Noah Smith

Where some people head for the exits and then everyone's like, well, those guys are heading for the exits.

I better head for the exits too.

And then everybody tries to stampede out all at once.

Um, there's, you know, a million econ papers on how this happens in like poor countries, but it rarely happens in rich countries.

But if it does happen, it's really catastrophic.

And so could it happen?

Yes.

What's the level of debt that's scary?

I can't tell you.

Like there's probably, there's no threshold.

There's no tripwire.

If there is, we can't see it because it's different for every country in every time period.

So the reserve currency means that other countries hold dollars as their reserve.

They hold a bunch of dollars in order to conduct trades on the international trading system or buy stuff from America or things like that, invest in America, things like that.

The fact that they hold all those reserves is a big part of the reason why this would be such a calamity.

If they didn't hold those reserves, it would be much less of a calamity for the world, for the dollar to drop in value for America to have an episode of high inflation or sovereign default.

It is, but then it absolutely is.

But then the thing is that what that means is that it gives us sort of this cushion that our leaders can abuse by, you know, pushing things farther than another country would have been able to push them.

And then, you know, in exchange for that cushion, we get a more catastrophic fall if we do fall.

We being the world, but also the United States.