The Dollar’s Reserve Currency Role is Drawing to an End
By Paul Craig Roberts
-- -- It
is difficult to know where Bush has accomplished the most
destruction, the Iraqi economy or the US economy.
In the current issue of Manufacturing & Technology News,
Washington economist Charles McMillion observes that seven years
of Bush has seen the federal debt increase by two-thirds while
US household debt doubled.
This massive Keynesian stimulus produced pitiful economic
results. Median real income has declined. The labor force
participation rate has declined. Job growth has been pathetic,
with 28% of the new jobs being in the government sector. All
the new private sector jobs are accounted for by private
education and health care bureaucracies, bars and restaurants.
Three and a quarter million manufacturing jobs and a half
million supervisory jobs were lost. The number of manufacturing
jobs has fallen to the level of 65 years ago.
This is the profile of a third world economy.
The “new economy” has been running a trade deficit in advanced
technology products since 2002. The US trade deficit in
manufactured goods dwarfs the US trade deficit in oil. The US
does not earn enough to pay its import bill, and it doesn’t save
enough to finance the government’s budget deficit.
To finance its deficits, America looks to the kindness of
foreigners to continue to accept the outpouring of dollars and
The dollars are accepted, because the dollar is the world’s
At the meeting of the World Economic Forum at Davos,
Switzerland, this week, billionaire currency trader George Soros
warned that the dollar’s reserve currency role was drawing to an
end: “The current crisis is not only the bust that follows the
housing boom, it’s basically the end of a 60-year period of
continuing credit expansion based on the dollar as the reserve
currency. Now the rest of the world is increasingly unwilling to
If the world is unwilling to continue to accumulate dollars, the
US will not be able to finance its trade deficit or its budget
deficit. As both are seriously out of balance, the implication
is for yet more decline in the dollar’s exchange value and a
sharp rise in prices.
Economists have romanticized globalism, taking delight in the
myriad of foreign components in US brand name products. This is
fine for a country whose trade is in balance or whose currency
has the reserve currency role. It is a terrible dependency for
a country such as the US that has been busy at work offshoring
its economy while destroying the exchange value of its currency.
As the dollar sheds value and loses its privileged position as
reserve currency, US living standards will take a serious
If the US government cannot balance its budget by cutting its
spending or by raising taxes, the day when it can no longer
borrow will see the government paying its bills by printing
money like a third world banana republic. Inflation and more
exchange rate depreciation will be the order of the day.
Paul Craig Roberts was Assistant Secretary of the Treasury in
the Reagan administration. He was Associate Editor of the Wall
Street Journal editorial page and Contributing Editor of
National Review. He is coauthor of The Tyranny of Good
Intentions.He can be reached at: PaulCraigRoberts@yahoo.com
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