Which is easier to export: manufactured goods that require shipping ore and oil halfway around the world, smelting the ore into steel and turning the oil into plastics, laboriously fabricating real products and then shipping the finished manufactured goods to the U.S. where fierce pricing competition strips away much of the premium/profit?
Or electronically printing money and exchanging it for real products, steel, oil, etc.?
I think we can safely say that creating money out of thin air and “exporting” that is much easier than actually mining, extracting or manufacturing real goods. This astonishing exchange of conjured money for real goods is the heart of the “exorbitant privilege” that accrues to the issuer of the global reserve currency (U.S. dollar).
To understand the reserve currency, we must understand Triffin’s Paradox, a topic I discussed in What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012) and Is There Any Correlation Between the U.S. Dollar and Gold (Or Anything Else?)
(November 14, 2012).
It seems very few grasp the implications of the Paradox, and even fewer relate it to global trade. I recently discussed Triffin’s Paradox and The Rule of Law in a video program with Gordon T. Long, who noted that the U.S. Council on Foreign Relations (CFR) described the conditions in which Triffin’s Paradox becomes unsustainable:
“To supply the world’s risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners,until the risk-free asset that it issues ceases to be risk-free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened.”