The End of World Dollar Hegemony: Turning the USA into Weimar Germany
- The End of World Dollar Hegemony: Turning the USA into Weimar Germany
by Patrick Barron, https://mises.org/
In a recent essay, I explained how over time the US abused its responsibility to control the supply of dollars, the world’s premier reserve currency for settling international trade accounts among nations. This abrogation of its duties is leading to the likely adoption of a new reserve currency, commodity based and controlled not by one nation but by members, all watchful that the currency is not inflated.
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Let us continue the analogy of an individual receiving a “magic checkbook” which allows him to write as many checks for as much money as he desires. Receivers of these checks could only pass them along to others through the normal course of trade. Over time the owner of the magic checkbook becomes increasingly irresponsible. He funds all kinds of welfare and warfare initiatives.
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Naturally dollar reserves build to levels completely unnecessary for peaceful exchange. Prices start to rise at a faster and faster rate. Then a reform consortium assembles a team to offer an alternative currency. Why, one may ask, is that such a problem for the dollar and dollar users?
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The Weimar Republic: A Lesson in Supply and Demand
A successful alternative reserve currency would dilute demand to hold dollars. When demand for dollars drops, its price must drop unless and until its supply drops. (A drop in the dollar’s “price” is just another way of stating that its purchasing power falls—i.e., more dollars are required to buy the same goods and services.) Through irresponsible use of the magic checkbook, you have obligated yourself to funding a free-for-all of entitlements such as Social Security, Medicare, and the military-industrial complex being the largest by far. Politically, it may be almost impossible to cut any of these three categories of spending to the extent necessary to arrest the dollar’s drop in purchasing power.
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