By Tim Iacono
This interesting little item was in the news last week and is deserving of a closer look. John Laughland writes in the Russian News and Information Agency about the most recent financial crisis in the U.S., pondering its implications for the world currency order as it now exists.
It seems that exorbitant privilege may once again be a problem for the U.S. as it was back in the 1960s. This time, however, it will more likely be leaders in Asia who will protest as Charles De Gaulle of France did some forty years ago, a protest that led Nixon to "close the gold window" in 1971, thus ending the Bretton Woods System, the world currency order at the time.
The decision by the US government to inject $700 billion into the financial system means that the already gigantic annual budget deficit of the American state (previously some $450 billion a year) will now rise by a factor of three. The total state debt of the USA will rise to well over $11 trillion. It is obvious that such a colossal debt can never be repaid. Instead, it will be serviced by more debt in the future.
In America, this basic culture of debt is aggravated by the fact that other countries use the dollar itself as a reserve. This means that the United States can export dollars in order to pay for its imports without the dollar losing value. Other states also need dollars to buy key commodities like oil. The USA can therefore export paper currency almost indefinitely - the famous "deficit without tears" analysed by the great French economist, Jacques Rueff.
What can Russia do about this? At first sight, Russia's role in the international financial system does not seem very large. However, as a major exporter of hydrocarbons, her role in the world economy is actually very important. As the age of the dollar draws to a close, Russia will have to consider selling her oil and gas not in the devalued American currency, but instead in the euro used by most of her customers. It is surely unnatural for two geographical neighbours to do such large volumes of business using the currency of a distant and now ailing nation.
Second, the Russian leaders might also consider making their own currency, the rouble, convertible into gold. The idea of gold convertible currencies is extremely unpopular among most economists: they dismiss gold as a "barbarous relic" (to use the famous phrase of John Maynard Keynes) and suggest either the present regime of paper currencies or, at best, a link to a basket of commodities.
A currency based on gold... what a novel idea.
What subcategory of human being takes a knee on a handcuffed man, mashed face down on the pavement and, ultimately, forces him to die?