Dollar Dollar Dead

For anyone interested in how the global economy works today, it is interesting to view the recent performance of the world's pre-eminent economy, from a wider perspective.

Flaming dragons and rampaging elephants notwithstanding, the United States is still the most dominant economic force in the world today. In some respects it is an economic force that is peerless in so far as in the history of the global economy there has hardly ever been another unified entity that has managed to so successfully structure not only the economic but also (and at times more importantly so) the non-economic aspects of the global economic system to its disproportionate advantage.

Of course, it is not without partners. What has been good for the United States, has also been largely good (give or take) for a number of the other handful economies which together make up the 'systemically significant' proportion of the global economy.

What does the performance of the US look like from a wider plane? Today, the Fed is pursuing an almost missionary activist monetary policy in the face of what many fear as imminent recession in the real economy. But viewed in Euros or gold, the US has been in recession for the past five years! This lends weight to those who have been pointing out for sometime now that the global economy, dominated by the US, is increasingly bipolar. There is a 'real' economy and there is a 'financial' economy. Until now it has been possible to hedge your bets in one against the other, as the logic of the real economy seemed to increasingly defy the logic of the financial economy. But today the proverbial jig is up. The credit crunch is eating away at the fundamental asset price inflators in the US and friends. Some of most hallowed halls on Wall Street (M. Lynch, Citigroup to name two) are suffering major losses, sending CEOs packing. The financial economy in the US is a mess.

Even a blonde Brazilian bombshell has the economic dilligence to 'refuse to get out of bed is she is paid in US dollars'. The main reason for this exaggerated suffering is the way the US economy chooses to deal with its pains. As in the past, many allege the US is either brave enough or stupid enough to print dollars to fight its way out of dying dollar (or a decaying real economy, depends which perspective you start with).

This is how Mark Faber put it: "the dollar is the most oversupplied commodity in the world". He may well be right. But for those who write on economic development, emergence, globalization, poverty reduction etc. the irony cannot possibly be lost:

Money is not the problem. There is more money in the world than anyone seems to know really what to do with. The problem is what money does. And the extent to which it conditions all incentive structures. To a point where no other reference can seem to guide any coherent purposive action on a mass scale. And for that we really have to be grateful to our American friends. A ship so vast the ocean is sinking in it!