Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?
The brinkmanship demonstrated over recent weeks between the Executive, House of Representatives and the Senate reveals a total disregard for how a few ultra-right wing politicians can cause great concern in the international markets. I argued in my blog, EU/Eurozone – Start Again or Plod On – A New Government, that having the upper and lower houses in a democratic system both elected, especially at different times in the economic and political cycle, can result in stagnation of the governmental process. This has to be a flaw in the democratic system, especially when just a few people can hold the World economy to ransom. The USA has shown time and time again that, in any global issue, their own interests are most certainly the top priority. Albeit that, if my calculations are correct, this stand-off stagnation has occurred 18 times during the past 30 years does this fact make the global uncertainty created any more palatable? As USA debt reaches levels that are unassailable in terms of any hope of repayment is it time to seriously look at this problem?
The debate that I think is needed is related to the introspective nature of the USA, as provider of the global reserve currency. Only some 15% of USA citizens have passports, very little is taught in their schools regarding the World at large, they are taught that America is the best place in the World, they are the biggest and the best at everything (they have a World Series in a sport that is only played in the USA), and very few can indicate on a map of the World where major countries are located, let alone cities. Indeed I took my teenage daughter to the USA some years ago where she was told that a nominal relief in Boston was the largest relief in the World, and when we walked past the CBS building in New York there was a screen proclaiming ‘America, the oldest surviving democracy in the World’. Is such a culture to be trusted with the broader obligations of the holder of the global reserve currency?
Up until recently one of the fears within the political circles of the USA was their increasing dependence of the greater World for strategic resources such as oil & gas. This did provide a more tempered approach to how they dealt with international issues. However they have now become energy self-sufficient so will this change attitude to international issues as they recede into their natural state of introspection?
The other side of the debate is what is the alternative? Forget the Euro or Renminbi replacing the USD as the global reserve currency as neither is remotely qualified to assume this role. However it was not so long ago that the USD, and thus the World economy, was linked to the Gold Standard, and this was removed overnight; driven by the UK. Can we devise an alternative that can both commands the level of confidence required by the World markets to be acceptable, and disconnected from the introspective political wrangling that artificially impacts it credibility, and thus stability.
I am reminded of structures in the past such as a basket of currencies, e.g. Special Drawing Rights (SDR’s) but these can be unduly influenced by stronger participants, albeit more dampened than the impact of the USD as a sole reserve currency.
My thoughts are that there is a lateral solution out there, and long overdue. I also suggest that recent events make a solution to this problem ever more urgent as I do not see the USA reforming its political system to prevent the stagnation we have seen over recent weeks.
- China calls for dollar to be replaced as global reserve currency (latimes.com)
- Fitch Warns “Political Brinkmanship” May Downgrade US Credit Rating (classwarfareexists.com)