Image depicts a bald eagle frantically holding up the American flag above the chaos below symbolizes not only the immense power the US has but also how the vast numbers of enemies there are below.
Our national debt stands at a whopping $21 Trillion. With the majority incurred during the most recent administrations. Mark Twain once said: “History doesn’t repeat itself, but it often rhymes." We have seen in the past when the government tries to control money, wages and the economy as a whole, it results in disaster. In addition to this, the current geopolitical position the United States is in is very precarious. I foresee a dramatic shift incoming which will take the world by storm.
Firstly, let’s examine how and why the US has positioned itself in the way it has currently. The US like any other nation has an obligation to lookout for its own self interests. In the president’s oath it is stated: “to the best of my ability, preserve, protect and defend the Constitution of the United States.” This obligation to “preserve”, “protect” and “defend” has often resulted in a more active and hands on approach to its currency and the world economy by any means necessary. Often times meddling in areas where our arrogance and generalizations have led to the splitting of the Korean peninsula, the of South America and the debacle in the Middle East all in the name of “Freedom”. This is why I believe that the US dollar’s status and strength are the end all be all for the US. The US will do everything and anything to maintain the dollar, even declare war when Iraq tried to sell oil in Euros. The world has begun to take notice.
We have seen from history that the fall of empires such as the Roman Empire are linked to problems with the financials of that nation. The Roman Empire’s decline could be attributed to the excessive war spending, currency debasement, public works spending, and excessive taxation. The beginning of the US’s influence and overstep of power was during the Nixon Administration when the US went away from the Bretton Woods gold standard. It has always been understood that the US Dollar would the world’s reserve currency since it could be exchanged at a fixed rate with something valuable with a fixed supply like gold. Julius Paulus once said about currency: “this device being officially promulgated, circulates and maintains its purchasing power not so much from its substance, as from its quantity”. What we saw immediately after the US went away from Bretton Woods, was ridiculous amounts of inflation and a fragile economy. Nixon attempted to fix prices on consumer goods and wages to remedy the problem. However, the US was clever. They knew that if they were printing a lie, it had to be a good one. The way to achieve that was to create as liquid of a lie as possible. The US knew that to maintain its power over the world would be to control the world’s economy. However, they knew that just simply printing money would devalue the dollar, so to combat that they needed power over something worth just as much as gold: black gold or oil. In order to accomplish this, they utilized their massive military force, strategic alliance with Saudi Arabia, and control over the currency used to trade oil.
Currently, a few countries have realized the crux of the US’s strength is the dollar. With the current trade wars, US and China relations are very weak. China sees how the US’s power over oil trade is correlated to their power across the globe and has actively taken steps to create another market to trade oil with other currencies. Russia’s Putin said in an interview that he intends to move to independence from the dollar because of sanctions against them which limits Russia in trade. Japan and India are also considering moving away from the US dollar. With the economy slowing down, this might be the perfect catalyst to sway more counties to move away from the US dollar and sell US bonds. China has already sold $3 billion of sovereign dollar bonds. China still holds over $1 Trillion worth of US bonds making them the largest foreign holder of US debt. I do not see these conflicts globally resolving themselves anytime soon. Humans are procrastinators and lazy. It often takes a catastrophic event to wake people up from their naps.
Some questions I have you are: US bonds were recently reduced from their AAA rating to AA+, yet US bonds are considered a “risk free” asset, how is it possible for a “risk free” asset be downgraded? Do you think that the US debt is a problem? If so, how high must it go before decisive action will be taken to reduce it?