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If the United States were a “normal” country, its profligate spending habits and the staggering debt it has amassed—habits of the current “war president” who reversed the prudent spending habits and surpluses racked up under his predecessor—would have immediate consequences for its currency, the dollar. They would produce a quick devaluation of the dollar against other currencies in the world.
But the Bush Administration is insulated against this phenomenon. Why? Because the dollar is not just the currency of the United States; it is, in a very real way, the currency of the world. It is used as the basis for global transactions in petroleum, for instance. And it is hoarded by consumers around the world. More C-notes ($100 bills) are in circulation outside of the United States than within it, and most of these notes are not actually in circulation–in China and Japan, for example, investors have vast holdings in U.S. treasury instruments. All of this has “suspended the rules.” But what if that situation were to change?
American assumptions that the current benefits gained by the reification of U.S. currency will coast along indefinitely are extremely foolish. In fact, they constitute a major vulnerability for the country—and a vulnerability of which very few Americans are conscious.
But today there are distant rumblings that suggest the American dollar, and the American economy, may be in for a hard landing. While U.S. media has ignored the story, a low-level trade war between America and China has commenced. And it could have very broad consequences. Today’s London Telegraph discusses the issues:
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning – for the first time – that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels. It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Meanwhile, in Russia, the Kremlin has long been looking at plans to move away from dollar denominated petroleum transactions, using the Euro as a replacement.
Americans have been living through an economic bubble for many years now. Is it about to pop? The odds look increasingly strong.
More from Scott Horton:
Conversation — August 5, 2016, 12:08 pm
Sidney Blumenthal on the origins of the Republican Party, the fallout from Clinton’s emails, and his new biography of Abraham Lincoln
Conversation — March 30, 2016, 3:44 pm
Joseph Hickman discusses his new book, The Burn Pits, which tells the story of thousands of U.S. soldiers who, after returning from Iraq and Afghanistan, have developed rare cancers and respiratory diseases.
Years ago, I lived in Montana, a land of purple sunsets, clear streams, and snowflakes the size of silver dollars drifting through the cold air. There were no speed limits and you could legally drive drunk. My small apartment in Missoula had little privacy. In order to write, I rented an off-season fishing cabin on Rock Creek, a one-room place with a bed and a bureau. I lacked the budget for a desk. My idea was to remove a sliding door from a closet in my apartment and place it over a couple of hastily cobbled-together sawhorses.
Average number of bacteria living in a pound of U.S. mud:
Canadian doctors saved a baby from drowning in his own drool by using Botox on his salivary glands.
A black bear named Pedals, famous for walking upright on his hind legs through Rockaway Township, New Jersey, was reported killed by a hunter, and a hiker in California was attacked after he interrupted two bears mating. It was a “pretty good bear attack,” said the local police chief.
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"She never thanked me, never looked at me—melted away into the miserable night, in the strangest manner I ever saw. I have seen many strange things, but not one that has left a deeper impression on my memory than the dull impassive way in which that worn-out heap of misery took that piece of money, and was lost."