De-Dollarization and American Decline

The undermining of the dollar through inflation and confiscation of foreign assets is one of the most irresponsible and destructive things Biden has done as president.

Last week, I wrote about the emerging China-Russia global power axis, its obvious threats to the U.S. economy and national security, and the strong possibility of a very rapid decline of the dollar as the dominant currency for international trade. A major decrease in the use of the dollar as the world’s reserve currency would, I noted, radically undermine the U.S. economy and, let’s say, “fundamentally transform” life in the United States.

Fox News Channel talk-show host Tucker Carlson took up this theme with gusto in last Wednesday’s show. Carlson’s description of the effects of the near-universal acceptance of the U.S. dollar as a trading currency since the end of World War II identifies both the great advantages it gave us and the powerful moral hazard it created:

The world's central bank[s] stockpiled U.S. dollars far more than any other currency. Now, most Americans may not have known that, or they did, but it doesn't matter what they knew. It was very good for everyone who lives here. Because there were so many U.S. dollars in circulation outside of the country, the cost of borrowing money inside the country remained artificially low, and that's one of the reasons that in this country, America, middle-class people could buy their own homes. The U.S. government, meanwhile, was able to run up astronomical debts without many obvious consequences.  

Carlson notes that the dollar’s status as the world’s preferred reserve currency enabled the U.S. government to run up debt without dire immediate consequences, which is the only kind of effect politicians generally care about.

Carlson characterizes the current situation as an outcome of U.S. leadership in imposing sanctions against Russia over the Ukraine War, and that is certainly a big reason that this is coming to light now.

Carlson quotes a Daily Caller article by economists E. J. Antoni and Peter St. Onge, which I will recount from the original:

A second critical feature of a reserve currency is its apolitical nature. Which Biden is now gutting. After both parties in Washington destroyed the dollar’s stability with inflation, now the Biden administration has chosen to wield the dollar as a weapon. Together, the message to foreigners [is that] they should get out while they still can.

In response to Russia’s war with the Ukraine, the US froze the dollar reserves of Russia’s central bank. To be clear, these were not American assets, but were dollars owned by the Russian central bank and the Russian people. The seizure was intended to cause bank runs and collapse Russia’s credit system. It didn’t work.

Instead, it exposed the Biden administration’s willingness to violate the trillions of dollars foreigners rightfully own. The danger of this precedent is difficult to overstate.

If you’re a government official, banker, or business owner in a foreign country, you must add the Biden administration’s moral arrogance and economic recklessness to your calculations and give it grave consideration. Antoni and St. Onge note that this hazard is obvious and formidable: “Perhaps a foreign country disagrees with Biden on ‘green’ energy mandates, or transgender policies, or diversity quotas. Is there some ESG threshold of wokeness where your national treasury is drained without warning?”

To protect yourself, you will start trading in currencies that were once a good deal less dependable than the dollar but which Biden has brought into parity by making the dollar far less trustworthy than it was a mere two years ago.

Carlson summarizes the flight from the dollar with some of events I noted in the last issue plus others:

So, Russia announced it will conduct business in Asia, Africa and Latin America in Chinese currency.

Brazil, which has a brand-new government supported by the Biden administration, announced it will do the same thing. Brazil's [the] largest economy in the hemisphere after ours. Pakistan is doing the same thing. That's a longtime U.S. ally. India and Malaysia, two of the biggest economies in the world, announced they'll be settling their trade in their own currencies, not the dollar. Even France, which we liberated, is using Chinese currency in a new liquefied natural gas trade. China and Saudi Arabia are now major business partners, and again, etc., etc., etc.

The undermining of the dollar through inflation and confiscation of foreign assets is one of the most irresponsible and destructive things Biden has done as president—and the other damage he has inflicted is enormous. Reflect on that for a moment.

In my view, this disaster is the culmination of a long-term process resulting from more than three decades of awful, hubristic choices by the U.S. government and, ultimately, the American people who elected them, with President Joe Biden and the 2021-2022 (razor-thin) Democrat-majority Congress being the worst and most destructive of all. Deindustrialization, erosion of the value of the dollar, ever-rising government spending, wasteful wars and moralistic interference in other nations’ sovereign affairs, progressively intensified miseducation and demoralization of the nation’s children, and countless other foolish decisions have eroded the productivity and go-getter spirit of the American people—which was once this nation’s pride and joy and what made us distinctive and indeed rather exceptional.

Carlson ends by noting that hyperinflation traceable to war debt brought down Germany’s Weimar Republic and “led to communist revolutions across Germany and ultimately, to fill in the blank, the Nazi regime.” Carlson’s point is that the United States has done the same thing “repeatedly for decades” to fight “pointless war[s].” That is true. I would respectfully submit that equally important contributors to the disaster have been our enormous, inflationary, initiative-destroying welfare state; mind-rotting educational system and culture; corporatist concentration of power in an insulated class of collaborating government and private-sector elites; regulatory destruction of entrepreneurism and individual aspirations; and countless other ruinous effects of arrogant governments.

Carlson is to be commended for bringing wider attention to this latest disaster. It is still not too late to turn things around by reversing the policies noted above. It soon will be.