Dollar Possibly on Course for a Perfect Storm of Uncertain Timing

July 10, 2017

A term often mentioned today in assessments of the Hamburg Summit has been the G19. With the United States delegation marching to its own drumbeat, the other nineteen governments agreed to coordinate on a host of policies for their mutual benefit and to proceed in effect as a Group of Nineteen. If the U.S. renounces its obligation to lead and also refuses to follow, the remaining choice is to get out of the way. However, such a geopolitical role seems inconsistent with the dollar remaining the world’s unchallenged paper money. Hold that thought.

The U.S. arrived at this juncture because its democracy is under attack, albeit not exclusively from the emergence of President Trump and his third way. Trump brought a much more authoritarian tone to the executive branch, and like authoritarian leaders who’ve captured the reins of political power in other countries, he’s on a crusade to discredit the fact checkers, whether it be the press or the intelligence community. Although he introduced a wholly different ideology from previous U.S. political leaders on the national scene, Trump attained the presidency not as a third party candidate but as a Republican. He’s solidified party discipline by supporting core principles of that party like tax cuts, more defense spending, repealing the Affordable Care Act, nominating a strict conservative constructionist to the Supreme Court, and advocating christian family values.

Look around to other examples, and one sees that authoritarians don’t get removed from political office without great chaos and struggle. It takes years. Trump has the backing of one of two major political parties, and it’s the one that also controls both houses of Congress, the Supreme Court, and most state governor mansions and legislatures. With gerrymandering, the plutocratic corruption of elected officials, and the inability to stop cyber warfare, which already shapes opinion and is on its way to corrupting vote tallies, it’s plausible that America has experienced its last free election. ┬áJust as the legacy of Germany’s past created a particularly toxic brand of communism in East Germany, a risk exists that Republican ideology that never opposes market solutions and despises government when mixed with Trumpian nationalism and xenophobia will produce something truly feared around the world.

Time is not on the side of U.S. democracy or the dollar. By taking funds out of education, it will be increasingly easy for political leaders to manage public opinion, taking away freedoms in the name of freedom. The economy does not appear to be at the cliff’s edge, but engaging in both commercial and military wars, staking out a path of isolation from the world community, slashing regulatory financial safeguards imposed after 2007, and promoting further inequality of domestic wealth and income are bound to expedite strains.

If and when global investors conclude that America’s new image isn’t a passing phase in the country’s development, a serious rethink of the dollar’s central role in the international monetary system is liable to emerge. That role thus far has been built on two pillars: 1) confidence in the might of America’s economy and geopolitical leadership and 2) the perceived lack of alternative stores of value. All other national and cyber currencies lack one or more key properties possessed by the dollar. But one has to suspect that if the first pillar crumbles, the resulting vacuum will eradicate and correct the misgivings embodied in the second pillar much more rapidly than now assumed.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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