by Dr. Larry Fedewa (September 29, 2018)
The greatest threat to the long-term security of the United States of America is the $21 trillion (and growing) national debt. There are many possible outcomes of an uncontrolled national debt – none of them good.
Gradual outcomes have already begun in the form of efforts to undermine the position of the dollar as the world’s reserve currency. The chief force behind this move is China, with serious support of the International Monetary Fund (IMF) which, with the support of the Obama administration, invented its Special Drawing Rights (SDR’s) as an alternative to the dollar for international trade.
Further, the new international development bank called BRICS (Brazil, Russia, India, China, South Africa), an economic coalition representing 41% of the world’s population and 23% of the global Gross National Product (GDP), has pledged to fund a one trillion-dollar development bank to rival the World Bank and the IMF. The rapidly increasing preferred currency of BRICS is the Chinese yuan. BRICS started as an economic coalition for mutual support but has already begun to branch out into nuclear security and similar fields of cooperation.
Some commentators, such as James Rickards, see this and similar efforts as genuine threats to the stability of the dollar. As long as the huge debt keeps growing and the proportion of the world gold supply held by the USA keeps dwindling, the USA stands to continue watching confidence in the dollar decrease apace. That path eventually leads the USA toward becoming a giant Greece or post-WWI Germany.
Another threat to the US currency is the rumor that twelve “blue” states, led by California, are set to begin circulating dollars backed by state banks (rather than the US Treasury) as legal tender to undercut federal control of the US economy, reverting to pre-Federal Reserve (1912) US practice. If true, this could have catastrophic consequences for USA solvency, perhaps the end of “King Dollar”.
Conservative Support for Donald Trump
One of the first reasons many conservatives supported Donald Trump for President was their expectation that the national debt was one of his main targets in making America great again. So far, there has been no movement in that direction other than his bargaining a lower price for the Jerusalem embassy and some similar economies. So, the question is, Does Mr. Trump have a long-term strategy for eliminating the national debt? Budget hawk Paul Ryan’s leaving his power position as Speaker of the House does not look like a good sign.
The Trump Strategy
There is a school of thought that maintains the following logic:
- in order to have a chance at reducing federal spending, the USA has to have a thriving economy, because experience shows that a country cannot spend its way out of recession. The Obama administration tried that and contributed to the longest recession in history.
- But neither can a country starve its way out of recession, because the population will not stand for it.
- Therefore, the only time spending reductions can be made successfully is when the economy is booming. This was known even in biblical times, as in the story of Joseph and Egypt’s seven years of plenty followed by seven lean years.
- It is also necessary in these times of international challenges to maintain the USA’s military preeminence in order to guard the peace. Starving the American military as the Obama administration did would work only in a world without enemies as imagined by Obama’s idealists.
- A strong military and a strong economy are also necessary conditions for prevailing in a contest of wills over radical re-alignment of trading relationships.
- In order to prepare the country for federal cost-cutting, therefore, these preparations are necessary.
- Conclusion: We are still in the first stage of the Trump national strategy,
- The next step will be a debt reduction phase.
The Cost Cutting Phase
It is clear that the key to reducing the national debt as well as securing the dollar is the so-called entitlements. We have already heard President Trump’s most basic approach to this issue. Namely, he has promised not to rescind the Government promises to those who have contributed all their working lives to Social Security. Speaker Ryan’s formula for dealing with this issue recognizes the Government’s moral obligation to honor its role as custodian of the contributors’ funds, but also saves significant money by gradually adjusting the timing: raising the eligibility age from 62 to a later date (which corresponds to changes in the workforce which have already occurred). There are also other minimally painful adjustments available in areas of other federal and state pension programs, such as, civilian, military and railroad employees. Another area of saving has already begun with the reduction regulations and the corresponding need for enforcement personnel. The key is not really the actual metrics; at this stage the keys are the will to do it and the adequacy of the targets.
I cannot leave this topic without noting another possible advantage that may be emerging in defense of the dollar. That is the steady increase in America’s energy production. In the past, America’s major attractions to the rest of the world have been our nuclear shield and our huge retail markets. Our chief exports have been technology and the corresponding jobs it created.
The energy revolution adds a major new dimension to our export menu. With the investment and legal facilitation of more sources and more refineries, America can emerge from its status as a buyer of energy to a world exporter of energy. The transition holds enormous leverage for America’s international position in reversing the balance of international trade, reversing the outflow of petrodollars, enhancing our defense of Europe, and ultimately raising our cost of living. This monumental change in America’s international position might even influence the longevity of the dollar as the world’s reserve currency – replacing gold as guarantor.
Let’s hope President Trump is on the same wave length!
Larry Fedewa is the host of the Dr. Larry Show.
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