Deficit-mongering Endangers Dollar

If you scream about the deficit, but then don't do anything about it, or pass tax cuts that increase it, you actually endanger the nation more than the deficit, itself. The Republicans are forcing this to happen. They are shortening the time before the world's nations will jettison the US Dollar as the world's reserve currency, because US fiscal policy will lose credibility even faster, while the nation will be mired in non-recovery. However, the dollar is likely to lose its special status, anyway, sooner more likely than later.

What matters is not the government deficit, but the trade deficit: the two are not necessarily related. Deficit spending that enhances US jobs, productivity and creativity would actually cut the trade deficit and delay a move away from the dollar. Deficit spending that simply increases our national debt, like the tax cut for the wealthy, will bring us closer to the time when the US Dollar becomes just another currency; it increases our trade deficit and makes the US poorer.

The dollar losing international reserve status will be a very big deal. It will be a disaster for the US, unless the way has been carefully prepared. What's the likelihood of that?

This is what will happen: the US can no longer so freely borrow on international markets: the Fed can't blithely create money as it is doing now with Quantitative Easing. The bigger problem would be: how do we repay (by far) the largest trade deficit in the world? We won't be able to just print dollars for payment. We'll have to earn Renminbi, or Marks or Rials to buy from those places.

Imports will cost much more. Three-dollar gas will be a faint memory: prices would be comparable to Europe's ($5-7 per gallon now), or much higher.

We also won't be able to continue our military mission to control every corner of the globe. That, to me, would be a positive outcome, both for the US and the world. Who would lend to us at the low interest our bonds now pay? Interest costs to maintain our military could bankrupt us, something that happened not only to the Romans, but also led to the overthrow of the Bourbons, ushering in the French Revolution.

Any dollar-denominated asset would be worth much less outside the US. Americans would have to produce more, at lower cost--through subsistence wages, perhaps, or greater efficiency, or probably both--and import less.

Perhaps, an increasingly impoverished majority would demand Equality, as rebelling masses did on the streets of Paris, but it might come too late. The billionaires may have decamped, with their tons of gold (not dollars), just like Tunisia's Ben Ali!

Loss of reserve status could end the American empire. While temporarily poorer, Americans could end up freer and better off--if they throw out the corporate octopus impoverishing us all.