The United Nations has finally decided to do something intelligent. Predictably with the UN; it’s not something that will help the United States much. However, if I were them, I would do it too. A panel of UN economic experts has suggested ditching the US dollar as the UN’s official reserve currency. The dollar would be replaced by a currency unit consisting of the averaged market value of several currencies.
This step appeals to the UN because the United States has been devaluing its currency for most of the Millennial Decade. As a debtor nation, this works well for us. This doesn’t serve the interests of UN includes nations such as Russia and China who are our creditor nations. They would rather not be paid back in a currency which we could inflate at our whim.
Taking a page from Barack Obama’s rhetorical teleprompting, Avinash Persaud, a currency expert working on the proposed un-dollarization, described the policy below.
“There is a moment that can be grasped for change,” he said.
“Today the Americans complain that when the world wants to save, it means a deficit. A shared (reserve) would reduce the possibility of global imbalances.”
This somewhat misstates the Obama Administration’s position on debt. Debt that can’t be inflated into submission is a problem. Debt that has to be paid back in legal tender of equivalent worth is a policy handicap. Barack Obama would continue to support a weakening of the dollar so that he could pay back his creditors with weak, after he had borrowed that which was strong.
Like much of his supposedly new approach to the issues of the day, this disingenuously bad idea has been with us for a long period. American politicians have sought to manipulate currency valuations in order to reduce debt burden since at least the 1890’s.
William Jennings Bryan’s ; “Cross of Gold Speech” was an appeal for just such a national policy. Bi-metallic currency was deliberately supposed to be less valuable than currency backed only by Gold Specie. It was an intentional end run around Gresham’s Law.
In much the same manner, a weakened dollar would serve as a terrible world-wide medium of exchange. For the UN to continue to accept a watered down version of the greenback as its currency would be for the organization to advocate that its member states go take a swim while attached to an anvil.
A nation that runs an infinite string of deficits equivalent to 80% of its GDP is badly degrading that currency. Senator Judd Gregg only slightly overstated his case when he claimed the US was headed for bankruptcy. His dire predictions follow below.
“The practical implications of this is bankruptcy for the United States,” Gregg said of the Obama’s administration’s recently released budget blueprint. “There’s no other way around it. If we maintain the proposals that are in this budget over the ten-year period that this budget covers, this country will go bankrupt. People will not buy our debt, our dollar will become devalued. It is a very severe situation.”
Several large creditor nations such as Russia and China have already proposed platforms for the next G-20 meeting that would end the use of the dollar as a reserve currency. The Chinese describe their reasoning below.
In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.
As if further translation of this were needed,
“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.
In other words, if the United States wants to go Socialist, the Communists are going John Galt. The world is happy to let the United States eat the externalities of their social welfare states, but they are not going to pick up the tab for ours. It’s the new American Exceptionalism, and Barack Obama and the rest of our left won’t like it any more than they liked Version 1.0, as pitched by Parson Weems.
America has always labored under the expectation that we would be the ones who forewent major social safety net architecture to defray the costs of that architecture throughout the rest of the world. The rest of the world will not defray the costs associated with cradle to grave nanny care inside our borders. By attenuating their connection between the value of their economy and the value of the US Dollar, they have started the complex process of actually sawing the US off.
In a way, this is their right. We criticized socialism as practiced in Europe, Russia and China. Who are we to borrow money from these countries to finance our own Sraffian Experiment and then inflate our currency to stiff these lenders a portion of their interest? If the new international currency comes to pass, the US will have a brand new worthless currency – The US Obama.
Cross-Posted at: THE MINORITY REPORT