Willem de Vlaming (April 2025)
The vulnerability of the U.S. economy and its role as global hub
The U.S. economy is propped up by perception, not just production or intrinsic economic value (like balanced budgets, positive trade balance, or high domestic savings), but rather in a global ´systemic trust’ and a ‘network of global interdependencies’ that position the U.S. as the central hub of the global economy.
The U.S. economy as such shows significant signs of structural imbalance: massive budget deficits; trade deficits; low savings, high consumption. By these indicators any other country with similar metrics would face major market skepticism, higher borrowing costs, and possibly currency depreciation.
But the U.S. is not ‘any other country. Its economic power lies in network trust and structural centrality: The U.S. dollar is the bedrock of global finance. Countries hold dollars in reserves, and global commodities like oil are priced in dollars. This gives the U.S. an ‘exorbitant privilege’ — it can borrow and consume more without immediate repercussions. U.S. Treasury securities are considered the safest assets in the world. Even during global crises, investors flee to the dollar, not from it. U.S. military, diplomatic, and institutional leadership reinforce this central role. It's not just an economy, it's an empire build on trust.
The U.S. is a main "consumer hub" in the global system, turning global production via U.S. domestic consumption into global return on investment — which is again safe to reinvest in the U.S. or finance U.S. deficits
If global confidence in the U.S. erodes—due to U.S. political instability, de-dollarization, or the rise of viable alternative power blocs — the consequences could be profound. Foreign investors would pull out the U.S. Higher interest rates would make debt servicing unsustainable. Fiscal deficits would become a real constraint. Reduced capital inflows would crush domestic consumption, triggering a recession or depression. Without the dollar’s central role, the U.S. would lose its ability to live beyond its means. A loss of confidence could lead to a global liquidity crisis. Countries transitioning to alternative systems will take time and will be messy. Trade would fragment into competing blocs.
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The U.S. government's ability to finance its budget deficits and service its outstanding debt does not rest solely on the belief that it will ultimately repay its obligations in full, but rather on the continued confidence of financial markets that there will be sufficient demand for new debt issuance—both to cover fiscal shortfalls and to refinance maturing obligations. This is a revolving debt mechanism. If revolving the debt is no longer possible, it could trigger a debt crisis, financial panic, economic recession (or depression), and long-term geopolitical fallout. This is why maintaining investor confidence is so crucial, even more than the abstract ability to repay in the long run.