Global demand for dollars as the reserve currency forces the U.S. to run persistent trade deficits to supply them. This strengthens the dollar and boosts import power but hollows out the domestic industrial base. A future decline in dollar demand would create a painful economic transition.

Instead of a transparent default, the U.S. government's strategy is to devalue its debt by keeping interest rates below inflation. This policy, known as 'financial repression,' erodes the real value of the dollar, effectively transferring wealth from savers and bondholders to the government to pay down its massive debt.

Amidst high debt and inflation, the Federal Reserve is cornered. It can either let inflation run hot to protect the bond market (devaluing the dollar) or hike rates aggressively to defend the dollar (crashing the bond market). There is no third option, and a choice must be made.

The primary risk for the U.S. is not the inevitable decline of the dollar's dominance, which could rebalance the economy. The danger lies in trying to fight this trend, leading to a disorderly and painful collapse rather than a graceful, managed transition from a position of strength.

The US is signaling a major shift from its long-standing 'King Dollar' policy. By being willing to devalue the dollar, it can strategically intervene in currency markets to bolster allies like Japan while simultaneously hurting economic adversaries like China by making US manufacturing more competitive.

Unlike other countries, the U.S. can't truly become insolvent because, as the world's reserve currency, it can always print more dollars to pay its debts. The actual danger is that the government will devalue the currency through inflation, effectively stealing purchasing power from everyone.

In a regime of fiscal dominance, where government spending dictates policy, the currency, not bond yields, becomes the primary release valve for economic pressure. While equities and yields may appear stable, the true cost of stimulus will be reflected in a devaluing dollar, a risk often overlooked by bond vigilantes.

The combination of restrictive trade policy, locked-in fiscal spending, and a Federal Reserve prioritizing growth over inflation control creates a durable trend toward a weaker U.S. dollar. This environment also suggests longer-term bond yields will remain elevated.

Contrary to popular belief, the US dollar won't die by being inflated to zero. Its end will come from becoming too strong, triggering a global dollar funding crisis that breaks the international financial system. The dollar system is designed to create problems when it gets too high or too low.