Woods in place in 1967? That's a fixed exchange rate system. What might have happened in 1971 that changed the way thing worked overall?
    - dave4420 1y ago
      What has that got to do with this thread? A devaluation's a devaluation, whether you're forced into changing a fixed rate, or have it imposed on you by the markets.
- testing22321 1y ago
  > They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros By that logic you are saying if the US dollar to Euro went 10 to 1 or even 100 to 1 there would be no impact because the same number of dollars will still settle the mortgage or tax bill. Surely there is a flaw in your logic.
  - neilwilson 1y ago
    Then explain the flaw. We have a floating exchange rate. Explain how it gets to your disaster scenario given the flows. The outcome has to come from the operation of the system doesn't it. So run through it.
    - testing22321 1y ago
      I didn’t say my disaster scenario was going to happen, I’m using it as an example to show that if it does, surely there will be an impact. Like when you graph something and you say, ok, what happens as it approaches zero or infinity. We learn from the extreme cases and use that to inform our understanding of the middle ground. In concrete terms, the US is not an island. It does not manufacture, grow and produce everything it needs. Many things are imported. If the US dollar keeps going down, all of those things get more expensive. The dollar number of the mortgage won’t go up (until it is renewed) but everything coming from outside the country will. Currencies go up and down all the time, making things more or less expensive.
- coldtea 1y ago
  >They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. If only our living expenses were just taxes and mortgages, amiright? This take reminds me of the old joke: “I don’t get why people complain about gas prices going up. I used to put in 40 bucks, and I still put in 40 bucks.”
  - neilwilson 1y ago
    Do your living expenses consist entirely of imports, and why would the price of that be going up given there is nowhere else for them to sell their stuff? Prices go up if there is scarcity and no effective competition for your purchases. Is that is what is going to happen?
    - _DeadFred_ 1y ago
      Living expenses are pretty tied to your 'scarcity', yes. Transportation and home heating or cooling costs will go up when petro products rise. Oil is scarce and globally priced. Gas for the car is 3% of household income. Utilities are 6-7% of income Fertilizer costs rise. Nitrogen-based fertilizers come from natural gas, and phosphate and potash are globally priced and often imported. That means higher costs for farmers, stacked on top of rising fuel and transport expenses. That's foods already 10-15% of income. So food gets more expensive from every angle. Inputs, shipping, storage. All of it. So that's 20%+ of household expenses hit. Education costs go up too. Foreign students now effectively get a discount if their home currency strengthens and universities are expert at making that squeeze when they have room to raise prices without losing demand (if students still come, if they don't come well...education costs also go up to make up the shortfall of high paying foreign students).
    - coldtea 1y ago
      >Do your living expenses consist entirely of imports Almost - either imports or things produced and run using imports. Of course if you make above $200,000/year your "living expenses" related to consumption of food, clothes, house goods, gas, etc. are a tiny part of that. For most people that's not the case.
- gus_massa 1y ago
  > The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. If nobody wants dollars, then to import things it's necessary to send more unwanted dollars, so the exchange rate does up, so everything imported is more expensive, so you have inflation, so the interest in the mortaje goes up, so you have to pay more. [Hi from Argentina! Been there, done that, got a pile of worthless bills as souvenirs.]
  - neilwilson 1y ago
    "then to import things it's necessary to send more unwanted dollars" We're talking the USA here. Where else are those running 'export-led growth' going to sell their stuff? Where is the excess Argentinian beef scheduled for the USA going to find a market? There is no untapped source of demand. Or you'd be selling beef to them already. So what happens with the beef production glut? "so you have inflation, so the interest in the mortaje goes up" Increase in prices doesn't necessarily mean inflation. It's just scarce goods being shared out by the market. And as we know putting up interest rates doesn't fix inflation. Argentina being the case in point (and they still haven't learned that lesson).
    - watwut 1y ago
      > There is no untapped source of demand. Or you'd be selling beef to them already. Import is buying. You will have higher prices because stuff you buy is more expensive. But also, export as in selling others tend to go up as currency looses value. > Increase in prices doesn't necessarily mean inflation. What do you think inflation is?
      - neilwilson 1y ago
        "You will have higher prices because stuff you buy is more expensive." Why? Why won't the supplier have lower income because they have no other alternative than to sell for the same USD amount as they did before? Why is the supplier always the price setter? Can you always charge your customers anything you want to and they keep buying? The customer is king, but not when FX is involved? How does that work? "What do you think inflation is?" It's a general rise in the entire price range. If the price of eggs goes up, but your wage didn't then that is a redistribution of scarce resources, not inflation. That is, after all, how price competition works.

neilwilson 1y ago

They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. And the exchange rate of barrels to tomatoes hasn’t changed as that is a productivity issue. There is no universal chart against which value is determined. Instead there are ever moving currency zone orbits, possibly shifting financial savings around. What there won’t be is any “shortage of capital”

morcus 1y ago
On the mortgage and tax bill specifically, sure there is no impact. But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. I understand this might be the intended effect, but it's not good for me.
- neilwilson 1y ago
  But that’s because you decided to take on currency risk without hedging or having a matched foreign income stream. That’s not what anybody with scale will have done. And now you have to reevaluate the cost of that service relative to the alternatives - including letting them know they need to take fewer Euros to retain your custom vs the competitive alternatives. Customers are hard to come by. Are they prepared to let you go?
  - morcus 1y ago
    You're just shifting the goalposts here. I will still stick with them because they're better value than the American alternatives, but that's beside the point. You were arguing that the same number of dollars will get me the same number of goods and services, which is not true.
    - neilwilson 1y ago
      "You were arguing that the same number of dollars will get me the same number of goods and services, which is not true." In aggregate within a rational competitive framework. It is true for those that are rational and subject to competition. Where else are they going to sell their stuff? Why would you agree to pay more? Your behaviour will change, as will everybody elses - and you're the customer. So you go back to them and say no I won't pay any more. Haggle. Are they going to turn you away? Why is you agreeing to pay more more important than the other person who decides it is too much and cancels the service? Changing the goalposts is assuming you, and everybody else, are always a price taker, passively accepting what you are given. That's describing a monopoly/oligopoly scenario. I'm sure that isn't the case.
- coldtea 1y ago
  >But I (an American) pay for some European services in Euros, meaning those got 10% more expensive. European services would be the least of issues. The main issue would be the tons of foreign imported food, cars, products, clothes, gadgets, and so on - including tons of component parts for "american" products (not to mention materials and tooling to make even the increasingly rarer "100% made in US" products).
  - neilwilson 1y ago
    Wouldn't that be their problem? Where else are they going to sell all that stuff given there isn't an untapped source of demand to absorb it (or that demand would already be serviced). So what you have is a production glut, and nowhere to shift it to. Which usually causes a price collapse and production collapse. Which then causes unemployment in the source nation and interest rate cuts...
    - coldtea 1y ago
      >Wouldn't that be their problem? Not as much, as they can route around the issue, selling elsewhere. The import (or things "made in USA" but depending on imports) represents like X% of US good consumption, but each players' US exports represents a much smaller (and falling) share of their total exports. The world is much wider in 2025 than it was in the 1980s or even in 2000 or 2010. 2025 United States's Share of Global GDP: 12.7% (project to fall to 11.x in the next 5 years). It was around 40% in 1960s, and 25-30% in 1990. US represents in average 20% of China's exports across various categories. The max % seen is about 25% for consumer electronics segment. The rest is cope.
dave4420 1y ago
You sound like Harold Wilson. I don't mean to suggest that the current American devaluation is as large as the UK's 1967 devaluation, at least so far. Just that your reasoning here is wrong: when your currency falls, that has a domestic inflationary effect precisely because your currency is worth less than before.
- neilwilson 1y ago
  Was Bretton Woods in place in 1967? That's a fixed exchange rate system. What might have happened in 1971 that changed the way thing worked overall?
  - dave4420 1y ago
    What has that got to do with this thread? A devaluation's a devaluation, whether you're forced into changing a fixed rate, or have it imposed on you by the markets.
testing22321 1y ago
> They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros By that logic you are saying if the US dollar to Euro went 10 to 1 or even 100 to 1 there would be no impact because the same number of dollars will still settle the mortgage or tax bill. Surely there is a flaw in your logic.
- neilwilson 1y ago
  Then explain the flaw. We have a floating exchange rate. Explain how it gets to your disaster scenario given the flows. The outcome has to come from the operation of the system doesn't it. So run through it.
  - testing22321 1y ago
    I didn’t say my disaster scenario was going to happen, I’m using it as an example to show that if it does, surely there will be an impact. Like when you graph something and you say, ok, what happens as it approaches zero or infinity. We learn from the extreme cases and use that to inform our understanding of the middle ground. In concrete terms, the US is not an island. It does not manufacture, grow and produce everything it needs. Many things are imported. If the US dollar keeps going down, all of those things get more expensive. The dollar number of the mortgage won’t go up (until it is renewed) but everything coming from outside the country will. Currencies go up and down all the time, making things more or less expensive.
coldtea 1y ago
>They are not worth less in dollar terms. The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. If only our living expenses were just taxes and mortgages, amiright? This take reminds me of the old joke: “I don’t get why people complain about gas prices going up. I used to put in 40 bucks, and I still put in 40 bucks.”
- neilwilson 1y ago
  Do your living expenses consist entirely of imports, and why would the price of that be going up given there is nowhere else for them to sell their stuff? Prices go up if there is scarcity and no effective competition for your purchases. Is that is what is going to happen?
  - _DeadFred_ 1y ago
    Living expenses are pretty tied to your 'scarcity', yes. Transportation and home heating or cooling costs will go up when petro products rise. Oil is scarce and globally priced. Gas for the car is 3% of household income. Utilities are 6-7% of income Fertilizer costs rise. Nitrogen-based fertilizers come from natural gas, and phosphate and potash are globally priced and often imported. That means higher costs for farmers, stacked on top of rising fuel and transport expenses. That's foods already 10-15% of income. So food gets more expensive from every angle. Inputs, shipping, storage. All of it. So that's 20%+ of household expenses hit. Education costs go up too. Foreign students now effectively get a discount if their home currency strengthens and universities are expert at making that squeeze when they have room to raise prices without losing demand (if students still come, if they don't come well...education costs also go up to make up the shortfall of high paying foreign students).
  - coldtea 1y ago
    >Do your living expenses consist entirely of imports Almost - either imports or things produced and run using imports. Of course if you make above $200,000/year your "living expenses" related to consumption of food, clothes, house goods, gas, etc. are a tiny part of that. For most people that's not the case.
gus_massa 1y ago
> The same number of dollars will still settle next months mortgage bill, or tax bill regardless of what it may or may not exchange into Euros. If nobody wants dollars, then to import things it's necessary to send more unwanted dollars, so the exchange rate does up, so everything imported is more expensive, so you have inflation, so the interest in the mortaje goes up, so you have to pay more. [Hi from Argentina! Been there, done that, got a pile of worthless bills as souvenirs.]
- neilwilson 1y ago
  "then to import things it's necessary to send more unwanted dollars" We're talking the USA here. Where else are those running 'export-led growth' going to sell their stuff? Where is the excess Argentinian beef scheduled for the USA going to find a market? There is no untapped source of demand. Or you'd be selling beef to them already. So what happens with the beef production glut? "so you have inflation, so the interest in the mortaje goes up" Increase in prices doesn't necessarily mean inflation. It's just scarce goods being shared out by the market. And as we know putting up interest rates doesn't fix inflation. Argentina being the case in point (and they still haven't learned that lesson).
  - watwut 1y ago
    > There is no untapped source of demand. Or you'd be selling beef to them already. Import is buying. You will have higher prices because stuff you buy is more expensive. But also, export as in selling others tend to go up as currency looses value. > Increase in prices doesn't necessarily mean inflation. What do you think inflation is?
    - neilwilson 1y ago
      "You will have higher prices because stuff you buy is more expensive." Why? Why won't the supplier have lower income because they have no other alternative than to sell for the same USD amount as they did before? Why is the supplier always the price setter? Can you always charge your customers anything you want to and they keep buying? The customer is king, but not when FX is involved? How does that work? "What do you think inflation is?" It's a general rise in the entire price range. If the price of eggs goes up, but your wage didn't then that is a redistribution of scarce resources, not inflation. That is, after all, how price competition works.