GLUE: Dollar as Reserve Currency.

 

The Glue that's holding the entire structure that is the United States of America together is the dollar serving as the world's reserve currency.

What this means is that the US is the only country in the world that can print money to pay back its debts.

Every country can print their local currency to buy there Government debt.  Though this is highly inflationary.  But they can not print US dollars to pay back internationally settled US dollar denominated debt.

We can.

The advantage this gives us economically is huge.

This advantage is predicated on the stength of the major US institutions: The Fed and depth of the US financial markets for issuing and controlling debt.  US Judicial System for settling debt disputes.  The US army for enforcing disputes.  The US government for maintaining an even handed and mature grip over those who control and regulate threse other institutions.

It's a delicate balance.

Because of the advantage of the Reserve Currency and the great depth of the Financial Markets we have had a huge leeway with the rest of the structure.

But the rise of the China/Russia/Iran block that has made great inroads with oil producing nations in the middle east and South America, and has bought up much of the commodity producing areas of Africa is pressuring the reserve status of the dollar for the first time.  Bilatteral trade agreements for settling major commodity trades outside of the dollar are proliferating.  This greatly lessens the need for other countries to buy US tresuries.  And this at a time when our debt is exploding so we need to issue ever more Treasuries.

AND just as this is happening - here in the US we have bcgun a massive home grown attack on the institutions that support the dollar and our entire debt structure.

Our Governement is split into two parties that have no interest in governing other than to attack each other and their constituents.  Faith in the Governement stands at about 15 percent.  Other countries notice this astonishing instability.

Our Judiciary is attacked daily - by our own Government officials!  Faith the in the judiciary here in the US stands at about 35 percent and declining quickly.  Other countries notice this alarming instability.

The army is still strong but public appetite for using it for anything is at an all time low.  Other countries notice.

That leaves the Fed and the depth of our Financial/Debt markets.  So far, faith in the Fed is holding.  Though there is serious talk of turning the Fed into anotther partisan institution.  Some are beginning to claim that it already is.  

The big problem will come when Inflation - which is already well into the process of destroying the viability of the bottom 90 percent of the US economy - gets worse - and at the same time a debt crisis provoked by higher rates and massive debt gets out of control.

It's bound to happen at some point.  It almost did with SVB but the Fed bailed everyone out and got away with it again.  But as some point the bailout will be so big and so visible and so obviously the cause of a new round of even more virulent inflation, that faith in the Fed will crack.

Once that goes, the dollar as reserve currency will be in real trouble.

Then we'll see how long the center can hold.