Thanks, Carter, for your comment. It means a lot! Interestingly, in a recent discussion with economist Hélène Rey, Paul Krugman also compared the US to a private equity firm:
"Krugman: It's very much about the ability of the US to be kind of the hedge fund or private equity nation that can borrow and then buy up assets. And so they always have to use the dollar.
Rey: Absolutely. Or you could say it's a world banker, right? Because that's what a banker does, as well. It's kind of issuing safe assets and betting long in risky projects like, you know, buying companies, giving loans to companies. So, earning higher returns on the asset side of a balance sheet and refinancing at relatively low cost because it's issuing safe liabilities. That's what bankers do and that's what the United States does. And that's why it's sometimes called a world banker. If it brings more leverage, it's more like a world venture capitalist or a world hedge fund, if you like. Yes, absolutely.
Krugman: And yeah, there's also the fact that when the Argentine peso drops they have a lot of debt in dollars and assets in pesos and their balance sheets get much worse and this is an important part of a financial crisis. When the US dollar drops, we have a lot of debts in dollars and a lot of assets that are in other currencies. So our balance sheet actually improves. The special role of the dollar kind of insulates us and has made us a safe haven. Okay, and what you're saying is that it's very, very hard for any individual player to deviate."
Thanks for this. It is the clearest articulation of how I thought the US economy really operates.
Thanks, Carter, for your comment. It means a lot! Interestingly, in a recent discussion with economist Hélène Rey, Paul Krugman also compared the US to a private equity firm:
"Krugman: It's very much about the ability of the US to be kind of the hedge fund or private equity nation that can borrow and then buy up assets. And so they always have to use the dollar.
Rey: Absolutely. Or you could say it's a world banker, right? Because that's what a banker does, as well. It's kind of issuing safe assets and betting long in risky projects like, you know, buying companies, giving loans to companies. So, earning higher returns on the asset side of a balance sheet and refinancing at relatively low cost because it's issuing safe liabilities. That's what bankers do and that's what the United States does. And that's why it's sometimes called a world banker. If it brings more leverage, it's more like a world venture capitalist or a world hedge fund, if you like. Yes, absolutely.
Krugman: And yeah, there's also the fact that when the Argentine peso drops they have a lot of debt in dollars and assets in pesos and their balance sheets get much worse and this is an important part of a financial crisis. When the US dollar drops, we have a lot of debts in dollars and a lot of assets that are in other currencies. So our balance sheet actually improves. The special role of the dollar kind of insulates us and has made us a safe haven. Okay, and what you're saying is that it's very, very hard for any individual player to deviate."
https://paulkrugman.substack.com/p/talking-with-helene-rey