Basic economic rules cannot be broken without consequences.
One such rule is that a man cannot spend more than he earns. A day of reckoning will come. It can be postponed for months, years or even decades by borrowing or patching up the system. However, it will come.
Order Today: Return to Order: From a Frenzied Economy to an Organic Christian Society—Where We’ve Been, How We Got Here, and Where We Need to Go
America is fast approaching that painful day of reckoning. Several believe that a perfect storm that has been years in the making is ready to break out.
Mounting Debt and Reckless Spending
Some believe the new spending bill will trigger the coming storm. The bill will extend tax cuts and propose new ones, thus impacting income. It will also not cut spending or address expensive social programs like Medicare and Medicaid. Some analysts estimate that the nation faces an additional $9 trillion of debt over the next ten years, not counting any emergency needs.
Debt is nothing new. America has been running deficits for decades. However, the latest spending bill will force America to run its largest deficits as a percentage of gross domestic product. Interest alone is now at $1 trillion, more than defense spending. These developments move the nation into uncharted territory that could hasten the day of reckoning.
Our Dollar, Your Dollar
Kenneth Rogoff, a renowned Harvard economist, has just released a new book that addresses the coming financial crisis. Titled Our Dollar, Your Problem: An Insider’s View of Seven Turbulent Decades of Global Finance, and the Road Ahead, the book maintains that while the American economy is sound by most metrics, the real problem will be the declining state of the dollar.
Why America Must Reject Isolationism and Its Dangers
The dollar is the world’s reserve currency. That means the currency inspires so much confidence that people everywhere are willing to trade in dollars as the most equitable and stable way of doing international business. It also means everyone is willing to buy American debt at discount rates because no risk is involved, and a return on investment is guaranteed.
Americans gain immensely from the dollar’s status, especially in the lower price of loans, mortgages and other debt obligations. The economy also gains when everything is dollar-denominated.
The “Exorbitant Privilege”
What is called the “exorbitant privilege” of being the reserve currency comes with the responsibility of maintaining the system honest, dependable and stable, thus meriting trust. It takes great effort and expense.
Of course, all currencies should have those same qualities. However, modern finance history shows that many nations have failed to live up to those demanding standards and ruined their economies by the easy road of reckless spending.
Help Remove Jesus Bath Mat on Amazon
America might follow the same path. Some populist influencers believe these obligations are onerous and should be discarded or shared among other trading partners who benefit from the dollar’s status. They think America should walk away from the dollar’s position and let others worry about the consequences.
Shortsighted Conclusions
However, such shortsighted conclusions fail to see that shirking responsibility in this way would have terrible consequences for America’s economy and consumers, especially in the escalation of domestic interest rates.
A second problem with abandoning the dollar is that no other currency exists with the stability and integrity to replace it. The immediate result will be economic chaos and disrupted markets.
The international trading structures and mechanisms built over decades would be broken. Supply chains would be disrupted and decoupled. Such a crisis would have major repercussions on America and the world. No American contingency plan exists to deal with such an eventuality.
Destroying the System
Dr. Rogoff believes that the most likely result of such a policy would be the shattering of the world economy and the introduction of a basket of other currencies as a means to do business. However, such a basket of less stable currencies will cause disruptions and complicate transactions.
Satanic Christ Porn-blasphemy at Walmart — Sign Petition
Such a dollar policy favors the dreams of those like Russian ideologue Alexander Dugin, who promotes a divided multipolar world, decoupled economies and the destruction of the West in its present state. He blames the systems in place for the dire state of the world today. Destroying the system is his solution, not addressing the real cause.
Basic Economic Rules Must be Followed
The storm is coming because people refuse to observe basic economic rules, such as not spending more than one earns.
The real cause of today’s financial crisis is a moral crisis, not an economic one. Too many want to enjoy forever the frenetic intemperance of reckless spending in government and personal life. They are not willing to abide by restrictions and sound money policies that rein in passions and favor balanced budgets and temperate lifestyles.
Even when lifelines of credit are extended to them, they are never satisfied and want more so as to live yet longer in their intemperance. The day of reckoning is approaching when there will be no more lifelines.
Photo Credit: © Rawf8 – stock.adobe.com