David Hines
Export-import bunk
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By David Hines
June 24, 2009

A major US export is being threatened. When we can no longer export it, it will not be just a certain segment of workers who are affected, but all of us.

This major export is the Federal Reserve Note.

FDR and Churchill brought together delegates from all forty-four allied nations at Bretton Woods, NH, to make the dollar the world's reserve currency. Other currencies were explicitly pegged to it. This permitted us to export our inflation. We could print money without immediate repercussion. Foreign holders of dollars sopped up the excess.

A few decades later Nixon abrogated the agreement, declaring the dollar no longer exchangeable for gold. To maintain some reason to hold dollars, Kissinger jetted to the Middle East to broker a deal whereby oil would be denominated in dollars. Since nearly everyone buys oil, purchasers of the black goo need to convert whatever currencies they have into dollars. Oil became the de facto backing of the buck. We could still export some of our inflation.

Threatening this arrangement has met with the wrath of Washington. Iran and Iraq both threatened to sell oil in euros. They were branded axles of evil. Hugo Chavez has considered a similar move; even shaking his hand is deemed unacceptable.

Why, then, is Obama promoting energy independence, and the value of creating exportable alternative energy technology? He would be undercutting the backing of the dollar, at a time when he wants to borrow more than ever. Abandoning the dollar's status as world reserve currency by cutting its link, however tenuous, to a backing commodity would mean that the inflation stays here at home.

Perhaps that linkage is why, despite lip service to alternative energy by virtually every recent president, there has been little progress on that front.

Already China has expressed concern about the dollar's viability because of the increasingly heavy borrowing. Our military, tied up in a couple wars already, will not be able to dissuade all oil producers who would sell in euros, yuan, or rupees.

If energy independence is a priority, one would think that the ramifications of the decision would be considered. It would be wise to prepare for the uncoupling of the dollar from oil by reducing spending and working toward some other backing for the currency that links it with the real world.

Instead, deficits are projected far into the future. Without the ability to export the resultant inflation, the US dollar shall come to resemble the Zimbabwe dollar.

Zimbabwe's economy had no choice but to operate on foreign currencies. When we are paying for inflation of the peso and the loonie if Mexico and Canada choose to inflate, some foreigners may think that turnabout is fair pay.

© David Hines

 

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David Hines

Born in a mill town, David Hines has seen work as a furniture mover, computer programmer/analyst, and professional musician... (more)

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