Can America Withstand Global De-Dollarization?

Understanding the Value of Money

The age-old adage that "money does not grow on trees" seems to have lost its relevance among the policymakers of 21st century America. The US dollar achieved the status of the world's reserve currency in the aftermath of World War II, a status that has been taken for granted by many. However, inflationary policies and sanctions that exclude nations from the global economy are eroding the dollar's elite status. This constant erosion could potentially lead to a financial avalanche, causing the dollar to lose its status. The potential loss of the dollar's status could have severe implications for the United States economy, leading to significant price increases on consumer goods and crippling local, state, and federal governments. The inability to engage in deficit spending could lead to a financial crisis, with states like California and New York potentially seeking federal bailouts. This could, in turn, lead to a crisis of unity among the United States of America.

The Bretton Woods System

The Bretton Woods system, established in the aftermath of World War II, pegged all global currencies to the US dollar, which was in turn pegged to gold. However, this system began to crumble less than thirty years later as the US government's spending increased and gold reserves depleted. The suspension of the convertibility of dollars to gold by President Nixon in 1971 effectively ended the gold standard. This led to high inflation throughout the 1970s and 1980s. Despite the abandonment of the gold standard, the US dollar has maintained its prominence over the past fifty years due to US economic and military power and the establishment of the petrodollar.

Trade Deficits and Their Impact

The United States has been running a trade deficit since 1975, meaning it imports more than it exports. To import goods, the United States exports its dollars, a practice made possible by its status as the world's reserve currency. However, inflation and the overuse of sanctions have led some nations to seek alternatives to the dollar. The BRICS alliance was created with this purpose in mind, although it has yet to agree on an alternative currency.

Government Overspending and Its Consequences

Modern Monetary Theory (MMT), which suggests that money can be printed as needed with taxes and other policies used to control inflation, has gained popularity in recent years. However, this theory has contributed to a significant increase in the US national debt, which is currently over $35 trillion and increasing exponentially every year.

Increasing Divisions Within the United States

The United States is witnessing a growing divide between red and blue states. Blue states, controlled by the Democrat party, have larger governments and more spending. This has led to a migration of citizens from blue states to red states, leading to an increase in Democrat power in blue states and Republican power in red states. Businesses are also migrating from blue states to red states, leading to a shift in economic power.

The Looming Crisis

The economic power shift and increasing deficits in blue states like California, New York, and Illinois could lead to a financial crisis. If the dollar stops being accepted by producers in other nations, the trade deficit could turn into a shortage of goods manufactured abroad, leading to rising prices. The ability to create money out of thin air will lose its value, and everyone in America will feel the pain. The threat to the United States is real, but it can be fixed with leaders who are willing to make difficult decisions.

Bottom Line

The potential de-dollarization of the global economy presents a significant challenge for the United States. The country's economic stability and unity could be at risk if the dollar loses its status as the world's reserve currency. This is a complex issue that requires careful consideration and decisive action. What are your thoughts on this matter? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.