Larry Summers Warns: US Losing on World Economic Stage
Recently, we brought you former Federal Reserve Chair Alan Greenspan’s warning of the avalanche of inflation about to fall on us after years and years of loose monetary policy. He confirmed what we and many others have long been saying: the Fed cannot print trillions of dollars from thin air through quantitative easing and low interest rates without serious repercussions. Also, the government cannot accumulate debt and spend with impunity forever. Something has got to give.
Ominously, prominent economist and former Treasury Secretary Larry Summers is now warning that the dominoes are beginning to fall on the dollar’s dominance on the world stage. He says that first domino was tipped last month with the formation of the Asian Infrastructure Investment Bank (AIIB). Why was this little covered event so critically and symbolically important? Because the United States was deliberately circumvented. Not only were we left out, but many of our allies were very eager to take sides with China and other Asian powerhouses against us. Allies like Great Britain…
These two things – our profligate spending and money printing and our position economically on the world stage – are intrinsically linked. The only way we get away with infinite money printing is infinite demand for dollars because of our dollar’s reserve currency status. Once we lose that reserve currency status, the chickens will come home to roost – with a vengeance. The flow of dollars from the US to foreign banks will cease, and then reverse. Our economy will not be able to absorb the influx of dollars and prices will skyrocket.
Summers writes in an op-ed for the Washington Post that Nixon’s deal with OPEC after ending the Bretton Woods agreement was the single most significant event for dollar supremacy - until last month. That deal with OPEC meant that oil on the world markets could only be sold for dollars. It is therefore pretty simple to understand where the demand for dollars still comes from. And, as long as that agreement is in place, demand for dollars is inevitable. Therefore, our government and central bank gets away with monetary murder, as long as the rest of the world continues to comply.
The world is losing patience, however.
Yes, the rest of the world is losing patience with us, and the formation of the AIIB is a glaring signal of the failure of our economic leadership on the world stage. We pressured many to stay out of this new competitor of the IMF and the World Bank, but many joined or have applied to join as founding members in spite of us. England, France, Germany, Finland, the Netherlands, Switzerland, Saudi Arabia, Kuwait, Jordan, Australia, and many others have signed on to the AIIB. Now the IMF and the World Bank, where the United States has an outsized voice, will no longer have a monopoly on the funding of big infrastructure projects and other funding needs of emerging Asian economies.
The US has resisted giving other countries more of a voice in the IMF when their economic power grows. It has stonewalled certain types of projects that applicant countries want to do. Summers does an excellent job explaining international dissatisfaction with the IMF and World Bank and how that motivated the creation of an economic institution like the AIIB which will be devoid of any US interference.
Thus begins the fall of dominoes that ends US dollar hegemony, according to Larry Summers. Is he right? If he is, are you positioned financially to deal with the fall out of that? Are you willing to bet your net worth on both Larry Summers and Alan Greenspan being wrong? Call us today and let us help you get gold in your portfolio to protect you against what they are predicting.