To the editor:
The U.S. is facing a financial catastrophe that I doubt one in 10 Americans knows about. This bomb is the loss of our world reserve currency status, an event that is about to affect us all.
Since World War II, the U.S. dollar has been the world reserve currency. Trade between countries has been carried out almost exclusively in dollars. Thus, there was great demand for U.S. dollars. Countries sent us cheap goods to obtain the dollars they needed for foreign trade. They also purchased our debt to collect extra income on their dollar reserves. This enabled the U.S. government to basically create money out of thin air, and spend it with very little consequence as long as the dollar demand was there. Bonds and notes were printed and sold, the proceeds were given to the treasury to be spent by politicians.
The demand for dollars in foreign countries is not infinite. The federal government's insatiate demand for cash and our negative balance of payments has already spread enough of our dollars and debt around the world so that demand has fallen precipitously. Russia, China and the International Money Fund are calling for a new currency to replace the dollar's world reserve status. Countries are also making agreements to carry out foreign trade in the local currencies, cutting the dollar out of the process. The oil-exporting Arab nations are preparing to institute their own currency on the pattern of the euro. The dollar is about to lose its privileged position as the world reserve currency.
How will this affect us? It already has in the form of inflation. Borrowing is essential as more than 40 cents of each dollar spent by the federal government is borrowed. Bonds are printed, but the buyers are no longer there. In 2011, our Federal Reserve has had to purchase 61 percent of them with "printed dollars," greatly inflating the money supply. As this extra money circulates in the economy, prices will rise.
Our problem, of course, is federal debt. Whenever governments accumulate too much debt, the standard procedure to deal with it is inflation. As the value of our dollars goes down, we all become poorer, but government can continue to spend the printed dollars. It is a hidden tax which hits hardest on the middle class, the poor, the elderly (fixed incomes) and the saver.
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