Exorbitant Privilege Or Burden?

In order to be a reserve currency a currency must be broadly distributed and broadly circulated. To be broadly distributed and broadly circulated there must be enough currency in circulation to satisfy demand. In our world, as it stands, that demand includes the needs of global financial markets. Yesterday according to the New York Times something like $680 billion in US Treasuries were traded: currency adequate to support this volume must both exist and be sufficiently distributed.

In order for these conditions to be met, by definition the US must have spent abroad that volume of dollars, and US and other nations dollar denominated transactions must have provided adequate distribution. Once these conditions are met, other nations who hold our currency discover that when we sneeze they get a cold: when we have a financial ruction it tends to draw down their reserves. Should they run out of reserves, in the post New Deal world, they have discovered US sponsored institutions like the IMF and World Bank pauperize their populations and devastate their financial markets to preserve stability in the US economy.

This experience has encouraged all of our trading partners to accumulate vast dollar reserves: this, again by definition, requires the US to have first spent the desired sums. Ipso facto, the "trade deficit" and accumulated "National Debt", the first in order that our trading partners have our currency and the second in order that there is enough of it to satisfy the requirements of the two paragraphs above.

Once these conditions are met, our trading partners discover that by repressing the wage income of their populations they can force the US to continue to fund the accumulations they need both for hedges against the IMF and World Bank and whatever demand they may choose to import from the US. Once your population can't afford to purchase the stuff they make you can export that stuff to the US, who's currency is relatively strong because you keep purchasing Treasuries with that portion of your import earnings you have withheld from the workers who actually made the stuff. This decouples your economy from the US at the decisive point of savings accumulation. Savings in your country accumulates to owners of capital rather than workers and can be deployed to manage the local economy.

Thus our trading partners indirectly manage US demand through their purchases of Treasuries to sustain their domestic employment at the expense of US employment. This puts pressure on US workers who can't get jobs but must none the less meet their rent/mortgage etc obligations at the same time it puts downward pressure on interest rates. These combine to create a wonderfully usurious opportunity for creditors here in the US who have exploited it to the hilt, first with sub-prime mortgages and extortionate credit card practices and now with student debt and various new forms of sub-prime consumer finance. This is the Exorbitant Privilege: the US worker is pauperized by a convenient collusion between American financiers and repressive foreign regimes. Exorbitant Privilege indeed.