Tuesday, August 2, 2011

Is American a parasite on the global economy?

Many economically educated citizens are familiar with the idea that inflation is an attack on savers.  Of course, that is true, but in today's economic world, that means American inflation is an attack on the rest of the world, primarily.  Most Americans don't realize that the rest of the world holds their savings in dollars, far more so than Americans save themselves. 
It is difficult to calculate the total benefits that accrue to Americans because the dollar is the international currency.  The primary benefit is that our stores are flooded with cheap goods.  It also means we can run huge budget deficits, and thus rely on government to keep us employed.
Basically, it means Putin is correct: we are living high on the hog, consuming far more than we produce, essentially like a parasite on the productive work of others.  
The primary downside to our situation is that our industrial/productive base gets wiped out by cheap foreign goods.  The high value of the dollar also spurs foreign immigration, because they can make so much more working here than at home.
In all, you can easily see, it is not a good system for Americans.  Bigger government, less jobs, more immigrants, all in exchange for cheap foreign goods...    Jeez, hardly seems like any upside when you look at it like that.
Oh yeah, and lets not forget the Islamic angle: the whole system is predicated on our military support for Saudi Arabia and other oil-rich authoritarian states.  Thus we get flooded with waves of "Religion of Peace" propaganda funded by Arabian wealth, while betraying our democratic and Christian ideals. 
When the Dollar Breaks
Russia, along with China, are working steadily to get off the dollar.   If and when they manage to break the dollar, the American economy will undergo a severe shock.   
When it happens we will see:
-a huge inflationary spike (with possible hyperinflation)
-a massive downsizing of government
-a huge wave of unemployment
We will have to start from scratch, rebuilding our productive economy to earn import trade, rather than just receive it as the beneficiary of being the world's ultimate privileged consumer (trading our paper money and debt for their real goods).  We will all be poverty-stricken compared to today. 
It will happen eventually.  The longer we degrade our industrial capacity, and the more we depend on government employment, the worse off we will be when it finally happens. 


Steven Shaw said...

I agree with the thrust of your argument. One thing I don't understand is the statement about foreigners holding their savings in USD. I'm British/Australian and hold my savings in GBP and AUD. Are you saying that because we're on a "USD standard" that somehow I'm still saving in USD? Or perhaps you're talking about those in Japan/China you here about who buy US bonds?

Justin said...

Thanks for the comment, Steven. Yes, I was referring to the use of US bonds as a form of national savings by foreign governments and corporations. A huge number of individuals in Eastern Europe and some in Asia also put their personal savings in the US dollar, but I think the institutional bond investors have a greater overall sum.

Steven Shaw said...

Got it! Thanks.