I made this point in more detail elsewhere today, but instead of having surplus countries buy up U.S. debt to satiate their demand for dollar-based assets, why doesn’t the U.S. government offer them an equity-like investment instead? Specifically, why not offer shares in a sort of massive master limited partnership that would invest its assets in nuclear power plants and other infrastructure, and pay dividends out of the revenues generated from those infrastructure assets?

Unlike the proceeds from the sale of Treasuries, which can go to fund transfer payments and health care for retirees, or extended military expeditions, proceeds from the sale of shares in this master limited partnership would go toward increasing productive capacity, which would fuel future economic growth in the U.S.

Some less restrictive policies by the US govt. to make it easier to visit the US would help the current account deficit. Tax policies that tax consumption rather than income would go a long way toward making the US more attractive as a place to employ, rather than fire, people.

Who are the main players making that profit?

I’m not sure if you saw me as one of the pundits predicting an imminent demise for the dollar. But, in case it wasn’t clear from my post, i am pretty much in agreement with your sentiments:

“the US Dollar will not eventually be replaced as the global reserve currency — it will be replaced eventually, but there will be a lot of “sturm und drang” in the process.”

And I really don’t buy the story that the Chinese are ready to dump the dollar here and now. Then they replace it with what? As George Soros has said, “the dollar is a very weak currency except all the others.”

http://www.creditwritedowns.com/2009/07/soros-the-dollar-is-a-very-weak-currency-except-all-the-others.html

1) BWDIK — yeah, my conclusion too, and Caroline Baum’s as well (last I saw).

2) The price of the tradeoff for goods for US debts will continue to erode. I am a US Dollar bear over the long run. That doesn’t mean there can’t be occasional sharp rallies if Fed policy tightens. With dollar lending funding more carry trades, the situation becomes more volatile, with all of the hot money.

3) This makes the shortening of maturities of US Treasury debt more worrisome. The amount to roll over will grow dramatically in the next five years.

I have two pieces on international economics coming up in the next week which will make this clearer, but until major nations give up neomercantilism, keeping their currencies artificially weak, they will have to keep absorbing US Dollar claims. It’s a lousy way to run the global economy, but they are the active parties in this mess. The US is in some ways the most flexible economy in the world, taking the other side of the trade on imbalances actively foisted on the world by the neomercantilists.

João — I would like to see a commodity currency. It would be a good thing for all in the long run. In the short run, it would likely lead to economic contraction, as monetary debasement would be more difficult, and asset reflation would slow.

Yes, it is hegemony’s crisis. The US Dollar is a symbol of a greater reality. But just as it is tough to replace the Dollar, what nation could replace the US in world affairs? (I write as one that has not favored our foreign policy over the last eight years.)

Who could replace the US? Who does the world trust? Who has the strength? Who has the ability to act when needed? The US is the best of a bunch of bad options — both as a currency, and as a Hegemon (leader).

Yes, it is. That is your answer. It is being made. Slowly, trying to not be noisy, but it is being made. USA governement don’t like it, but it can do nothing about it.

Remember, money is an illusion. We call money everything we want to call money. If we call bull “money’, then we will have the “bull-money”. And so the latim word “pecus” will be the origin of the word “pecuniary”. And “peculate”, Madof’s style.

The only real thing is the goods you can make. China can make everything. USA can make only derivatives. And mcmansions. But macmansionas aren’t goods you can ship to other countries.

It is not a capitalism’s crisis, it is a hegemony’s crisis.