The Real Risk to Real Estate Today Podcast By cover art

The Real Risk to Real Estate Today

The Real Risk to Real Estate Today

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 The Dollar Standard, Global Liquidity, and the Coming Economic Reckoning In my expansive and highly accessible conversation with renowned economist Richard Duncan, we discuss the logic behind his long-running critique of the international monetary system, a system Richard calls the Dollar Standard where he explains why current U.S. policy moves, the system could come crashing down. The Origins of the Dollar Standard and America’s “Exorbitant Privilege” The Dollar Standard, Duncan explains, evolved out of the collapse of the Bretton Woods system (implemented after WWII) in 1971. Under Bretton Woods, currencies were pegged to the U.S. dollar, and the dollar was pegged to gold. But when other countries accumulated more dollars than the U.S. had gold, President Nixon suspended dollar convertibility, effectively ending the gold standard. What replaced it was a floating currency regime and the birth of the Dollar Standard. Crucially, the U.S. began running persistent trade deficits, importing goods and sending dollars abroad. These dollars, in turn, were recycled by foreign central banks, especially in trade surplus countries like China and Japan, into U.S. dollar-denominated assets, primarily Treasuries, but also equities and real estate. This loop, Duncan argues, created America’s “exorbitant privilege”: the ability to fund government spending and consumer imports at artificially low interest rates, because foreign buyers are constantly reinvesting in U.S. debt and assets. The phrase "exorbitant privilege" was first coined by Valéry Giscard d’Estaing, who later became President of France, but at the time was serving as France’s Minister of Finance under President Charles de Gaulle in the 1960s. He used the term to criticize the unique advantages enjoyed by the United States under the Bretton Woods system, particularly the ability to run persistent deficits by issuing debt in its own currency (the U.S. dollar), while foreign nations had to hold and use those dollars to trade and build reserves. Giscard and de Gaulle saw this as an unfair financial hegemony that allowed the U.S. to “live beyond its means” at the expense of others. The phrase was intended as a critique but, ironically, it's now often used in a neutral or even admiring tone by economists. How Global Credit Became a Bubble Machine Duncan makes the case that this system, while benefiting the U.S. enormously, has been fundamentally destabilizing for the rest of the world. As surplus countries absorb dollar inflows, their central banks convert them into local currency, often by printing their own money. That liquidity ends up in domestic banking systems, fueling excessive credit growth, asset bubbles, and financial crises. It happened in Japan in the late 1980s. It triggered the Asian Financial Crisis in the late 1990s. And it helped fuel China’s real estate boom and the global credit bubble that preceded the 2008 collapse. Notably, Duncan predicted the 2008 financial crisis in his 2003 book, The Dollar Crisis, warning that runaway global imbalances would eventually lead to a systemic shock. He now argues that post-2008 bailouts and quantitative easing (QE) only expanded the bubble rather than fixing the problem. Trump’s Trade Doctrine: Potential to Destabilize the System Fast forward to 2025: Trump is back in office, and his administration is moving quickly to reshape global trade. Duncan’s concern is that the Trump administration’s effort to eliminate the U.S. trade deficit by imposing high tariffs and pursuing a strategic devaluation of the dollar, undermines the very structure that has sustained U.S. prosperity and global financial stability for decades. Why? Because every U.S. trade deficit is matched by a capital inflow. It’s a balance-of-payments identity: if the U.S. runs a $1.1 trillion current account deficit, there must be a $1.1 trillion capital surplus (i.e., inflows) to finance it. Take that away and you choke off the supply of global liquidity that props up asset prices worldwide. The Doom Loop: What Happens If Capital Stops Flowing In Duncan walks through the scenario: If tariffs succeed in shrinking the trade deficit, dollars stop flowing abroad.Without those dollars, foreign central banks have fewer reserves to recycle into U.S. assets.This reduces demand for Treasuries, pushing interest rates up.Rising rates crush real estate, stocks, and credit-dependent sectors.Simultaneously, trade-surplus economies face a liquidity crunch, leading to job losses, bankruptcies, and potential financial crises. The result? A global depression triggered not by market excess this time, but by deliberate government policy. Duncan notes that the Trump administration has already blinked once in rolling back tariffs on China after markets began to seize. But the damage to global confidence in the dollar’s stability and America’s ...
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