If Trump’s economic policies turn continuing US current account deficits into surpluses, it will be the end of the US dollar’s status as the world’s reserve currency. Charles Gave’s article is a well thought out and well-written analysis of the international financial dynamics involved in such a change. From Gave at MauldinEconomics.com via zerohedge.com:
I find myself in the strange situation of cheering Donald Trump’s nascent program of economic renewal for the US, while worrying deeply about the domino effect that may topple a dollar-based global financial system whose health has relied greatly on benign neglect by the United States.
The good news is that since the fall of the Berlin Wall I have never seen a president or prime minister of the right come into power with an agenda that so squarely opposes the doxa of left-leaning elitist circles. Whether in education, regulation, taxes, ecology, energy production, culture, justice, military strategy or national security, most of the president-elect’s cabinet nominees have for decades fought a flabby intellectual orthodoxy.
Yet, while I welcome Trump’s attack on a credo which has done much to enfeeble the Western world, I am not blind to the violent economic and financial dislocation which may mark the transition from one reserve currency order to another. At the end of this paper, I offer a modest suggestion for avoiding a scenario which has the potential to morph into a 1930s-style beggar-thy-neighbor episode on steroids.
The starting point is that the US dollar has been the world’s reserve currency since the end of World War II, with 1971 marking the transition to a pure fiat regime. Markets, institutions and investor habits have developed according to this basic building block. Yet there is nothing immutable or inevitable about the US sponsoring such a currency arrangement. Indeed, Trump’s core economic platform of trade protection points to the US pursuing an objective which is guaranteed to kill the existence of the US dollar as the sole reserve currency – namely the US’s apparent pursuit of a current account surplus.
To continue reading: The End Of The Dollar Standard
