The only thing that keeps the dollar afloat today is the petrodollar floor. The rest of the world, when they import a barrell of oil, have to exchange their yuan and yen and euros for dollars, because most exporting nations sell their oil in dollars.
The petrodollar dynamic is a dollar-strengthening force that counteracts the weakinging forces represented by our federal deficits, private/corporate debts, and trade imbalances, and allows us as a nation to consume substantially more value than we produce. Without it we will most likely be buying loaves of bread with wheelbarrows of greenbacks.
The petrodollar dynamic is so important that we've already gone to war once (Iraq), conducted one failed CIA coup (Venezuela), and almost certainly will go to war again (Iran). Each of these three oil-exporting nations, Iraq, Venezuela, and Iran, had either switched to Euros or have threatened and continue to threaten to switch. This is the achilles heel in US economic hegemony and our owning and political classes will fight aggressively to protect it.
Take out the support of the petrodollar, then we'll either need to contract consumption to the point where we have zero trade imbalances and zero deficits, or we'll have to augment the attractiveness of our debt instruments to incredible degrees. Since we can't mandate decreased consumption, the likely course is substantially rising interest rates and accelerating inflation. Either way, in the end, the standard of living for most Americans will markedly decline.
Further, a weak dollar means U.S. real assets will be on the auction block. Recall the post Plaza Accord weakness of the dollar during the Reagan-Bush years: The U.S. went from owning 3.4x more of the world than the world owned of us, to the world owning 0.7x more of us than we of them, in just 6 years. Each of us, those that continue to have a job, will be working for French and German and Japanese and Chinese companies. In the end, this will be the greatest threat to our soverignty, as USG policies will have to take in to account the need to preserve good will with these nations and their firms.
We have made an awful mess of our situation in the world, and it began in November of 1980 when Ronald Reagan's henchman cut a deal with Iranian hostage holders to cement the theft of that election. It has continues since, despite a brief respite of moral leadership (yes, Freeper, I said
moral!) when Clinton was in the White House and we still had control of Congress.
Escalator going down! says the grinning Republithug devils! I recall with a chill when Chalmers Johnson said, in a Bookclub reading, that we Americans ought to get out now, while we still can, before our borders are closed and the oligarchy makes use of its domestic internment camps; get out now, buy that condo in Vancouver or villa in Costa Rica while the dollar makes it still affordable. He meant it, and his fear was based on his assessment of the extreme militarism of our society -- that military-industrial-plutocratic class will not let go of their advantage without a fight, and it won't be pretty, and their sons and daughters won't be the ones to fight it.
Interesting times, indeed! (So goes the Confusican curse.)
The illusion of freedom in America will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way, and you will see the brick wall at the back of the theatre.
--Frank Zappa, 1977
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