March 25, 2009 [LINK / comment]
The crisis in the U.S. financial system is beginning to yield very troubling side effects around the world. Last Thursday, Reuters reported that Russia and China are collaborating in a proposal to terminate the dollar's status as the de facto global reserve currency, replacing it with the International Monetary Fund's Special Drawing Rights (SDRs). It was just a rumor spread by a "senior Russian government source," however.
On Monday, the situation became clearer, as the head of China's central bank, Zhou Xiaochuan, formally called for the dollar to be replaced as the world's dominant currency. The question is, what are the Chinese up to? Are they simply worried about the declining value of their portfolio, which includes $1.4 trillion in U.S. Treasuries? Or are they determined to assert dominance in the global economy, in effect "cashing in" on the two decades of steady growth as the world's leading industrial exporter? The triggering event was the recent decision by Federal Reserve Chairman Ben Bernanke to inflate the U.S. money supply by over one trillion dollars. The days when we can make such decisions for the exclusive benefit of Americans has already passed us by. See the Washington Post.
Many free-market advocates say that currency exchange rates don't matter nearly as much as most people think, and there is a reason for that. They tend to forget the strategic dimension of foreign exchange markets, and in particular the "rental" income that hegemonic powers can extract from the rest of the world when their own currency is used by the rest as a reserve asset. That's why we could get away with profligate fiscal policy for the past eight years without suffering the consequences, whereas smaller and poorer countries must adhere strictly to balanced budgets to prevent a currency crisis. Gradually, we will become more and more like the rest of the world, playing by the same rules as the others do -- except we won't be writing the rules any more. China will.
While the global financial system is at the mercy of geopolitical forces hostile to U.S. interests, President Obama has hit the road to sell his economic recovery plan to the American People. While in Los Angeles, he took the time to appear on The Tonight Show with Jay Leno, the first president ever to appear on a TV talk/variety show. It may be in keeping with our celebrity-obsessed zeitgeist, but for just about anyone over 40, it showed dreadfully bad judgment.
Google has a rare explicit promotional link, inviting folks to submit their questions about the economy to President Obama, at whitehouse.gov.
For his part, Rush Limbaugh has been mocking the President's heavy reliance on the teleprompter, after a possible gaffe when the Prime Minister of Ireland was visiting the White House last week. Obama and some reporters say he was just kidding, but for some reason there is no video to corroborate their version of events. This issue has been percolating for several weeks, unbeknownst to me; see politico.com, which noted that "President Barack Obama doesn't go anywhere without his TelePrompter." And, just for fun, check out the new Barack Obama's Teleprompter blog.
In the Old Dominion, meanwhile, supporters of RPV Chairman Jeff Frederick are calling on their "grassroots" to stage a rally when the State Central Committee meets on April 4. As Jim Hoeft, says, "This next week is sure to get interesting."