The Federalist: Will Joe Biden Oversee the Collapse of the U.S. Dollar?
Article by Jason Peirce in The Federalist
Will Joe Biden oversee the collapse of the U.S. dollar as the world’s reserve currency? Federal Reserve Chairman Jerome Powell appears to think it’s a possibility, based on his recent quip: “It’s possible to have more than one reserve currency.” This is a staggering admission from the one person who wields the most influence over the dollar.
Then again, given the $30 trillion-and-counting federal debt, Powell’s comment should come as no surprise. Distilled, the chances are multiplying daily that the Biden administration is hurtling towards ringing the death-knell for the dollar as the world’s reserve currency.
The Wall Street Journal reported an exclusive on March 15 indicating another step towards the dollar’s loss of reserve currency status: Saudi Arabia is considering accepting yuan instead of dollars for oil sales to China. As the Journal noted, this “would dent the U.S. dollar’s dominance of the global petroleum market.”
“It would be a profound shift for Saudi Arabia to price even some of its roughly 6.2 million barrels of day of crude exports in anything other than dollars. The majority of global oil sales—around 80%—are done in dollars, and the Saudis have traded oil exclusively in dollars since 1974, in a deal with the Nixon administration that included security guarantees for the kingdom.”
Dropping the Dollar Would Hurt Americans Badly
Regardless of who the good guy is in the Russia-Ukraine conflict (if there is one), or what role the United States should play (if any), it’s vital to think through the consequences of the dollar losing its status as the world’s reserve currency. Simply, it would mean a dramatic drop in the standard of living and quality of life for middle-class Americans. For the world, it would mean a realignment of the global economic and financial order.
Reserve currency status means central banks around the world hold dollars in reserve, as an enormous amount of global trade is priced and conducted in dollars. For U.S. citizens, this means a greater quality of life and standard of living, at least in terms of purchasing and financing power, and greater incomes and general economic efficiency.
Fed’s massive inflation of the dollar supply since the economic crisis of 2008 ($25 trillion, including $9 trillion for the covid response), has shaken confidence in both the U.S. government and the dollar as the world reserve.
Many countries no longer trust the United States, and they are losing faith in the dollar as a stable medium of exchange and store of value. Simply put, the United States has abused the dollar’s standing as the world reserve.
The Fed Has Enabled the Dollar’s Destruction
For decades, reserve status has helped allow the Fed to inflate the supply of dollars. These are dollars backed by nothing, as President Richard Nixon severed the dollar’s convertibility to gold in 1971.
The Fed’s inflation of dollars has worked to destroy the purchasing power of the dollar,by increasing the prices of goods and services throughout the economy. Inflating the supply of dollars, along with artificially lowering interest rates, also sets the stage for boom-bust economic bubbles that crash into recessions.
The Fed’s dollar inflation acts as an invisible, pernicious tax on people who exchange in dollars, especially the poor, middle class, and those on fixed incomes (retirees). The U.S. government has also used inflation to fund its unsustainably enormous federal bureaucracy.
The growth of this welfare-warfare state has helped shake other nations’ confidence in the dollar, because it’s partly the Fed’s enabling of this state that has ballooned the U.S. national debt past $30 trillion.
Serious Inflation Never Ends Well
This debasement of the dollar will not end well. It never does. Look to history. The collapses of all empires share a common thread: the inflationary destruction of their currencies, through government expansion; perpetual wars abroad; and bread-and-circuses and “let them eat cake” on the home-front.
The United States had plenty of warnings over the years. Powell’s statement is mild in comparison to others. On the heels of the 2008 financial meltdown, Erskine Bowles, who led President Obama’s debt commission, said the obvious loud and clear: “I think today we face the most predictable economic crisis in history… I think it’s clear, if you do simple arithmetic, that the fiscal path that the nation is on is simply not sustainable… Deficits are like a cancer, and over time they are going to destroy our country from within.”
Since Bowles’ warning, the United States has more than doubled the national debt.
The U.S. federal debt was some $6 trillion in 2001, as the United States commenced its “War on Terror.” Again, the national debt today is more than $30 trillion.
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