Some say we are nearing the final days of the dollar’s reign as the world’s reserve currency. The greenback has lost 11 percent of its value since the beginning of the coronavirus crisis. It may lose another 10 percent in 2022. The Federal Reserve lifted its key interest rate by a quarter of a percentage point to combat inflation. At the same time, policymakers projected six more rate hikes this year. These moves should slow the inflation rate and economic growth by driving up interest rates on all borrowings.
But America has a bigger problem than inflation and rising mortgage rates. The federal debt load recently passed $30 trillion. Hence, interest rate hikes add billions of dollars to the sum America owes its creditors. In 2021, the government paid $562 billion in interest—more than $1,500 for every man, woman and child. And it stands to pay much more than in 2022 if the Federal Reserve raises interest rates six times.
Source: https://crowdwisdom.live
Nearly 60 percent of the $12.8 trillion in global currency reserves are dollars. This gives the United States the ability to borrow cheap money since dollars are always in high demand. But were the dollar to lose its reserve currency status, the federal government would no longer be able to borrow money cheaply.
Financial historian Niall Ferguson warns that nations and empires often fall when the costs of servicing their debts exceed the cost of defending their borders. The U.S. is close to this tipping point. China, Russia and Saudi Arabia are realising this fact. So they are targeting the dollar’s reserve currency status.
Both China and Russia have been reducing their dependence on the dollar for bilateral trade since 2014. Some analysts predict that these powers will start dumping more dollars in retaliation against U.S. sanctions on Russia over the war in Ukraine. China, India and Russia are already exploring an alternative to the U.S.-dominated SWIFT payment mechanism. Such an alternative payment mechanism would be a significant blow to the dollar’s status as a global reserve currency.
Many nations besides China, India and Russia would join. Saudi Arabia is also talking with China about pricing some of its oil sales in yuan instead of dollars. If they reach an understanding on this issue, it would end an agreement U.S. President Richard Nixon struck in 1973. America promised to arm and protect Saudi Arabia if Saudi royals would denominate all future oil sales in dollars. But now, Saudi royals want yuan-denominated oil sales.
Suppose China, India, Russia and Saudi Arabia stopped using the dollar. The greenback would then become an isolated North American currency that is barely needed in the Eastern Hemisphere. Banks would stop accumulating dollar reserves. The U.S. government would have to offer high interest rates if it needed to sell treasury bonds to borrow money. It would have to enact high tax rates to pay the interest on those treasury bonds.
The U.S. has been living beyond its means for decades. It can no longer escape the debt death spiral that awaits it. The onset of such a death spiral might not mean the immediate end of the U.S. as a nation. But it would mean the immediate end of the U.S. as a financial and military superpower.
It is in this context that it (U.S.) may well provoke a war in East Asia. Some say before 2030. That could even end in nuclear holocaust for all. The war machine of the likes of Boeing, Lockheed-Martin, Northrop and the Pentagon would be delighted. U.S. cannot accept a new rival, be it Russia, China or some other state (EU?).That’s the Wolfowitz doctrine. Until the people of the U.S. realise this madness of endless wars, peace will not break out.
Reference:
The dollar is dying, Andrew Miller (https://www.thetrumpet.com), 22 March 2022
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