March 31, 2009
Last week a rather interesting brouhaha sprung up around the news, linked to on the Drudge Report, that on the eve of the G20, the wicked Chinese were considering creating a new ?global currency? and replacing the dollar. (The actual plan would have all international transactions conducted with a new money issued by the IMF that’d be backed by a basket of national currencies, including the greenback.)
Movement conservatives and Republicans reacted as if the Chicoms were about to institute a New World Order; Congresswoman Michelle Bachman even introduced a bill to bar the U.S. from even thinking about using this fiendish new money. Also playing to type, the liberals warmed to the notion of globomoney, since it sounded all inclusive, multilateral, and friendly toward Europe and Brazil, and stuff.
Both sides were (and are) confused.
The Right doesn?t understand that we already live in a Novus Ordo Seclorum in which international governing bodies and global markets operate using a one-world currency?it?s called the U.S. dollar. (Although, to be fair, Glenn Beck, whom Yglesias and others have singled out as particularly deranged, does seem to grasp what?s at stake.)
The Left, in turn, doesn?t understand what an absolute catastrophe it?d be for American Leftists if the world dumped the dollar. The only way America can have its welfare state without jacking up taxes is through borrowing and monetary expansion (money printing). And the only way to partake in both at current levels (and run a massive trade deficit to boot!) without experiencing runaway inflation is for the dollar to enjoy some ?special status? that sets it apart from those everyday monies. The American state never could have grown to its enormous size without the 1944 Bretton Woods system, in which countries covet and hord dollars like gold (think “reserve” status) and use them for all international business transactions?global petroleum sales being the most important. The moment this splendid dollar supremacy comes to an end is the moment the Left can kiss goodbye its dreams of trillion-dollar healthcare plans, not to mention more billion-dollar bailouts. The Right, too, can?t seem to wrap its mind around the fact that if the world collectively dumped the dollar, Washington would have an extremely difficult time financing the empire.
But then in proposing the new globomoney, the Chinese (or at least Beijing?s chief Central Banker, Zhou Xiaochuan) don?t seem to get the fact that an IMF ?currency basket? wouldn?t solve any of their problems. The cause of the current crisis, at the most fundamental level, is that since 1971, the world economic system has been based on paper money?money backed by nothing, money that has no intrinsic value. Since no one will ever bring their greenbacks to the Fed and demand their value in bullion, credit can be expanded indefinitely?resulting in unfathomable things like a global market for derivatives estimated to be in the quadrillions (!!!). And a new IMF pool of paper currencies wouldn?t prevent in the slightest the re-inflation of credit-bubbles of similar cluster-fucking proportions in the near future.
Well, today things got a little more interesting. The Russians (who might be in consultation with the Chinese on this one) seem to have woken up to the fact that the real alternative to the dollar system isn?t a basket of paper monies but a currency that?s, yaknow, worth more than the paper it?s printed on.
Reports Ambrose Evans-Pritchard:
Arkady Dvorkevich, the Kremlin’s chief economic adviser, said Russia would favour the inclusion of gold bullion in the basket-weighting of a new world currency based on Special Drawing Rights issued by the International Monetary Fund.
Chinese and Russian leaders both plan to open debate on an SDR-based reserve currency as an alternative to the US dollar at the G20 summit in London this week, although the world may not yet be ready for such a radical proposal.
Mr Dvorkevich said it was ?logical? that the new currency should include the rouble and the yuan, adding that ?we could also think about more effective use of gold in this system.?
[hat tip: Max Keiser]
The idea that leaders at a G20 would be even murmuring about a return to a gold standard would have seemed ridiculous just six months ago. We now seem to be on the cusp of a new era?and one for which both the mainstream American Left and Right are completely unprepared.
Daily updates with TM’s latest