How to Destroy the United States without Firing a Shot

 

“Right now, for the first time in my memory, we have an international financial crisis in which the dollar has been weakening rather than strengthening. I wonder if this is a sign of things to come.” 

 Author and investor Ruchir Sharma

After the United States pulled out of the Trans-Pacific Partnership (TPP) trade agreement, which was the centerpiece of U.S. President Barack Obama’s strategic pivot to Asia, the dollar started shaking. Before President Donald Trump withdrew the United States in 2017, the TPP was set to become the world’s largest free trade deal, covering 40 percent of the global economy. Many of the proposed partners to that nascent treaty continued without the United States, and China was quite gratified to step and take our place. In 2015, a six-party UN-sponsored accord (the Joint Comprehensive Plan of Action or JCPOA) froze Iran’s development of weapons-grade fissionable material and provided for a meaningful inspection plan. The US was a key signatory.

“After the Trump administration twice certified Iran's compliance in 2017, in May 2018 the United States withdrew from JCPOA as Trump pledged he would negotiate a better deal. Trump left office without fulfilling that pledge and analysts determined Iran had moved closer to developing a nuclear weapon since the American withdrawal.” Wikipedia. Our own military intelligence groups affirmed that JCPOA has been working, so when Trump abrogated the US commitment to that treaty, our European allies were furious. They also watched how the United States, effectively in control of the international financial and banking system through the wide traditional acceptance of the US dollar as the primary reserve currency on earth (in short the reference point for cross-border trade), bullied its allies into escalating sanctions against Iran.

The European Union actively considered pushing the euro as an acceptable alternative reserve currency. Fortunately, that effort subsided when Trump lost the 2020 election. Let’s face it, the dollar’s preeminence in global markets is the greatest vestige of American global power. More impactful than our nuclear arsenal and the engine that fuels the largest economy on earth. Should the dollar lose that status, there will be hell to pay… a payment extracted from the pocket of everyone living in the United States.

Those deficits, funded by selling US debt globally, have protected the rich from the level of taxes most super-wealthy citizens of other nations, developed nations. We can do things like cut corporate tax rates from 35% to 21% (as we did in 2017) and simply borrow more (increase our deficits) so that the rich can enjoy their lifestyle without helping to balance the budget. If the dollar slips from its reserve status, interest rates demanded by those who are currently funding our deficit will rise substantially. And that is just one of many financial tsunamis the US would face if the dollar were no longer the global trade standard.

Russia and China have been able to circumvent the international standard as the PRC continues to buy Russian oil and gas in record amount. India is quite willing to sidestep the dollar as it buys Russian fossil fuels. Iran, still staggering under massive US economic sanctions, is working its way entirely out of a dollar dependency. Saudi Arabia is consider weaning itself from the dollar as well. For Russia and China, they are absolutely convinced that the red-blue polarization in the United States will, probably sooner rather than later, unravel America as an ungovernable nation and that just find itself in the midst of its own civil war. That is the strong reason why both China and Russia have mounted massive mis- and disinformation campaign across US social media to push for a GOP victory in 2024. MAGA-driven polarization is a wonderful destroyer of America. See also my January 8th Yuan to Go Digital? blog.

CNN and Washington Post contributor, Fareed Zakaria fills in some of the necessary details in his March 24th Washington Post OpEd: “The dollar is America’s superpower. It gives Washington unrivaled economic and political muscle. The United States can slap sanctions on countries unilaterally, freezing them out of large parts of the world economy. And when Washington spends freely, it can be certain that its debt, usually in the form of T-bills, will be bought up by the rest of the world.

“Sanctions imposed on Russia for its invasion of Ukraine combined with Washington’s increasingly confrontational approach to China have created a perfect storm in which both Russia and China are accelerating efforts to diversify away from the dollar. Their central banks are keeping less of their reserves in dollars, and most trade between them is being settled in the yuan. They are also, as Putin noted, making efforts to get other countries to follow suit…

“The share of dollars in global central bank reserves has dropped from roughly 70 percent 20 years ago to less than 60 percent today, and falling steadily. The Europeans and the Chinese are trying to build international payment systems outside of the dollar-dominated SWIFT system. Saudi Arabia has flirted with the idea of pricing its oil in [China’s] yuan… Digital currencies, which are being explored by most nations, might be another alternative; in fact, China’s central bank has created one. All of these alternatives add costs, but the past few years should have taught us that nations are increasingly willing to pay a price for achieving political goals…

“America’s politicians have gotten used to spending seemingly without any concerns about deficits — public debt has risen almost fivefold from roughly $6.5 trillion 20 years ago to $31.5 trillion today. The Fed has solved a series of financial crashes by massively expanding its balance sheet twelvefold, from around $730 billion 20 years ago to about $8.7 trillion today. All of this only works because of the dollar’s unique status. If that wanes, America will face a reckoning like none before.” Americans are still burdened with a truly bad habit: a lingering arrogance from being oblivious to the pain of recovery from WWII, massively economically successful beyond even our own wildest expectations. But that was then… and the world has caught up.

I’m Peter Dekom, and the United States could easily join the graveyard of super-powers throughout history who overestimated their power, lived off the past achievements and believed that they could never fall.