Globalization is dead and the US deficit is monstrous (and Trump wants to save himself with a cryptocurrency)
In the last ten years, the United States have seen the net financial position increased, going from a deficit by 7 to around 21 trillion dollars. The need to re-re-launch passes through a stablecoin to guarantee the dollar
To understand what is happening, it is better to borrow a recent graph Published by Financial Times In support of a text by the publishing Martin Wolf (In the photo above). The title is eloquent: « The old global order is dead » (You can read it here). The question is what other global order we are building to replace the current and what reasons (and wrong) have the United States in want to re-place the last thirty years of multilateralismof economic and technological progress. In the (complicated) response path we use the support of Carlo Altomonte, associate professor of Economics at the Bocconi University (you can read here its academic profile), former councilor of Mario Draghi in its period at Palazzo Chigi.
The US deficit has tripled and is worth a quarter of the world GDP
Altomonte indicates that the United States in the last ten years have seen the net financial position increased, going from a deficit by 7 to about 21 trillions of dollars. It is now a quarter of the world GDP.
This exponential ascent of debt towards the rest of the world ended up under the lens of various administrations and now the knots have come to a comb: «The US are trying to change this (for them) bad commercial balance. To do this they know that their role is still deeply central: for the hegemony of dollar which places them as the pivot of the global payments system. Because they are above all the leading country of technological research, a global innovator fulcrum. Therefore, the rest of the world continues to export capital to the United States: a appetite that has never stopped and this still gives a window of opportunities », explains Altomonte.
The balance of the world as we knew him
On the one hand we have the United States as a party of global demand, based on internal consumption, structural commercial deficits and attraction of foreign capital; on the other China, Germany and other « mercantilist » countries, linked to a model based on the containment of internal demand, on the development of exports and on the accumulation of commercial surplus. The propensity for consumption in the United States is permanently around 67–68% of GDP, against less than 55% in Germany and about 38% in China. « The US system supports the global demand – also debt. The German and Chinese models, on the other hand, hold on content wages, forced savings and structural surplus: they are exports economies not because they produce more, but because they consume less », He just wrote on Sole 24 hours Giovanni Di Corato, CEO Amundi Re Italia Sgr.
The distorted balance of world payments
However, this dynamic creates a distorted balance in the balance of payments. Because, reports Altomonte, « the more we export capital to the United States, the more their commercial deficit towards the world increases. This deficit is no longer just private consumption, historically guided by their hyper-consumer model. But it has now become public consumption (deficit). In fact, the United States absorb global demandwhether as a private or public consumer, and the effect becomes politically complicated for the White House ».
The middle class is crushed
Why? Because it increases the cost of the debt itself by raising interest (and returns) for those who sign American bonds given the growing risk of default and compress the margins of maneuvering public spending. But amps of financing flows mainly compress the well -being of the middle class, producing more and more social inequalities. Those who hold shares on the stock exchange have seen the prices increasebut the middle class is crushed by the increase in prices and wages that do not see the same proportional increase. And the government has not fielded sufficient subsidies to curb this landslide created by inflation from energy assets of the last few years.
The industrial base is eroding
From here the third negative consequence descends: «Since the United States are a consumer country also need to produce in order not to see their strategic sovereignty come. Too bad that in recent years their industrial base is eroding. The US manufacturing GDP went from 15% to less than 10%. The efficient minimum scale is losing to compete with China for some strategic productions such as microchips, « explains Altomonte. Hence the desire to bring some productions considered fundamental to the USA.
Which solution to look for
China and Europe sell to the Americans but do not take care of the fact that this produces a high deficit for the United States. So how to re-place this report that arouses discontent in the Trump administration? Here different paths open, including that of the duties chosen by the American president. “But it doesn’t bring far away. There is a strong resistance of the global chains of the value that are very rooted – says Altomonte -. It means that it is difficult to disassemble them without risking having empty shelves in supermarkets ». In addition, adds the professor, « the road of rates is disgusting from the rest of the world. Because l‘87% of global trade does not concern the United States, which only determine the other 13% « .
The link between imports and revenues
Add to this that if imports in the United States descend because of the heavy rates, the long -term revenues will also drop, reports Altomonte. AND To report some productions in the USA it is necessary to find internal skills, an adequate and qualified workforce, but it does not benefit the very restrictive approach on immigration. Hence the recent financial crisis in the USA assimilable to that of an emerging market. With a collapse of the stock market and the contextual increase in the interest rate on government bonds. However, an apparent contradiction that has reported how the market has recorded a heavy crisis of confidence in the United States and brought an influx of capital to abroad.
The road of the devaluation of the dollar
« The other way to a change in the balance of payments balance is to devalue the dollar, avoiding losing the hegemony of the global currency, but keeping a minimum of socket on the system », reports Altomonte. They are two opposing forces, explains Bocconi’s economist: «If it devalues it risks losing the hegemony, but if instead a parallel currency was created to the physical dollar, But to this linked through an adequate collateral, the rest of the world could use it without the demand for American assets fails. Hence the project to promote the ‘stablecoin’, cryptocurrencies hooked to the green ticket with which they are convertible, with a system similar to that in force for the Bretton Woods agreements that held until the 70s. But what happens at a certain point if you lose confidence in Stablecoin and the creditors ask for convertibility in physical dollars? », Alomonte is asked.
How a stablecoin works
Stablecoins have a stable value hooked practically always in the dollar, not subject to flucture such as bitcoin. The station of a stablecoin can change it in dollars at any time on par – one by one – if he sold it on an equal footing (Federico Fubini explained the mechanism here). How do you do it? With the funds he collects by selling you Stablecoin, the issuer of this cryptocurrency buys almost only American government bonds, that is, public debt of the United States; Therefore, it behaves in such a way as to have a more or less stable value in support of the cryptocurrency it has issued.
Similar to a payment tool
It is a payment instrument similar to a credit card, which can be used by the smartphone, But it has none of the costs of a card or even offers a small income if the station of your Stablecoin shares with you part of the profits he gets by investing his reserves in American government bonds. Like a credit card, it can be used to pay a retail purchase in most of the world. Credit cards such as Visa are preparing to use Stablecoin: the payment service between the customer and seller bears the old name – Visa – but the whole network behind is different and traditional banks are completely cut.
The possible instability
The Fed generally guarantees the purchasing power of the physical dollar, but it is not said that it does it for Stablecoin, especially if these are mainly used abroad. « At that point the burden of adjustment in the event of a trusted crisis of Stablecoin would fall on the governments of the countries where they are usedwho at that point should save their financial systems without physical dollars, « says Altomonte. What is certain is that the duties war is only the debut of the game.
