“It’s one thing to talk about diversifying away from the dollar as the standard currency for international trade, it’s another thing to actually do it.”
It’s being done incrementally, for instance the Iranian oil bourse.
“Also, the Fed taking back those dollars is one way to drain excess liquidity.”
How will the Fed take back dollars in foreign hands, exactly?
At any rate, I have a whole new appreciation for the old Chinese curse: “May you live in interesting times.”
“...and therefore we have no choice but to raise taxes.”
If they do, total revenue will fall. Opposite effect of lowering taxes, which eventually results in increased revenue.
Plus, unemployment would go even higher...
The Fed “drains” liquidity by selling securities in return for dollars. We have a LOT of securities to sell. If the Fed does not push those dollars back into the monetary system, it reduces the money supply. It’s the opposite of Quantitative Easing or “monetizing the debt”.