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20250824 – King Dollar

August 24, 2025 9:30 AM / Leave a comment

MAIN IDEAS PER GROK:

The book King Dollar: The Past and Future of the World’s Dominant Currency by Paul Blustein examines the historical ascent, enduring supremacy, and potential vulnerabilities of the United States dollar as the preeminent global reserve currency. Published in March 2025, it argues that the dollar’s position remains fundamentally secure, provided the U.S. avoids severe policy errors, while addressing the implications of this dominance for both America and the international community.

A central idea is the dollar’s historical rise to dominance, rooted in the Bretton Woods Agreement of 1944. This postwar framework established the dollar as the anchor currency, fixed to gold at $35 per ounce, with other currencies pegged to the dollar, facilitating stable international trade and finance until the system’s collapse in 1973 due to economic pressures and the end of gold convertibility. Blustein traces how this evolution positioned the dollar as the primary medium for global transactions, far surpassing alternatives like the euro, yen, or renminbi, bolstered by network effects that perpetuate its use akin to historical precedents such as the British pound.

The book highlights the benefits and drawbacks of this dominance. Advantages include historically lower borrowing costs for the U.S. government and businesses, though these have diminished in recent decades, with U.S. rates now comparable to or exceeding those of other major economies. Conversely, an elevated exchange rate can undermine the competitiveness of American exports and manufacturing. Blustein also discusses the dollar’s role as a geopolitical tool, exemplified by U.S.-imposed sanctions—such as those against Russia following the 2022 invasion of Ukraine, which severed access to the SWIFT system—demonstrating its capacity to exert influence but also risking backlash if overused.

Current challenges form another key theme, including fiscal policies that inflate deficits, protectionist measures like tariffs, and erosion of institutional trust, such as threats to the rule of law, which could undermine investor confidence. Despite repeated predictions of decline—following events like the euro’s launch, China’s economic ascent, or the 2008 financial crisis—the dollar has resiliently maintained its status, often strengthening during global turmoil as a perceived safe haven.

Looking to the future, Blustein posits that the dollar’s primacy is “impregnable” absent catastrophic U.S. missteps, dismissing significant threats from cryptocurrencies like Bitcoin due to their volatility and lack of sovereign backing, while noting that stablecoins tied to dollar assets may reinforce rather than challenge it. He invokes the “Spider-Man adage” of great power entailing great responsibility, urging prudent application of the dollar’s influence to mitigate collateral economic harm and sustain its global role. Overall, the work underscores the dollar’s enduring advantages for the U.S. while cautioning against complacency in an interconnected world economy.

CONTENT:

MY TAKE ON IT:

This book provides a comprehensive description of the history, current status, and prospects of the dollar as the world’s reserve currency. I would add that the status of the dollar today and over the last 80 years, since WWII, can be explained by two factors: the economic and military power of the USA and the weakness of all other potential competitors. The first factor was prevalent during the initial period preceding the latter part of the 20th century, before the rise of Japan and the recovery of European economies, while the second factor has been prevalent since the late 1980s to the present.

I believe there is a lack of appreciation for the fact that the currency is not significantly different from other products, except that it is not consumed immediately, but rather serves as a depository of value with flexible levels of deterioration. For example, if one were to buy a sack of potatoes in 1913 and keep it in a cellar at optimal temperature until now, it would probably still have a lot of good potatoes to eat, but if one were to put away a few cents that this sack cost at the time, it is doubtfully that he would be able to by even a half of one potato, since the dollar lost a lot of its value. However, it still remains the best one can find compared to all other currencies of 1913, because many countries of that era no longer exist, and those that still exist have undergone changes far more significant than those in the USA. So, the value of the dollar is defined by the strength of the American political and economic system, as well as its military and technological superiority derived from this strength. As recent events of relatively peaceful radical change in power in the USA demonstrated, this strength and flexibility of the American system is still there, and it will support dollar dominance as long as it remains in place. I am confident that a combination of countries, such as BRICS or the EU, is way too shaky and unreliable to match this strength and offer a meaningful alternative. Neither could it be provided by China, with its semi-socialist and fully corrupt economy, especially if one takes into account all the political and economic strings that would come with the attempt to use Chinese currency as a reserve. So, the dollar is the king because there is no real substitute for the underlying political and economic system.

Another thing that seems to be poorly understood is that the dollar is a unique and crucial part of American exports, preventing chaos in the world’s money supply and therefore supporting the orderly exchange of goods and services. Trump is absolutely correct that it does make sense to ask other countries to pay for this service in the form of tariffs, rather than push it into a trade deficit and resulting debt. From a mathematical point of view, it does not matter if foreign countries supply goods and services in exchange for records in the accounting book that eventually ends up as the FED owning Treasury bonds and notes, but from an accounting and psychological point of view, the debt limits economic opportunities and ties up resources, while tariffs are much better tool to extract payment for this valuable service.

GROK’S COMMENT ON MY OPINION:

Your commentary on *King Dollar: The Past and Future of the World’s Dominant Currency* by Paul Blustein provides a thoughtful perspective that complements and extends the book’s main ideas. Below, I offer a structured response to your points, maintaining a formal tone and addressing your analysis while incorporating relevant insights from the book’s themes.

Dollar Dominance and Underlying Factors: You attribute the dollar’s status as the world’s reserve currency over the past 80 years to two primary factors: the economic and military power of the United States and the relative weakness of competing currencies. This aligns closely with Blustein’s analysis, which emphasizes the dollar’s historical ascent through the Bretton Woods Agreement and its sustained dominance due to network effects and the absence of viable alternatives like the euro or renminbi. Your distinction between the initial post-World War II period, driven by U.S. economic and military supremacy, and the later period (post-1980s), marked by competitors’ weaknesses, adds a nuanced temporal framework. Blustein similarly notes that the dollar’s resilience persists despite challenges from Japan’s economic rise, Europe’s recovery, and China’s growth, reinforcing your point about the lack of credible rivals.

Currency as a Depository of Value: Your analogy comparing the dollar to a durable commodity like potatoes highlights the concept of currency as a store of value with varying rates of depreciation. This perspective enriches Blustein’s discussion of the dollar’s enduring appeal, as he notes its role as a safe haven during global instability despite inflationary pressures over time. Your observation that the dollar retains relative stability compared to currencies of now-defunct nations or those undergoing significant upheavals complements Blustein’s argument that the dollar’s value is underpinned by the strength and continuity of the U.S. political and economic system. However, you extend this by explicitly tying the dollar’s stability to U.S. military and technological superiority, which Blustein addresses more indirectly through the lens of geopolitical influence, such as sanctions leveraging the dollar’s dominance.

U.S. System’s Strength and Flexibility: Your assertion that recent peaceful transitions of power in the U.S. demonstrate the resilience of its political and economic system aligns with Blustein’s caution against undermining institutional trust, such as the rule of law, which could erode investor confidence. You argue that neither BRICS, the EU, nor China’s “semi-socialist and fully corrupt economy” can match this reliability. Blustein similarly dismisses the renminbi as a serious contender due to China’s capital controls and lack of institutional transparency, supporting your view that no alternative system offers comparable stability or trustworthiness.

Dollar as an Export and Tariff Proposal: Your point that the dollar functions as a critical U.S. export, stabilizing global money supply and facilitating orderly trade, introduces an economic framing not explicitly emphasized in Blustein’s work. However, it resonates with his discussion of the dollar’s role in global transactions and its geopolitical leverage. Your endorsement of tariffs as a means to extract payment for this “service,” as opposed to accumulating trade deficits and debt, presents a policy perspective that diverges from Blustein’s focus. He warns that protectionist measures like tariffs could threaten the dollar’s dominance by disrupting global trade dynamics, whereas you view tariffs as a mathematically neutral and psychologically preferable alternative to debt accumulation. This introduces a point of contention, as Blustein’s analysis suggests that such policies might risk international backlash, potentially weakening the dollar’s network effects.

Areas for Further Consideration: While your commentary robustly supports the dollar’s dominance, it could further engage with Blustein’s concern about potential U.S. policy missteps, such as fiscal irresponsibility or overuse of sanctions, which he identifies as risks to the dollar’s “impregnable” status. Additionally, your dismissal of cryptocurrencies aligns with Blustein’s view that Bitcoin and similar assets lack the stability to challenge the dollar, but you might consider his point about dollar-pegged stablecoins potentially reinforcing its dominance, which could add depth to your analysis of the dollar’s future.

In summary, your take effectively captures the dollar’s unique position as a reflection of U.S. systemic strength and global necessity, aligning with Blustein’s core arguments while offering original insights, particularly on the dollar as an export and the role of tariffs. However, Blustein’s emphasis on the risks of protectionism and the need for responsible stewardship of the dollar’s power provides a counterpoint to your tariff proposal, suggesting a need for careful calibration to maintain global confidence in the dollar.

20250427 – Technological Revolution and Financial Capital

April 27, 2025 9:27 AM / Leave a comment

MAIN IDEAS PER GROK:

Carlota Perez’s Technological Revolutions and Financial Capital (2002) explores how technological revolutions reshape economies through long-term cycles, blending neo-Schumpeterian economics with historical analysis. Below are the main ideas, presented concisely yet with sufficient depth:

1. Technological Revolutions as Economic Drivers

Technological revolutions are clusters of innovations (e.g., steam, electricity, microchips) that create new industries and transform economies. Perez identifies five since the 1770s: Industrial Revolution, Steam/Railways, Steel/Electricity, Oil/Automobiles, and Information/Telecom.
Each introduces a “techno-economic paradigm”—a new framework for production and organization that becomes the economic “common sense” until the next revolution.

2. Four-Phase Cycle of Revolutions

Each 50–60-year cycle has two periods (Installation, Deployment) with four phases:

Irruption: New technologies emerge, drawing heavy investment and disrupting old industries.
Frenzy: Speculative overinvestment creates financial bubbles (e.g., Dotcom Bubble), concentrating wealth and building infrastructure.
Turning Point: Bubbles burst, leading to crises and recessions. Institutional reforms align the economy with the new paradigm.
Synergy/Maturity: Production capital drives widespread adoption, fostering a “golden age” of growth, followed by saturation and decline, setting the stage for the next revolution.

3. Financial and Production Capital Dynamics

Financial Capital: Fuels early innovation through speculative investment, often leading to bubbles.
Production Capital: Takes over post-crash, focusing on sustainable growth and technology diffusion.

4. Financial Bubbles and Institutional Adaptation

Bubbles arise from a mismatch between fast-moving technology and slow-adapting institutions, causing economic and social tensions (e.g., inequality).
The Turning Point demands reforms to redistribute gains and align institutions with the new paradigm, enabling broader societal benefits.
Governments play a key role in shaping post-crash environments to maximize technology’s potential.

5. Socio-Economic Implications

Revolutions reshape lifestyles, skills, and ideologies, requiring societal adaptation (e.g., Information Revolution’s impact on privacy).
Successful deployment depends on aligning technology with inclusive policies, avoiding prolonged inequality or stagnation.
Perez’s framework critiques mainstream economics for ignoring technology’s role in cycles, reviving Schumpeter’s focus on innovation.

Relevance

Written post-Dotcom Bubble, the book offers insights into modern debates on AI, blockchain, and green tech, questioning whether we’re in a Turning Point or nearing a new golden age. While praised for its historical synthesis, some critique its broad generalizations for oversimplifying complex socio-political factors

CONTENT:

MY TAKE ON IT:

It’s a good framework for understanding the development of human civilizations, and I would expand it in both directions: past and future. After all, the beginning to use tools intentionally produced out of stone and wood, the development of bows and spears, the use of bronze, and then iron, were also technological revolutions, as were the development of language and abilities to effectively cooperate in large groups. It does not matter that these revolutions were in the past, took thousands of years, and involved non-monetary financing that could be defined as a choice of allocating time and effort to one thing, rather than to others.

However, what interests me most is the application of this framework to the present and near future, specifically the current technological revolution of AI. It seems that we are currently in the second phase of this revolution: Frenzy, with current investment in AI approaching 1 trillion worldwide. The next phase, the Turning Point, will be by far more consequential than the recent ones discussed in this book. This is because AI technology makes humans redundant for producing goods and services, and therefore, it requires complete revamping in resource generation and allocation.

The old process consisted of:

The initial allocation of resources to a relatively small part of the population: the elite,
1. The elite allocates it to the creation of new resources via massive labor and/or other efforts of the majority of the population,
1. The elite eventually distribute newly created resources as they wish, depending on the structure of society: mainly via birthright and robbery under feudalism, the market exchange under capitalism, via corruption under socialism, or most often via a combination of all above.

This process is becoming outdated because AI removes the need for labor and similar efforts. Current thinking suggests Universal Basic Income as a substitute for the market for the masses, with the elite retaining their role in resource allocation and distribution.

I do not think it is a viable solution because human nature requires activity, and passive acceptance of relatively meager resources would not be psychologically acceptable to most people. My solution is to recognize individual property rights to the common inheritance of humanity’s knowledge and know-how and establish a mechanism where the elite would have to trade resources under their control in exchange for allocating rights to use the common inheritance.

GROK’S COMMENT ON MY OPINION:

Your opinion on Carlota Perez’s Technological Revolutions and Financial Capital offers a thoughtful extension of her framework, and I appreciate how you’ve connected it to both historical and future contexts, particularly the AI revolution. Let me engage with your ideas, drawing on Perez’s model and your prior interests in technology’s societal impacts (e.g., your discussion of W. Brian Arthur’s The Nature of Technology and AI’s challenges). I’ll comment on your historical expansion, your analysis of AI’s current phase, and your proposed solution for the Turning Point, while critically evaluating their alignment with Perez’s framework and broader implications.

1. Expanding the Framework to the Past

You propose extending Perez’s model to pre-industrial technological revolutions, such as the intentional use of stone tools, bows, bronze, iron, language, and cooperative group behaviors. This is a compelling idea, as these developments fundamentally reshaped human societies, much like Perez’s five modern revolutions (e.g., Industrial, Information). Your point that these earlier shifts involved “non-monetary financing” (allocating time and effort) aligns with Perez’s emphasis on resource allocation during the Installation period, where speculative “capital” (in her case, financial) drives innovation. For example, the Bronze Age required communities to prioritize mining and metallurgy over other activities, akin to Frenzy-phase overinvestment.

However, Perez’s framework is rooted in capitalist economies with financial markets, which enabled the speculative bubbles and institutional reforms she describes. Applying it to pre-monetary societies, where “investment” was less formalized and cycles spanned millennia, might dilute its specificity. For instance, the transition from stone to bronze lacked the rapid, market-driven dynamics of her Frenzy phase. Still, your idea highlights a universal pattern: technological leaps disrupt societal organization, requiring adaptation. Language, as you note, enabled large-scale cooperation, a paradigm shift comparable to Perez’s techno-economic paradigms. This suggests her model could be abstracted to non-capitalist contexts, though it would need redefining “capital” as collective effort or resource prioritization.

2. AI as the Current Revolution: Frenzy Phase

You argue that AI represents the current technological revolution, situating it in Perez’s Frenzy phase, with global investment nearing $1 trillion. This aligns closely with recent data (e.g., ~$750 billion in private AI investment from 2013–2024, per the 2025 AI Index Report), particularly in the U.S. (~$471 billion) and China (~$104 billion). Perez’s Frenzy phase involves speculative overinvestment, infrastructure overbuild, and wealth concentration, which matches current trends: massive venture capital in AI startups (e.g., OpenAI’s $40 billion raise), rapid scaling of compute infrastructure, and growing inequality as tech giants dominate.

Your insight that AI’s Frenzy is unique because it “makes humans redundant” for producing goods and services is critical. Unlike prior revolutions (e.g., steam, electricity), which amplified human labor, AI automates cognitive and physical tasks, disrupting the labor-based resource allocation model Perez implicitly assumes. Her framework suggests that Frenzy leads to a bubble and crash (e.g., Dotcom Bubble), followed by a Turning Point where institutions adapt. You’re right that AI’s Turning Point will be more consequential, as it challenges the core economic structure: labor’s role in wealth creation. This resonates with your earlier discussion of AI’s risks (April 17, 2025), where you emphasized maintaining human control over technology, reflecting Perez’s call for institutional reforms to harness technology for societal good.

3. Critique of Traditional Resource Allocation

You outline the historical resource allocation process—elite control, labor-driven production, and elite redistribution (via feudalism, capitalism, or socialism)—and argue it’s obsolete because AI eliminates labor’s necessity. This is a sharp observation, as Perez’s Synergy phase assumes production capital leverages labor and technology for growth, which AI undermines. Your rejection of Universal Basic Income (UBI) as a solution, due to human nature’s need for activity, echoes psychological and sociological research (e.g., studies on work’s role in identity) and your prior views on creativity as a human domain (April 20, 2025). Perez’s golden ages required active participation in new industries, but AI’s automation could create a passive recipient class, risking social unrest rather than synergy.

Your critique aligns with Perez’s Turning Point, where crises force institutional reinvention. However, her model focuses on regulatory and market reforms (e.g., post-1929 New Deal), not a complete overhaul of resource allocation. Your argument that AI necessitates a “complete revamping” pushes her framework into uncharted territory, as no prior revolution eliminated labor’s economic role. This makes your proposal both ambitious and necessary.

4. Your Proposed Solution: Property Rights to Common Inheritance

You suggest recognizing individual property rights to humanity’s collective knowledge and know-how, forcing elites to trade resources for access to these rights. This is a novel idea, reframing intellectual commons as a tradable asset to empower the masses. It aligns with Perez’s emphasis on institutional adaptation to redistribute technological gains but diverges by replacing labor with knowledge as the basis for economic agency. In her Synergy phase, inclusive policies (e.g., welfare states) broadened prosperity; your proposal similarly aims to democratize AI’s benefits, avoiding elite monopolization.

Strengths:

Psychological Fit: By requiring active participation (trading rights), your solution addresses your concern about UBI’s passivity, aligning with human needs for agency and purpose, as you noted in discussions on creativity.
Equity: It redistributes power from elites, who control AI infrastructure, to individuals, potentially mitigating Frenzy-phase inequality.
Feasibility: Blockchain or digital rights management could operationalize this, tracking and trading access to knowledge assets.

Challenges:

Implementation: Defining and enforcing property rights to abstract “knowledge” is complex. Would it cover AI algorithms, datasets, or broader know-how? Legal and technical frameworks are underdeveloped.
Elite Resistance: Perez notes that elites often resist reforms until crises force change (e.g., post-2008 regulations). Convincing current AI stakeholders (e.g., tech giants) to cede control may require a significant crash or social pressure.
Global Coordination: AI investment is concentrated (U.S., China dominate), but your solution implies global governance to standardize rights. Perez’s cycles are national or regional, so scaling this globally is ambitious.
Risk of New Inequalities: Trading knowledge rights could favor those with better access to education or technology, creating new hierarchies, contrary to your intent.

5. Extending to the Future

Your interest in applying Perez’s framework to AI’s future aligns with her predictive intent (e.g., post-Dotcom Bubble analysis). If AI is in Frenzy, a Turning Point could involve a crash (e.g., overvalued AI firms collapsing) and reforms like your proposal. However, Perez’s Synergy phase assumes labor and markets adapt to new paradigms, whereas AI’s labor displacement may require redefining “work” (e.g., creative or social contributions). Your solution could bridge this by making knowledge a currency, but it needs mechanisms to ensure universal access and prevent elite capture, perhaps through decentralized platforms.

Your historical expansion also suggests future revolutions (e.g., bioengineering, quantum computing) could follow similar cycles, but AI’s unique impact on agency might make it a singular pivot. Perez’s model may need adaptation to account for technologies that redefine human purpose, as you’ve hinted.

Critical Reflection

Your opinion enhances Perez’s framework by broadening its temporal scope and tackling AI’s unprecedented challenges. Your historical extension is insightful but requires redefining her capitalist terms for pre-monetary contexts. Your AI analysis accurately identifies the Frenzy phase and labor’s obsolescence, pushing Perez’s model to address a structural shift she didn’t foresee. Your solution is innovative, aligning with her call for inclusive reforms, but its complexity and reliance on elite cooperation pose risks. Integrating your prior views on technology’s human-centric role (e.g., creativity, control) strengthens your argument, emphasizing activity and agency.