June 28, 2011

More Than a Currency

Suppose you are the prime minister of a democracy in Europe or the Pacific. What do you think of the U.S. dollar and its future prospects? Regardless of party affiliation, or private preferences, you support the dollar.

 In fact, you cannot do otherwise. Your country’s security is tied to the dollar, because your country lacks the military strength to guarantee its national survival in a major conflict (like the one that began in 1939, in which dozens of nations were unable to defend themselves). As a small or medium-sized country, you either do not possess any nuclear weapons, or the number is too small to save you in a real conflict with a large nuclear power (like Russia). And so, the dollar is more than a currency. The dollar’s universal value is like an agreed-upon tax that the democratic world pays for the added security provided by the Americans.

The system works in an odd but enduring way. The U.S. dollar is an international fiat currency that can be digitally inflated or printed at will. It might be said that America exports its inflation while it imports everything else. As long as America is willing to defend Europe and the Pacific, the dollar will be supported and the so-called “tax” of dollar inflation will be paid by all. For as a prime minister of a democratic country in Europe, Asia or the Pacific, you crave America’s nuclear umbrella. You want an American military presence in your region, or a promise from the U.S. president that you will be defended in a crisis. And so, if you are Japan or Germany, South Korea or Saudi Arabia, you will stand by the dollar. You will not waiver. Your public criticisms of America and its currency do not reflect your real views. Because of this, multiplied by country after country, the dollar has survived.

The democratic world accepts the dollar, and will continue to accept the dollar, as long as the United States maintains its military strength. Much of the non-democratic world doesn’t necessarily like this. Yet, anyone who wants to fully participate in the global market is bound to accept the arrangement. Because so many of the most important countries support the role of the dollar, the rest are compelled to go along. If this is not fully understood by the American people, it is nonetheless understood in many capitals around the world. The dollar is more than a currency. The dollar is the life-blood of a necessary military machine.

Although the dollar is supported, its value has declined. The prime ministers of the democratic countries cannot prevent the market from objectively assessing the situation. Yet they will support what they must support, according to the requirements of national security. Without the U.S. military Japan, South Korea and Taiwan would no longer be safe against North Korea and China. Without the U.S. military the Europeans would be at the mercy of Moscow. Without the U.S. military Saudi Arabia would be vulnerable to Iran.

Dozens of countries in Europe and Asia would be forced to bow down to a new axis of global power belonging to those countries that despise the dollar and dream of America’s collapse. From a cold scientific standpoint, it is not a matter of good countries versus bad countries. It is simply a question of international order and the regime of stability preferred by the developed world (i.e., the “democracies”).

If we look at those countries which have openly advocated the abandonment of the dollar as the global reserve currency, they are all satellites or dependents of Russia and/or China. They buy weapons from Russia and/or China. Their missiles are typically aimed at the U.S. or U.S. allies. This is unmistakable, and the prime ministers of these countries do not fail to miss the truth of the situation. Although the public rarely hears politicians talk of an ongoing division of the world into two hostile blocs, it is nonetheless the case. This division is real, effective and an apparent continuation of what used to be called the Cold War. Under the current circumstances, politicians in the West would not dare to be so crude, or so “alarmist” as to suggest that a second Cold War has begun. Aside from begging the question as to who started it, there is much that cannot be explained or communicated to the general public.

When the majority of voters cannot locate most countries on a world map, there is no possibility of intelligent public debate. As with many political questions, it is reduced to a set of slogans which are repeated from time to time. The underlying reality is studied and dealt with by experts who largely operate in a realm of technical details that public discourse knows only by bare outline. In America, the public involves itself in arguments over taxes and social spending. Those domestic leaders who advocate “democratic change,” and the liberation of the world from the yoke of the dollar, cannot bring about that change. “In a modern state the actual ruler is necessarily and unavoidably the bureaucracy,” wrote Max Weber, “since power is exercised neither through parliamentary speeches nor monarchical enunciations but through the routines of administration.”

The old-fashioned business of diplomacy and war belongs to experts; that is, military/diplomatic bureaucrats. Here the ideological bones of contention take second place to the acknowledgement of fundamental strategic realities. This is why we observe only slight variations in America’s military strategy from one administration to the next. However one presidential candidate criticizes the national strategy of a rival, both will act the same if elected.  In matters of national strategy the players are not free to enact their utopian fantasies, or place noble humanitarian values ahead of grim reality. In matters of strategy, Left and Right are of little consequence. Consider the fact that President George W. Bush’s greatest European supporter in the Iraq invasion was the prime minister from Britain’s center-left Labour Party (a democratic socialist party).

The supposed futility of the Iraq invasion is understood by all. The necessity of establishing a democratic foothold in the Persian Gulf is also understood. What else can be done? The answer is that nothing else can be done. And when the opportunity appears to create more democratic footholds, the West follows the logic of extending those footholds. The survival of the energy-dependent Western way of life depends on the Middle East. No one must doubt the West’s resolve. No dictator can be allowed to threaten the economic life blood of the West. And so, the dollar will be supported for the same reason, and all schemes to destroy the dollar find their way to futility.

The prime minister of a given country might complain about the dollar in public, or criticize the United States as “arrogant.” In private, with his advisors, he is desperate to keep America’s military presence in his region. For the sake of local politics, he may call for the close of American military bases, or the return of American troops. Privately, however, he assures the Americans that the insulting language he uses in public is not to be taken seriously.  There is a public discourse against America – a discourse of resentment made for gross public consumption; and there is the discourse of statesmen one to another. How else has the dollar survived in its leading position decade after decade?

The dollar’s demise, though apparent on other grounds, is resisted on the grounds of national security. From this standpoint, the dollar is more than a currency. “We are frightened to stand alone out here in the Pacific,” say the Australians. “We do not trust the Russians,” say the Germans (who are deeply enmeshed with Russia nonetheless). “Save us from the Iranians,” say the Saudis. And so, the dollar’s demise has not occurred as some have expected. Only two events would destroy the dollar’s position: (1) the disappearance of security threats to the developed countries; (2) American military withdrawal, for whatever reason, from Europe and the Pacific.

Until then, the dollar will remain.


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