Having the world’s reserve currency and being able to issue debt in unlimited amounts in your own currency is like being the banker in Monopoly and being able to give yourself unlimited cash. From Simon Black at sovereignman.com:
In July 1944, just weeks after the successful Allied invasion of Normandy, hundreds of delegates from around the world gathered in Bretton Woods, New Hampshire to determine the future of the global financial system.
The vision was simple: America would be the center of the universe, and every other nation would revolve around the US.
This arrangement ultimately led to the US dollar being the world’s dominant reserve currency which still remains today.
Whenever a Brazilian merchant pays a Korean supplier, that deal is negotiated and settled in US dollars.
Oil. Coffee. Steel. Aircraft. Countless commodities and products across the planet change hands in US dollars, so nearly every major commercial bank, central bank, multi-national corporation, and sovereign government must hold and be able to transact in US dollars.
This system provides a huge incentive for the rest of the world to hold trillions of dollars worth of US assets– typically deposits in the US banking system, or US government bonds.
It’s what makes US government debt the most popular “investment” in the world, why US government bonds are considered extremely liquid “cash equivalents”.
As long as this system continues, the US government can continue to go deeper into debt without suffering serious consequences.
Just imagine being totally broke… yet every time you want to borrow money there’s a crowd of delighted lenders eager to replenish your wallet with fresh funds.
This may be the US government’s #1 advantage right now.
You’d think that they would be eternally grateful and take care to never abuse this incredible privilege.
But no… not these guys.
In fact, they’ve done the exact opposite. Over the last eight years the US government has gone out of its way to eliminate as much of this benefit and alienate as many allies as possible.
They’ve abused the trust and confidence that the rest of the world placed in them by racking up record amounts of debt, waging indiscriminate wars in foreign lands, and dropping bombs on children’s hospitals by remote control.
They’ve created absurd amounts of regulations and had the audacity to expect foreign banks to comply.
Plus they’ve levied billions of dollars worth of fines against foreign banks who haven’t complied with their ridiculous regulations.
(Last week, for example, New York state financial regulators fined a Taiwanese bank $180 million for not complying with NY state law.)
And they’ve threatened to banish any foreign banks from the US financial system who don’t pay their steep fines.
Abuse. Deceit. Extortion. Not exactly great ways to win friends and influence people.
It’s as if Barack Obama pulled together the smartest guys he could find to make a list of all the ways the US government would have to screw up in order to lose its enormous financial privilege… and then he went out and did ALL of them.
To continue reading: Barack Obama may have finally destroyed America’s #1 advantage
