ok, so PCE sensitive to more profligate fiscal provokes higher future ST yields, geometric-averages into higher LT rates. FX market suggesting limited inflation. so basically the synthesis is expectation of a successfully hawkish Fed. 1/

interesting given the President-Elect’s propensity to try to bully dovishness. /fin

if the yield curve is foreseeing a US-specific Trump inflation while the dollar is sharply strengthening, that’s predicting a heck of a strengthening in the “real exchange rate”, US wages and salaries super high in FX terms, not so great for reindustrialization. 1/

i’m not sure i buy it though. i guess i explain dollar strength as a preaction to expected tariffs, so i don’t expect so sharp an import price change let aline inflation, but then i can’t explain the yield curve. /fin

all China can do is kill the value of the dollar against CNY, which it probably doesn't want to do, because both for domestic growth and geopolitical reasons, it wants to sell to the US, not price out US consumers. changing the status of USD would take coordinated multilateral change.

(It could I guess play games and sell USD for EUR or something, rather than CNY. But then Europe would respond to the unwanted appreciation of the Euro. Ultimately China's trade imbalance is a hot potato so far only the US has been willing to swallow.)

Yes. I know the history. And I know a lot of people conspiratorially overstate the cohesion of the BRICs. Nevertheless, despite the group's very random start, they do represent a hodgepodge of countries unhappy with the US-led order or fearful and looking to hedge the possibility of its end. 1/

The countries have little income, are not a meaningful geopolitical bloc. But they do have a shared interest in pursuing things like alternative payment rails and other institutions that might support international trade while circumventing US controls. /fin

I think reserve-currency status leads to complicated things, some good and some bad for the US. I'm not sure what everything else you're referring to. 1/

But I think reserve-currency status, for better and for worse, is sustained in part by the military protection we offer allies, and a tacit understanding that standardizing on USD is part of the arrangement. 2/

If we are going to destabilize the sense of stable alliance with important, pretty rich allies, we should do it with eyes open about a potential effect on willingness to hold the currency. 3/

Encouraging a shift from the US dollar might be a net positive for the US! 4/

"Exorbitant privilege" in terms of noninflationary expenditure is offset by "exorbitant burden" in terms of drain on domestic demand and impetus toward deindustrialization. Different people can weigh the costs and benefits differently. 5/

(Trump seems to value USD reserve currency though, since he threatens retaliation against countries that seem to pursue an alternative to the dollar.) 6/

In any case, if we start threatening our allies, destabilizing our reserve-currency status is a potential consequence we should weigh. For good or ill. /fin