The Reserve Currency Paradox
There is a deep, unresolved contradiction at the heart of U.S. economic policy: the desire to be a nationalist economy and the issuer of the global reserve currency. These two aims are fundamentally at odds. A nationalist economy requires trade protection, domestic manufacturing, and self-sufficiency. A reserve currency system demands persistent trade deficits, capital openness, and the ability to flood the world with liquidity. One seeks control; the other requires surrender. For decades, the U.S. has tried to have it both ways but the seams are finally tearing.
Nowhere is this more evident than in the return of tariffs under the Trump administration. Designed to “re-shore” industry and protect American workers, these measures clash directly with the international role of the dollar. Even worse, they expose the deeper hypocrisy of the system, where the U.S. wields the exorbitant privilege of printing the world’s money while pointing fingers at trade partners for the very imbalances it engineered. It’s not just unsustainable. It’s gaslighting.
Nominal Costs, Real Debasement
Since 1971, when the dollar was detached from gold, the U.S. has embraced a fiat regime powered by credit expansion and inflation. The results are staggering: over 90% of the dollar’s purchasing power has evaporated, and real asset prices—housing, education, healthcare—have soared beyond the reach of the average citizen.
In this environment, tariffs are paid in debased dollars. A 25% tariff on a $100 product may sound meaningful, but that $25 disappears into a system where costs are absorbed by inflation, deficit spending, and Federal Reserve monetization. Tariffs become yet another form of invisible taxation, one the consumer doesn’t see, but still pays.
The Triffin Dilemma and America’s Gaslighting
This economic sleight of hand is best explained by the Triffin Dilemma, which states that the country issuing the global reserve currency must run perpetual trade deficits to supply the world with liquidity. But domestically, those deficits hollow out industry, create dependency, and generate political backlash.
So what does the U.S. do? It blames others. China is a currency manipulator. Mexico is stealing jobs. Europe is freeloading on defense. But in truth, these countries are simply responding rationally to the system the U.S. created and controls. We export dollars. They send us goods. Then they recycle those dollars back into our capital markets. This isn’t exploitation by others, it’s a closed loop of American monetary dominance.
And here’s the uncomfortable truth: the United States no longer has the moral high ground. We’ve extracted trillions in global value through fiat leverage, run historic deficits, inflated our obligations, and exported inflation. Yet we scold our trade partners for playing the game we wrote the rules for. That’s not leadership.
NIIP and the Fiat Feedback Loop
The Net International Investment Position (NIIP) paints this picture in data. As of late 2024, the U.S. has a negative NIIP of approximately –$19 trillion. This means foreign investors own trillions more in U.S. assets than Americans own abroad. But this isn’t just debt. Foreign capital is flooding into U.S. equities, real estate, and corporate bonds.
Why? Because they have no better option. The system compels it. The U.S. runs trade deficits, other countries accumulate dollars, and those dollars are reinvested into the very markets that benefit from the imbalance. The dollar’s strength isn’t proof of virtue, it’s proof of dominance. And it’s exactly why tariffs are mostly symbolic in this fiat framework.
Trump’s Tariffs and the Birth of De-Dollarization
The Trump administration’s tariff strategy wasn’t just about manufacturing. It signaled a deeper shift: the weaponization of the dollar. Through tariffs, sanctions, and financial exclusion (like SWIFT restrictions), the U.S. revealed its willingness to use the dollar as a geopolitical tool. That sent a message the world heard loud and clear: the dollar is not neutral.
In response, the world is shifting. Nations are diversifying away from the dollar, conducting bilateral trade in local currencies, and exploring alternatives to U.S.-led financial infrastructure. This isn’t a coordinated attack. It’s a survival instinct. And ironically, by trying to make America economically sovereign again, Trump may have accelerated the very process that ends dollar hegemony which might be his end goal which I would commend.
Enter Bitcoin and the Misesian Response
This brings us to a deeper economic truth, one predicted by Ludwig von Mises, in his Regression Theorem. Mises taught that money must evolve from a commodity with prior use-value. It must be chosen by the market, not imposed by the state. Fiat money is the exception to this rule, sustained not by intrinsic value but by legal coercion and network effects.
As the fiat era falters, Bitcoin and other decentralized digital assets are stepping in, not because of propaganda, but because of preference. In a world where all money is software, the consumer, not the central bank, will decide what survives. This is the great return to monetary democracy.
Mises was right: money is not a state invention, it is a spontaneous order, arising from the market’s desire to store and trade value. As trust in government money fades, the free market is once again asserting its right to choose.
Conclusion: The End of the Illusion
You cannot be both an economic nationalist and the steward of the world’s reserve currency. That contradiction is unraveling. America wants the benefits of domestic production and closed borders while maintaining the privileges of global monetary dominance. But the cost of that hypocrisy is becoming impossible to hide.
The dollar’s exorbitant privilege has allowed the U.S. to extract global value while blaming others for the resulting imbalances. Tariffs, rather than solving the problem, only underscore it. And in trying to correct course, the U.S. may be hastening the end of fiat supremacy.
The good news? The market is ready. The regression theorem is playing out in real time. The rise of crypto, commodity-backed assets, and decentralized finance points toward a world where money is once again earned, not issued. Where value is tied to reality, not rhetoric. And where the wisdom of the individual, not the state, chooses the future of exchange.