Guest Post: Understanding the "Exorbitant Privilege" of the U.S. Dollar

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The dollar rises for the same reason gold and grain rise: scarcity and demand.

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."

In other words, if the U.S. issues too many dollars, that could destabilize the dollar. But this is only one aspect of Triffin's Paradox: the basic idea is that when one nation's fiat currency is used as the world's reserve currency, the needs of the global trading community are different from the needs of domestic policy makers.
Trading nations need dollars to lubricate trading and as foreign exchange reserves that bolster the value of their own currency and provide the asset base for the expansion of credit within their own nation.
U.S. exporters want a weak dollar to spur foreign demand for their products, while foreign holders want a strong dollar that holds its value/purchasing power.
This is one aspect of Triffin's Paradox that is intuitive. But it is misleading in several important ways.
Consider Apple's iPhone. It is a U.S. product, right? And so it is counted as a U.S. export when it is shipped and sold in Europe. How much of the iPhone is manufactured in China? How is the "value-added" part of the product accounted for? What if Apple partially owns the foreign factories that make the parts that are in its "export"?
This example shows how complex and potentially misleading it is to simplistically assume an "export" manufactured with imported parts is somehow purely a U.S. export that would be severely impacted by a strengthening dollar.
If the dollar strengthens, wouldn't Apple be able to buy imported parts for lower costs? Wouldn't a stronger dollar actually lower production costs?
This also ignores the fact that most large U.S. global corporations already earn 60+% of their revenues overseas, in other currencies. If the iPhone parts are made in Asia and the completed phone is sold overseas in exchange for other currencies, then exactly where does the strong dollar come in to destroy this trade?
The only impact the dollar has is when overseas earnings are reported in dollars. I have often commented on this "trick": as the dollar weakened, global corporate profits skyrocketed as earnings in euros, yen, etc. rose when stated in dollars.
As the dollar strengthens, overseas profits will decline when stated in dollars. But since roughly two-thirds of global Corporate America is already overseas--its factories, labor forces, back-office, etc.--and two-thirds of its revenues are earned in other currencies that are used to pay local labor and materials, then the supposedly devastating effect of a stronger dollar on corporate sales is illusory.
This supposedly horrendous impact of the U.S. dollar rising also completely overlooks the premium of necessity. If you need grain and soybeans to feed your people, and the only available surplus available is American grain and soybeans that cost 25% more when priced in dollars, you will pay the premium without hesitation.
If the U.S. starts exporting natural gas, buyers will happily pay a premium due to a strong dollar: U.S. gas could double in price and still be less than half the current price Europe is paying.
Let's not forget that exports are 14% of the U.S. economy. The truly domestic-only part of that 14% is less than meets the eye, as so many U.S. exports (such as Boeing airliners) are assembled from globally manufactured components priced in local currencies.
If the dollar strengthens, the price of all imported goods and services declines significantly. That helps 90% of the economy, for recall that imported components used in the manufacture of exports (such as oil) also decline in price as the dollar strengthens.
Does it make sense to demand a policy that helps at best 10% of the economy (and even that "help" is marginal for all the reasons outlined above) while hurting 90% of the economy? No it does not. A stronger dollar will help the U.S. and foreign holders of dollars.
Lastly, we need to understand the flow of U.S. dollars. Foreign nations don't end up with dollars by magic--they end up with dollars because they sold the U.S. more goods and services than they bought from us.
The U.S. got the goods and the exporting nation got the dollars.
The exporting nation ran a trade surplus with the U.S. and now has dollars. It can hold them as reserves, either in cash or U.S. Treasuries, or it can "recycle" the dollars back into the U.S. economy by buying real estate, investing in companies, going to Las Vegas, and so on.
What happens in global recession? Trade declines along with everything else. And what happens when trade declines? Trade deficits also decline. In the case of the U.S., which exports large quantities of what the world needs (grain, soy beans, etc.) while buying mostly stuff that is falling in price in recession (oil), the trade deficit could decline significantly. (It is currently $41.5 billion a month.)
And what does a declining trade deficit mean? It means fewer dollars are being exported. Think about this: the global economy is about $60 trillion, of which about 25% is the U.S. economy. Into this vast sea of trade, the U.S. "exports" about $500 billion in U.S. dollars via the trade deficit. Put in perspective, it isn't that big compared to the machine it is lubricating. (That is $250 billion less than was "exported" in 2006.)
It is an astounding privilege to conjure up dollars out of thin air and exchange them for real goods.
So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the "price" of dollars up--basic supply and demand.
It also means that there will be fewer dollars seeking a safe haven in U.S. Treasuries, which will slowly but surely exert pressure on Treasury yields to rise.
Higher yields on Treasuries will then feed back positively into the value of the dollar, pushing it higher.
We can now understand why global recession will actually boost the value of the U.S. dollar and push interest rates higher in the U.S., even as the stronger dollar lowers the cost of imported goods. Rather than be the catastrophe many believe, a stronger dollar will greatly benefit the U.S. and anyone holding dollars.
Triffin wrote in an era of rapidly expanding trade, and so we can understand why the possibility that the interests of domestic and international holders of dollars might align, i.e. an era of declining trade where dollars will actually become scarce, was not the focus of his analysis.
If we follow the above analysis carefully, we can understand why those worrying about a surplus of dollars got it wrong: the real problem going forward for exporting nations will be the scarcity of dollars.
This explains the dynamics that will continue pushing the dollar higher for years to come. This is not an intuitively easy set of forces to grasp, and so many will reject it out of habit. That could prove to be a costly error.

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Jack Sheet's picture

PEAK exorbitant privilege

Curiously, that writer reaches the opposite conclusion about the value of the US dollar. What do we do - take the average?

Good luck holding those FRNs.


CPL's picture

Humans:  Copy this Everywhere.  TYLER's disable account creation
Sock puppet software.


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Mark Arehart
Ntrepid Corporation

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Then get into a short position.
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Supernova Born's picture

I think it came in handiest when knocking the euro off its high horse and shifting the austerity the US deserves to suffer onto the rest of the world.

Sorry, tin pot dictators, hungry turd worlders and angry austerity protestors...Ben is the man and you are the lowest members of the "caste" of the Muppets.

Oh regional Indian's picture

Turd World? Hah! Look with-in, Neo, Festering States of America is damn near that anyways.

As for the article, All true. Till one of 6 possible Force Majeure candidates kicks into high gear. War/Pestilence/False Flag...etc.

After that, it's Capital Controls and Closed borders and in-convertible capital accounts for most of the developing world and Definitely China.

The article assumes status quo-sih going forward.

Not likely.


BlackholeDivestment's picture

C4ISR, AKA SkyNet (systems & signal intelligence), defines the (tax) ''number'' of the soul-less global New World Order Citizen's United Hal 2112 (Attention Great Wal Mart of China Suicide Vampire Squid Target Shoppers!!!), and the power of the ''name'' of Apollyon, the borderless image and mark of the beast. I read it in a magazine, oh ho, Bu Bu Benny and the ...911 jets. 

When you accept, buy sell and trade, the mark of the beast (Private Fiat Debt Note) you are sealed in agreement with (Military Force of Law) a global tax ...on your dusty ass and your eternal being. 

The United States President is the prophetic host of Lucifer, the Dollar is defining this perfectly. That is a fact. I challenge anyone to disagree.

Imminent Crucible's picture

I'll take your word for it on the Lucifer bit; I always thought the U.S. was represented by Babylon (see Rev 18:9-24 "And the merchants of the earth shall weep and mourn over her; for no man buyeth their merchandise any more: The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble, And cinnamon, and odours, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves, and souls of men."

Especially "and souls of men."  Anyway, CHS gets in trouble here: " a stronger dollar will greatly benefit the U.S. and anyone holding dollars." Hold on a second, Charlie. What about the U.S. Federal debt? Isn't that $16 trillion denominated in, um, dollars? And the $100 trillion the Dallas Fed says is our real debt tally? A stronger dollar means dollars are more valuable, scarcer, and harder to come by. It also implies deflation in wages.

What the U.S. is burdened by is not a scarcity of dollars. It is burdened by an overwhelming surplus of debts denominated in dollars. In a deflation (which is what CHS means by "a stronger dollar") debts are harder to repay and commerce slows down. The "anyone holding dollars"......that would be China.

Missiondweller's picture

I think more importantly, interest rates must rise. Think for a moment about the effect. There's a reason the Fed is trying to keep ZIRP and are buying 3/4 of all treasuries. If rates rise too much, The US goes bankrupt because we can nolonger pay our deb service and provide government services.

Winston Churchill's picture

Goes bankrupt. ?

Is that the classical definition of being unable to pay ones debts when due ?

In that case we are just  insolvent.

Had me worried for a minute there.

The Alarmist's picture

Uh, Think about it for a sec.  Rates go up, so the US must pay more interest ... so the US prints more dollars to pay interest.

Where's the problem?

hairball48's picture

I assume you left off the /sarc ?

dbomb12's picture

I think they forgot to add "SUNDAY HUMOR" to this guest post. I think Tyler was drugged when he submitted this one

anarchitect's picture
"And what does a declining trade deficit mean? It means fewer dollars are being exported."

Not exactly. It means more dollars are being imported than exported, which will fuel inflation here. All the dollars held as foreign reserves will return home and buy up the things that the article already mentioned.

"So what happens when there are fewer dollars being exported? Demand for existing dollars goes up, pushing the "price" of dollars up--basic supply and demand."

No, the demand for dollars goes down: more dollars are returning to the US than are being exported.

"It also means that there will be fewer dollars seeking a safe haven in U.S. Treasuries, which will slowly but surely exert pressure on Treasury yields to rise. Higher yields on Treasuries will then feed back positively into the value of the dollar, pushing it higher."

The first sentence is true. Treasuries held as foreign reserves will be sold off, and it will be hard to auction off new Treasuries. More and more of the budget will go to servicing the debt, which will trigger ever more QE until the dollar becomes worthless.

Atomizer's picture

Just imagine you arrived from a long 18 hour flight. Where can you go to convert your FRN? Oh yes, a foreign currency exchange facility situated in airport. Do you reckon your conversion will likely be at spot price? If that's the case, pay a visit to your hotel for the greatest rates.

Average your savings. /sarc


xamax's picture


Slightly Insane's picture

False premise .... there are no scarce dollars?  What is valued here with the dollar?  What does the "dollar" represent today ... this minute?  Where is the "trust"?  In my opinion the kind author is  "off the rails".

fonzannoon's picture

Another putz who believes interest rates could possibly be allowed to rise.....

disabledvet's picture

"thus the dollar must die." now on to the messy business of "who pays for Sandy." that would be you fonzannoon. get to work...we need it trillion? Sunday. we only guarantee the photo ops. and you better be looking GOOD.

Azannoth's picture

What a completely self deluded article. Who controls the $ollar ? The bankers do! When do bankers make money? When the $ollar falls in value, never when it goes up.

The $ollar is a worthless piece of (electronic)paper that they exchange for real world goods, they could not care less what the "dollar is worth" as long as they can print it at infinitum and people will still accept it as payment.

The manufacturers do not control the money supply the FED does and the FED will do what's best for the bankers. Case closed.

CPL's picture

lolwut?  Holy fuck, I could eat a bowl of alphabit soup and shit a better position statement than that.  I'm going to guess you are a bot. 


It's like watching family guy with the two foreign guys that sort of sound American but it's plainly obvious that they just don't have the native grammar and syntax down.

GoinFawr's picture

These 'foreign' guys have neither American grammar nor syntax down when they speak, but they seem to get the idea of PG, for the most part anyway...

No reason.

Bill D. Cat's picture

Scarcity of dollars ........ .??

Man the printing presses , stat !!!

WhiteNight123129's picture

Not a problem, China is getting 1/3 of its trade settled in Yuan in 2 years. Read HSBC Chief Asia economist. There you go, scarcity of dollars gone.


The scarcity of Silver for trade was greatly dimished from 1970s to 1930 when it was last used in China. So was the scarcity of the pound after world war II. Partial demonetization is coming and coming soon for hte USD. So short term yes USD could get stronger relative to other currencies. But the real assets and Gold work in a different world than irreedemable money, the two are almost from parrallel dimensions. To understand how that works you have to look at the transition from pure mettalic standard to redeemable currencies to pure fiat.


The Triffin paradox is that a currency can not be both a currency and a monetary standard at the same time. In every crisis people reach to the monetary standard (Gold) or USD, this is not new.

But the risk of demonetizing the dollar makes the long dollar trade quite dangerous. Because unlike Silver which can be demonetized over yeeaaarrs, the USD can be demonetized if people panic about its monetary standard attribute. It is very difficult to get people to panic about a tangible metal like Silver so demonetization is slow, for fiat....?? pfff... can be instantaneous.



Angry White Dude's picture

Dead on balls accurate. Increased settlement of trade in non-USD currencies, including efforts to replace the petrodollar = ticking clock for USD.

LawsofPhysics's picture

What garbage, the dollar will strengthen and interest rates are going to rise?  How's that gonna work as far as the budget deficit goes again?  FAIL.


Go ahead, raise rates, I double dog dare you.

Errol's picture

LoP, while it's true that the Fed won't let federal debt interest rates rise significantly, the same is not true for corporate and municipal debt.  A global slowdown is shaping up for 2013; corporate earnings almost certainly will decline and municipal tax revenues will decline.

Similarly, as the Erozone unravels the US dollar will be the cleanest dirty shirt in the basket.  It is entirely possible that a liquidity crunch next year could result in a stronger dollar.

fonzannoon's picture

The fed will be buying municipal debt and corporate debt. They just have to buy atll the MBS and Reits first. There is an order to all this you see....

WhiteNight123129's picture

Agreed LawofPhysics, it is garbage, the USD is doomed. But as long as it is still the monetary standard people reach to it in crisis. Not out of desire but because it is the collateral, because they need to unwind, because they need dollars to repay debt etc...etc... like Gold in the old system. The problem is that it is also based on the fiscal situation of hte US so the two ambivalent positions are stretch like a rubber band. It could strengthen and then snap. If Hong-Kong announces that it is floating or pegged against Gold at a slide rate or even constant rate (which it can because it carries no gov debt) than Hong-Kong dollar becomes overnight the trade currencies of Asia, and everyone in the world will love dearly this currency because of its rule of law and monetary regime where interest rates are actually a function of what people do with the bid ask, like the good old bank of England system back in 1840.


dunce's picture

Recently our rule of law has been wielded as as weapon by corrupt political leaders, and the interest rates are no more determined by bid ask process than the price of oil which is also politically administered. The USD was looked to for stability when property rights were respected and protected by our rule of law. This administration is dismantling our constitution and making a mockery of our rule of law. Obama can not do simple math yet thinks he is wise enough to redesign our form of government. What could go wrong?

Jack Sheet's picture


Right, here is yet another "expert"  who claims that printing trillions of new digital currency units will result in an increase in their value. CHS ought to return to doing whatever he got his college degree in and stop writing financial BS.

BurningFuld's picture

Are you sure soya beans are not going to save the US?  You are out out on a limb here dude.

mkkby's picture

It has in every past global recession, simply from the flight to safety.  You don't have to go back that far in history, but you do have to throw off your non-scientific prejudices.

rodocostarica's picture

There is going to be a scarcity of dollars manana in this household as I convert them to 100 Ozs of silver.

koncaswatch's picture

CHS posulates a future strong dollar, something he's been advocating for awhile; an analytical position based on strength derived from international trade. IMHO the ramifications from the coming explosion of the world wide debt bomb and the complexities of international war economics will wipe out any chance of an immediate future with robust international trade; hence no chance for a strengthened dollar any time soon.

realitybiter's picture

Interest rates rose from the late 60's until they peaked in early 80's.  Every commodity in the world rose during that time, stating a devaluation of currency.  WTF is Charles' argument?


The MASSIVE power on reset will be the cost of money already borrowed.  As that rolls over, it will demand that govt and all those that depend on govt contract.  What is that? 30% loss of GDP?  It is massive.  If you think you can suck on the dead govt teat forever, I have some "for profit" college stock to sell you.  They are the first feelers of this soon to be widely felt pain.

reality bites

WhiteNight123129's picture

Also the US will not be the last standing currency there. The Hong-Kong dollar will be, because it is not fiat!, there is no gov debt and the system works with a bid and ask price against any standard. THAT MEANS WHAT: This is similar to the buying price of teh Gold at the central bank and the mint price which is higher, so you have a bid and ask for the standard which is Gold.

So if all fiat system fail, the one which will not fail is the Hong-Kong dollar. They can peg to a very high price of Gold and they will be credible. The Hong-Kong dollar is already the 3rd largest traded currency. This is the secret weapon of China. Hong-Kong.

Pegging the Hong-Kong dollar in a sliding peg against gold to accomodate the world growth would be credible and would work. The Hong-Kong gov does not run deficits!!!  No need for China to internationalize its Yuan, it can let the mainland use both currencies and it is saved in case the fiat regime collapses. Little Hong-Kong island will do the magic, they have all the financial sophistication required, it is internationalized. It just needs to announce a sliding peg against Gold with a pre-determined change in bid and ask like devaluation against Gold of 1% a year on a weekly basis or changes in peg from time to time. 

Hong-Kong is ALREADY working like it were a Gold standard, meaning it is the market which force the interest rates upward or downards and forcing the expansion. If you read Fullarton on Bank of England old system in 1840 it is very comparable to HKD.






kito's picture

so i should be exchanging my yuan for hk dollars?

WhiteNight123129's picture

You could buy a call option on the HKD. THe HKD is using a delusional Black and SCholes which is measuring the volatility when the USD is inside the peg and not outside the peg. Whereas a depegging follows a poisson type of event distribution.


Shanti's picture

This Video shoud be included as a no brainer in this post !

sitenine's picture

"...the real problem going forward for exporting nations will be the scarcity of dollars."

Due to a lack of 'dollar exports'???


Ever heard of the FOREX or SCO much?  As well as the Fed, CDS, and never forget Gold of course.

Sorry Charles, but your analysis ignores too much.

tony bonn's picture

the analysis is serious and to be highly commended for noting the global configuration of usa corps and the marginal role of trade in our economy....many horseshit myths were exploded here....

nonetheless, while dollars are declining due to economic reasons, profligacy could still upend the equilibria among numerous dyads....the fed is a vicious beast and could drown us in a sea of dollars as indeed it is doing....

of course all of this speaks to the idiocy of using a currency as a trading mechanism....the gold standard is far superior provided that it includes real bills...

the failure to produce, however, is also rooted in exorbitant privilege because it destroys capital....too long of a story to go into here.

Being Free's picture

"The dollar rises for the same reason gold and grain rise: scarcity and demand."

Good start.  I'm with you so far, but 1400 words later, after totally avoiding "scarcity" and only tangentially touching on "demand" you intone: "This is not an intuitively easy set of forces to grasp, and so many will reject it out of habit."

Well, NO.  I reject it because by neglecting your correct opening premise you didn't make a logical case for a "rising" $.  Try again and next time adress "scarcity and demand".

GoinFawr's picture

... I see you had the wherewithal to bring your own can opener.

Kastorsky's picture

exporting nations are getting off of $ like it is fukkin plague.

regional currency is the king.

get some brains or at least read friggin news.

fuck $!

BurningFuld's picture

True, the Achilles heel of the USA is OIL. Other than oil the USA is self sufficient. And as luck would have it your neighbor to the north has all the oil you need. Next time you want to dis the oil sands think that your economic survival may just depend on it because even if the rest of the world stops taking USD Canada will never stop taking them. Please remember who your friends are.

Urban Redneck's picture

"Exorbitant Privilege" is subject to revocation by various members of the international community, who are actually in the process of doing so.

The Fed cannot allow Treasury rates to rise even marginally, primarily because of the derivative WMD that would be unleashed into the balance sheets of the Fed's owners, and secondarily because rising rates would render the US government insolvent upon which the Fed relies for its mandate.

The value of the dollar will be sacrificed, albeit not on a long enough timeline to meet the polictians' desires.


WhiteNight123129's picture

 "If you need grain and soybeans to feed your people, and the only available surplus available is American grain and soybeans that cost 25% more when priced in dollars, you will pay the premium without hesitation."

Good grief where is the guy coming from? It is the other way around, commodities like wheat were only 0.5% more expensive on average from the XVI century to the XVII century in the UK on a Silver Standard (Tooke). No meaningful price difference whatsoever. The author confuses financial assets like bonds and commodities. For commodities, currencies are a mere unit of measurement. The increase in value of a commodity has nothing to do with the currency of measurement. There is no premium for the consumer in China if the Soy bean comes from Brazil or US, as long as the quality is the same, he will not pay more on the market in China. The costs of production and transportion might be different but hte price will be the same in China on the food market. The consumer does not give a shit if the initial measurement was made in USD or Reais. Period. This guy is an idiot.

The increase in price is dependent on some monetary phenomenon for sure for commodities, but the only increase in value that exist for soft commodities is when you have a drastic plunge in stock to use ratio. That is a dimensionless measurement of value for commodities. So technically the price of commodities can rise when its value decline, or the price of commodities can stay flat when its value increases. Certain commodities exhibited shortages between 1873 and 1897 when USA came from fiat and then demonetized Silver and then came back to Gold standard in 1878. Most soft commodities plunged in price, some stayed flat, but since the currency  was getting harder, that meant that while the price was staying flat for the scarcer commodity its value was increasing nontheless measured in a tightening currency.

Finally the author believes that USD = commodity standard. There is no problem for Mexico exporting Silver ad infinitum to Asia and its economy being completely distorted in terms of chronic trade deficit. The issue is that USD is a de jure standard and as any de jure form of money it needs legal enforcement and military enforcement, that is the key weakness against a piece of Silver. Mexico could import 90% of its goods and services and run massive "trade" deficit because there would never ever be any question on what is an ounce of Silver, so the fiscal position of Mexico was irrelevant to the decision of market participant in using Silver coins or not. The mistake NOT to recognize the difference with a fiat USD is monstrous.


ciao's picture

An unbelievably inept article.   Measure physical trade dollar volume against carry trade volume.  Understand that US corporations demand USD terms of their foreign input suppliers. 

USD centred phoney collateralised trades in derivatives are the backbone of currency and interest rate swaps.  US "investors" with smoke for collateral are armed with the USD, they export US inflation created by means of the printing that is keeping a broken fundamental US economy tread water on consumption.  These "investors" have no risk because they can take "risk trades" up or down according to positions that drive RICO styled profit and need bear no relation to market fundamentals (like foreign real estate in risk trade currencies kept above their trade weighted values).  

These abilities last only as long as the dollar remains the defacto reserve and controller of the risk cycles.   Kick one leg out of the 3 legged stool by means of third country trades in goods & services (and more especailly commodities) in other currencies and it is all over the the USD/debt hegemon.   It will however be chaos for a while for all that have stroked along easily in that US consumption current (East Asia).  

The US we know is prepared, we saw Panetta openly discuss it in that rural Virginia location with that mulit football field sized map of the world and the US military assets as senior command were made to game the need to rush all their assets home in a time of domestic crisis.   The US executive has also already worked out the legal framework to run a counter insurgency campaign.   If they were to succeed then East Asia would find themslves confronting a US executive armed with an eroding US arsenal that the US regime would be tempted to use while it remained servicable and deployable.