Which is more important: the bond market (inflation) or reshoring industry?

Luke Groman outlines 2 factions within the US government:

  1. Whatever is good for the bond market should be US Policy:
    • We need to fight inflation.  This is the Larry Summers view that we need high unemployment to fight inflation even if this means a deep recession/recession
  2. We need to reshore, even if this leads to high inflation.
    • A faction within the Pentagon realized the the current dollar-based system requires us to outsource our manufacturing because a strong dollar makes US exports uncompetitive.
    • This outsourcing of manufacturing weakens the military supply-chain and has prompted the military to publish on this subject in 2010 and 2018.
    • The decision to sanction Russia may have been intentionally designed to precipitate a shift away from the dollar’s status as global reserve asset (but not US dollar as global reserve currency)


Nothing replaces the dollar as global reserve currency

But the US Treasury is replaced as Global Reserve Asset

When discussing de-dollarization, people make the mistake of looking for a replacement for the US dollar.  There will be no replacement for the US dollar because no one wants to have the sole global reserve currency as this implies that a country will have to sacrifice its manufacturing and other export industries as the US has done.

The big change that is already taking place is that other countries have declining incentive to buy US Treasury bonds.  China already announced in 2014 that it wouldn’t buy more more treasuries.  Many other countries have already increased their purchase of gold as a reserve asset.


3 attributes of money:

Store of value:  In Africa, some people finance their houses buy buying bricks when they have spare money.  The bricks maintain their value better than the local currency, even if the brinks can’t easily be transported as payment as medium of exchange.

Medium of exchange:  use Zimbabwean dollars to buy things better than bricks, even if it doesn’t retain its value

Unit of account: Goods are priced in dollars or euros

To put this in terms of 3 attributes:

  • Store of value has been the US Treasury bond. but if faction #2 wins (inflation rather than recession/depression) the reserve asset will increasingly become gold
  • Medium of exchange and unit of account will remain the dollar