The only question I have about the dollar as the reserve currency is why the US has not crumbled completely under the weight of the stupid of so many “experts’ and their laughable opinions based on what they have heard from the other clowns in the car. When we left the Bretton-Woods Agreement in ’71 we forced the world to adopt a fiat currency, but everyone keeps trying to force that square peg into the old round hole where it used to fit when we also managed the world’s gold reserve. Let’s look at some inconvenient facts for those predicting doom and gloom should we lose the reserve currency status of the dollar.
- We already lost it when we left Brettin-Woods. That was kind of what the agreement was about. The convenience of a free exchange bank to handle payments and a Treasury that pays dividends on any excess reserves is a big plus to any traders, no matter which side of the balance they land on, so it is unlikely that we will ever actually lose that status functionally unless we use the power of sanction to extreme.
- Importing cheaper goods is always a benefit in macro. We gain real resources from those trades in exchange for paper we mostly pull from our backsides. It is only harmful to our economy when business is allowed to use trade as leverage against labor. Congress has the authority to regulate trade, which means it also has a responsibility to do so in a way that doesn’t harm Americans, which it has totally ignored in deference to the donor class and its profits.
Congress, by abdicating its authority to manage the economy to the Fed via interest rates has assured that we will never see full employment again unless it becomes the employer of last resort. Assuming a 60% employment participation rate and a target of 5% unemployment to benefit capital means that upward of nine million people are involuntarily unemployed at any time. And this is our “target” for a healthy economy?
Add in the victim shaming and the institutionalized cruelty conservative governance has given us and it is not a wonder our society is constantly on edge and confrontational. If one is a member of any demographic that is traditionally first fired and last hired one is assured to be unemployed for no fault of their own at twice the average rate, possibly permanently.
3 Selling debt is not a necessary funding operation for spending. In fact, we probably should do away with bonds and just pay a small premium on excess reserves to get our nation over its knee jerk to anything labeled debt. Bonds are just another form of currency, an asset swap with reserves, that exchange liquidity for interest. Their proceeds are “canceled” by the debt that created the currency necessary to purchase them, balancing both to zero, not funding for a sovereign currency-issuing government that neither needs nor uses the funding to spend. They are then recapitalized at their maturity with “new” money creation, and new debt to cover the interest they pay.
4 The Fed shares a balance sheet with Treasury, meaning it can purchase any amount of Treasury’s debt at no cost. This makes it, not lenders, the rate setter. Spending must precede borrowing, (and tax collections)so it is more accurate to say that spending “funds” both than the other way around. It is no longer necessary to use debt offsets for spending to defend a gold reserve, but we apply all of the accepted “truths” of the gold standard to our economy decades after leaving the archaic system. This causes us to want to limit currency drains that would have translated into drains on our gold reserve, but the dollars generated by government’s spending can never leave the US banking system until they are returned to Treasury as payment for a federal tax obligation and destroyed, so we can “afford” anything that is available for sale priced in dollars, including the excess labor the private sector rejects.
