On August 15, 1971, President Nixon addressed the nation to announce a sweeping set of economic reforms. By far the most consequential was the suspension of the gold standard, which ushered in the modern era of fiat currencies with exchange rates that were primarily set by market forces.

For those that think the US antagonizing our allies is a new phenomenon, Nixon did this without warning any foreign states. They went to bed thinking they could swap dollars for gold any time they wanted, and woke to learn “nah.” This prompted Treasury Secretary John Connally to blurt out at the next G-10 meeting the famous quote “the dollar is our currency, but it is your problem.” Zing! I have no notes, I give him 10/10. He gets 0/10 for his later foray into taking bribes and lying about it.

In the 55 years since, the global economy and global financial markets have gotten more and more entangled. Now, every country faces problems from stuff they don’t control. The dollar is still high on the list - ask anyone who had dollar liabilities during the Global Financial Crisis how fun that was. But the dynamic extends much more broadly, to rare earths, chips, etc etc. There is no country on earth that is even remotely self-sufficient at this point.

Which brings me to a piece of news that struck many as odd, which is that the US Treasury intervened to help support the Japanese Yen. Why would they do such a thing? Well, the Yen is their currency but became our problem.

It’s no secret that our government spends more than it brings in. Waaaaaay more. That means that the government has to borrow the difference, and much of that borrowing comes from foreigners. Put another way, if a key foreign lender to the US government became impaired, that would mean someone else has to step up, and that would require the cost of borrowing to go up. No bueno. Japan certainly qualifies as a “key lender” - they own more Treasuries than any other foreign country. If the Yen aggressively weakens, and they want to support it, they need to sell treasuries to get dollars and use those dollars to buy Yen. But we want them to be buying treasuries, not selling them. Hence the problem and the intervention.

There is no doubt that nationalism is rising up around the globe, raising the spectre of everything from stickier inflation to increased kinetic conflict. Doom and gloom. But it is good to take a deep breath, and remember that countries still need each other, that will likely be true for our lifetimes, and as long as it is true there will be room for mutually-beneficial cooperation.