Notwithstanding some ups and downs, the U.S. dollar has been the uncontested global reserve currency since the end of World War II. That status has allowed the U.S. government to borrow at lower interest rates than would have been possible if central banks and private investors did not view U.S. Treasury securities as the “safe asset” par excellence.

In the 1960s, Valery Giscard d’Estaing, then France’s finance minister, famously described this consequence of America’s monopoly on the world’s reserve currency as an “exorbitant privilege.” Yet over time, this privilege — propped up by sustained demand for Treasury securities — has bred generations of U.S. politicians and policymakers who show no regard for the risks posed by growing U.S. current-account and fiscal deficits.

Worse, the U.S. Federal Reserve fueled this cycle by keeping its policy rate “low for long” after the 2008 global financial crisis. For too many, “long” was interpreted as “forever.” They simply took it for granted that U.S. growth would be consistently higher than the real interest rate on government debt, which itself would remain exceptionally low by historical standards. After all, despite the ballooning debt stock, the Congressional Budget Office (CBO) determined that the government’s net interest outlays as a share of GDP were lower in 2021 than two decades earlier.