Restoring the US Dollar and US Superpower status in the World
US power since World War II has been based on its financial dominance stemming from the dollar being the reserve currency held by central banks in place of gold. As the dollar was the currency used to settle international trade accounts, every country needed dollars. That ensured a large demand for dollars to absorb the supply of dollars from the growing US budget and trade deficits. In effect, the dollar as world reserve currency allowed the US to pay its bills by printing money.
In recent years Washington’s abuse of US financial power, such as sanctions on many countries has taught the world that Washington uses the dollar-based system for coercive purposes to deny other countries independent, foreign, economic, and trade policies. Consequently, as Pepe Escobar explains, there has been a rapid move away from the use of the dollar as reserve currency. In other words, the demand for dollars is shrinking. https://www.lewrockwell.com/2023/04/no_author/de-dollarization-kicks-into-high-gear/
But not the supply. The supply is exploding. Budget deficits are running in the trillions of dollars while the Federal Reserve shrinks economic growth and the tax base, and nothing can be done about the US trade deficit. The decision to offshore US manufacturing was an economy-wrecking decision. The goods that Apple, Nike, Levi, and all the others make in China and Asia enter the US as imports when they are marketed in the US. The US, having moved its manufacturing offshore, has little to export to cover the trade deficit resulting from imports. By using their trade surpluses with the US to purchase US Treasuries, foreigners financed the US budget deficit and US wars. As countries increasingly settle their trade imbalances in other currencies, foreign demand for US debt is declining.
The consequence is that the supply of dollars is increasing, but the demand for them is falling. This means a drop in the exchange value of the dollar, which means a rise in import prices. The worst inflations are caused by the decline in the exchange rate of a currency. It is inflation that the central bank cannot fight by throwing people out of work.
This is America’s future, and I don’t mean in ten years. I have been warning of this development, but the media does not report any facts unfriendly to the official narratives, every one of which is a lie. The US can hold on for a while longer by having the Japanese, European, and British central banks print their currencies with which to purchase dollars, thus cushioning the dollar’s decline. But the consequence is that these currencies also will fall in value relative to those outside the dollar system. In other words, the plight of the dollar will spread throughout the empire.
Wall Street, greedy corporate executives and boards, and incompetent policymakers in Washington offshored US manufacturing and made the US import dependent. Next they destroyed the dollar as world reserve currency and thereby doomed the dollar to devaluation against other currencies, and this will destroy US power.
How did we get here? Let’s take a close look.
The lowest American debt in history was in 1835, when President Andrew Jackson paid off the entire national debt and left a surplus of $440,000 This was the only time in US history when the country was free of debt. However, this achievement was short-lived, as the debt started to rise again in 1836 due to the economic recession, the loss of federal revenues from land sales and tariffs and the beginning of the Civil War in 1861 followed by endless wars thereafter.
Some possible lessons that we can learn from that point in time to help us now are: Paying off the national debt requires fiscal discipline and political will. President Jackson was determined to eliminate the debt by cutting federal spending, vetoing bills that would increase the debt, and paying off creditors with surplus revenues. He also opposed the renewal of the charter of the Second Bank of the United States, which he viewed as a source of corruption and speculation.
However, his policies were controversial and faced opposition from Congress and other interest groups which was not surprising and offered nothing new. Paying off the national debt may not be feasible or desirable in the modern economy. The US economy and financial system have changed significantly since the 19th century, and so have the sources and uses of debt. The US debt is now largely held by domestic and foreign investors who demand US Treasury securities as safe and liquid assets and last but not least, the US military Establishment estimated to be today at over $840 billion surpasses the budget of every country’s military budget in the world…. combined.
It is clear that we are today at the tipping point of possibly never coming back with other countries sensing a US weakness combined with perfect timing to make their move. Weak men bring hard times. Now where do we go from here?
If the US dollar is no longer the petrodollar, it means that oil-producing countries and oil-importing countries would no longer use the US dollar as the main currency for their oil trade. This would reduce the demand for US dollars and lower its value in the foreign exchange market. It would also reduce the ability of the US to finance its deficits and debts by issuing dollar-denominated securities that are bought by foreign central banks and investors. It would also weaken the influence and leverage of the US in global affairs, as other countries would seek to diversify their reserves and trade with other currencies that are more stable and convenient and the US losing without any doubt its superpower status.
So what to do?
To effectively restore the US Dollar’s prominence and reclaim America’s superpower status, it is crucial to prioritize key strategies:
Prioritize fiscal discipline: Central banks are clearly today raising interest rates to dampen demand and contain inflation, which in many countries is at its highest levels since the 1980s. Because rapid price gains are costly to society and detrimental to stable economic growth, monetary policy must act decisively.
While monetary policy has the tools to subdue inflation, fiscal policy can put the economy on a sounder long-term footing through investment in infrastructure, health care, and education; fair distribution of incomes and opportunities through an equitable tax and transfer system; and provision of basic public services. The overall fiscal balance, however, affects the demand for goods and services, and inflationary pressures.
A smaller deficit cools aggregate demand and inflation, so the central bank doesn’t need to raise rates as much. Moreover, with global financial conditions constraining budgets, and public debt ratios above pre-pandemic levels, reducing deficits also addresses debt vulnerabilities.
Conversely, fiscal stimulus in the current high inflation environment would force central banks to slam on the brakes harder to curb inflation.
Implement monetary reforms: The Fed’s supporters believe that a central bank needs broad discretion to deal with unforeseen economic changes. Historically, though, the Fed has exercised discretion in ways that go well beyond what is traditionally viewed as monetary policy.
Some of the recommendations below, meant to serve as a guide for policymakers to reform the Fed outside of a formal monetary commission would be
- End the Fed’s Broken Lender of Last Resort Function
- Update the Federal Reserve’s Primary Dealer System
- Reverse Quantitative Easing
- End the New Reverse Repo Program
- End the Fed’s Role as a Financial Regulator
- Require a Full Accounting of Interest on Reserves
- Allow Private Innovations such as the privately produced digital currency bitcoin to Flourish.
- Clarify Money-Laundering Laws, Bank Secrecy Laws, and Money Transmitting Licensing Requirement
Promote trade balance: The United States runs a trade deficit, not because of bad trade deals, but because its citizens spend more than they earn and finance the difference with foreign credit. In 2022, the households, firms, and government in the United States earned $18.6 trillion but spent $19.1 trillion on goods and services, resulting in a disparity of $500 billion.
Since the deficit is about production and consumption, the tools that will be most effective in reducing it are those that impact how much US citizens, businesses, and governments save.
Three ways to reduce the trade deficit are:
- Consume less and save more. If US households or the government reduce consumption (businesses save more than they spend), imports will drop and less borrowing from abroad will be needed to pay for consumption. This means that consumption taxes—like those that nearly all other countries in the world have—could help reduce the deficit, by discouraging consumption, increasing saving, and reducing the government deficit. In contrast, an unfunded tax cut, such as the one proposed by the administration, will expand the deficit because the government will be consuming more relative to its earnings.
- Depreciate the exchange rate. Trade deficit reversals are typically driven by a significant real exchange rate depreciation. A weaker dollar makes imports more expensive and exports cheaper and improves the trade balance. Given the dollar is the world’s reserve currency, and still regarded as the safest for investors, it tends to run stronger than other currencies. But when foreign governments actively push the dollar up to maintain their surpluses, the United States could counteract intervention by selling dollars and buying foreign currencies. The administration could also encourage the adoption of other major currencies, such as the euro, yen, or renminbi, as alternative reserve currencies. A weaker dollar would be good for the US economy, but relinquishing the role as the dominant currency would reduce the power of the United States in global markets and the seigniorage (profit) earned.
- Tax capital inflows. One of the reasons that the United States runs a trade deficit is because borrowing from abroad is cheap and easy. If it were more expensive, US citizens and the government would borrow less. A tax on (non–foreign direct investment) capital inflows that rises with the size of the inflow could reduce excessive borrowing for consumption and help close the government imbalance. While some worry that capital controls could distort asset prices and reduce investment, they could also curb excessive speculative investment, such as happened before the financial crisis.
If the administration is serious about reducing the trade deficit, there are ways to do it. Trade policy, however, is not on the list. Although it seems intuitive that trade policy should be the appropriate instrument for a trade deficit—just as fiscal policy is the right tool for a fiscal deficit—the economics do not work that way. Higher tariffs on one country or product divert trade to other countries or products, distorting consumption but leaving the trade balance roughly unchanged. Higher tariffs on all countries will reduce imports, but they will also reduce exports, again leaving the trade balance roughly unchanged. The reason is that import tariffs reduce the demand for foreign currency and the dollar strengthens, thus the tariffs reduce both imports and exports and distort consumption and production. Overall, higher tariffs can be expected to reduce trade and income, but with a negligible impact on the trade deficit.
Embrace technological innovation: When embracing new technology, we want to avoid adopting technology for technology’s sake. Every new technology needs to support a business objective – not a technology “output.” Tech output can be described as new functionality delivered, defects resolved, and so on. Most companies focus on the technological outputs because they’re relatively easy to measure and report on. However, measurements should focus more on outcomes than on outputs: customer churn, net promoter scores, application availability, time to production, and more. How, or what, to measure could be a post all its own.
There are compelling reasons for companies to be leaders in adopting technology. Technology adoption and appropriate usage increase the performance gap between leaders and laggards. Let’s use AI as an example of embracing technology. McKinsey’s Notes from the AI frontier: Modeling the impact of AI on the world economy states that leaders in AI adoption could experience a doubling of cash flow by 2030, whereas laggards should expect a 20% decline. In addition, in their study of nearly 6,000 of the world’s largest companies, they found that the top 10% captured 80% of the economic profit. Just as telling is that the finding that the bottom 10% destroyed more economic value than the top 10% created. Now you understand the critical need of totally embracing technological innovations.
In conclusion, the journey towards restoring the US Dollar and US superpower status requires a strategic, comprehensive, and collaborative approach. By implementing the recommended measures and staying committed to economic growth, fiscal responsibility, and innovation, America can overcome the challenges and secure a prosperous future for its citizens and its standing in the world. However, it is essential to recognize that these solutions require collaboration, political will, and sustained effort from policymakers, industry leaders, and citizens.
Finally, it is high time for the American people to start demanding immediately unaccounted money from the US government. The Office of the Inspector General has reported $21 trillion in unaccounted for money at the Pentagon since 19981. This means that the Pentagon could not provide adequate documentation or evidence to explain how it spent or received this amount of money over the years. However, this does not necessarily mean that the money was lost or stolen, but rather that it was poorly managed and accounted for. Implementing a third party American controlled monitoring system to account for $500 billion a year lost would help.
One possible argument in favor of putting $500 billion a year back in people’s pockets is that it would increase their disposable income and purchasing power, which would boost their consumption and demand for goods and services. This would stimulate the economy by creating more jobs, income, and profits for businesses and workers. This would also generate more tax revenues for the government, which could reduce the budget deficit and the national debt. This argument is based on the Keynesian theory of economics, which emphasizes the role of aggregate demand in determining economic output and employment.
Maybe the simplest solution is to start running the country like a business with a good plan in place and leadership that would improve the efficiency and effectiveness of the government and the economy. Right now, nothing can get done in government quickly or easily.
So many people who run for president don’t really seem to know why, other than wanting to be the most powerful person in the world while cashing in on the position,
President Trump knew exactly why he wanted to be president, and the driving reason was to fight for America and Americans, which meant overturning the unfair trade agreements that had inflicted so much damage.
Time has come for America to wake up and challenge the disastrous policies of the current administration and the Federal Reserve, which have failed to effectively address the economic challenges facing our great nation.
The Financial Policy Council firmly believes that only a vigorous, nonpartisan solution can prevent future bank failures and ensure our dollar’s stability and preeminence in global capital markets. We must fight for the American dream, where everyone, regardless of their birth or social class, has the chance to succeed in a society that fosters upward mobility. Our capitalist republic must remain a beacon of hope and trust, a fortress of freedom where the pursuit of opportunity is not only possible but encouraged.
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