Dollar Hegemony

And in response to the colossal national debt – which grew by about 2.3 trillion dollars only since last year to what is now a whopping 31.29 trillion dollars – the people who are in power in Washington can do one of two things or perhaps even both, which in turn will draw the ire and indignation of both regular people and the opposition party. For one, people in power can raise interest rates. Second, the people in power can raise taxes. Or the people in power can do both. 

One must also come to terms with how the debt got to these astronomical proportions in the first place, and it was due to the fact that the government spent more than it brought in through taxes over the course of the last few decades, which means that the only viable path forward for the federal government towards the reduction of the debt – with the debt being deemed by one U.S. military official as the biggest threat to national security – is to reduce spending. In turn, bringing down inflation also correlates with a reduction in spending, as many orthodox economists would contend. 

Future spending cuts will have to perhaps be most pronounced in terms of military expenditures and military spending. As things stand, about 80 percent of all federal spending is on the military. In turn, about two-thirds or perhaps more than two-thirds of all military spending is on retiree pensions and social benefits. And as one former defense official noted, by the year 2039, there will not be a single dollar left to spend on the military’s global security architecture because all of the military’s spending will be directed towards pensions and social benefits for former employees. In a sense, the American economy is a “Pentagon Economy” and in turn, the “Pentagon Economy” is now running into a wall, which is perhaps what Nancy Pelosi sensed when she wanted to empty her shoulders of the debacle and place the debacle onto the shoulders of a “new generation” and so forth. 

The domestic “Pentagon Economy” also runs parallel with a global economy that seeks to increase corporate and financial profits through cutting wages by exporting all the jobs that it can possibly export to underdeveloped nations, and by wielding control over interest rates and the money supply while securing assets through the gutting of government coffers. The prerequisite for the gutting of government coffers and control over interest rates was the establishment of “’independent’ central banks that followed set rules rather than relying on democratic decision-making” and in turn, these banks controlled the money supply which now translates into the rate of inflation which we now have. As one financial expert told me, about 40 percent of all the currency that has ever been printed has been printed just in the past three years. 

The backstory behind why the United States disposed of the “Bretton Woods” system of the post-World War II era in the early 1970s becomes evident when one takes into account the fundamental changes to the global monetary order that the disposal of the “Bretton Woods” system brought about, namely, the removal of the ‘gold standard’ and the replacement of fixed exchange rates for ‘floating’ exchange rates. Why these changes to the monetary order occurred in the early 1970’s, arguably, was because these changes were Washington’s response to the rise of a multipolar system which became manifest when Europe began drawing gold from American banks and vaults. 

In turn, the removal of the gold standard and the replacement of fixed rates for ‘floating’ rates ensured “Dollar Hegemony” at least for the short run in an emerging multipolar system. “Dollar Hegemony” was a quick fix to a problem that has only grown since then, namely, the diminution of the American “unipolar moment” and the transition to a multipolar system. And as mentioned before, “Dollar Hegemony” is now threatened by a global economic interdependence that features “mutual obligations” between other countries to which the United States is not entirely bound. Hence, despite the cleverness and genius of the architects of “Dollar Hegemony” in the early 1970’s who assumed that “Dollar Hegemony” would be an effective and potent counteraction to a multipolar world even for the long run, that basic assumption is now perhaps coming under question.