William Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, is warning that a loss of confidence in US bonds and the American currency is inevitable at this point. This obviously is the result of the Bush-Obama spendthrift continuum, along with Bernanke having his way in continuously debasing the currency.
But the more underlying factors have been culminating for many years. The post-WWII imperial overstretch of the US, along with severance of its currency from any sort of gold linkage in 1971 have all made a dollar crisis a matter of ‘when’ as opposed to ‘if.’ While many conservatives either refute the idea that the US has an empire, or embrace it as a force for global enlightenment, one cannot deny the fiscal pressures it bears upon the federal government and the domestic economy. It has in many ways led to the deterioration of US infrastructure in education, communications, and transportation. This incident has contributed to the reduction in the nation’s manufacturing base and the nation’s weakened overall global competitiveness. We have for good while now been diverting funds for necessary internal improvements toward both an expanded military and military presence around the globe.
This domestic decay, when coupled with a fiat currency and a perpetual belief that the nation can have both guns and butter (a grand military along with an almost as grand welfare state), makes dumping US assets a logical move for foreign investors. This may take time, as confronting the reality that the dollar and US assets are no longer the world’s safe haven for investors will be a tedious process at best. But the day of reckoning will come sooner rather than later, especially as Obama and establishment Keynesians such as Paul Krugman continue to espouse greater deficits as a means of recovery.
