The Economy

Is the speculative recovery sowing seeds for an even worse economic crash?

The mid- to long-term implications of the erosion in the world position of the dollar are massive. A strong and stable dollar was the bedrock of the international capitalist monetary system that was established at the Bretton Woods conference at the end of World War II. The dollar has served for nearly seven decades as the world’s supreme trading and reserve currency. The unique and privileged position of the dollar—which brought with it immense advantages for US capital—was based on the unchallenged economic supremacy of the US at the end of the war. That, in turn, was founded on the global dominance of American industry.

The long-term decline of American capitalism, reflected most importantly in the decay of its industrial base, resulted in the massive global imbalances between debtor nations—first and foremost, the US—and creditor nations, such as China, Japan and Germany, which led to the implosion of the world economy a year ago. It is the transformation of the US from the industrial powerhouse of the world to the center of global financial speculation and parasitism that, in the final analysis, underlies the erosion in the international position of the dollar.

This underscores the reckless character of US monetary policy. The United States is flirting with the disaster of a precipitous fall in the dollar, which has already declined 15 percent since its recent high last March against the currencies of Washington’s major trading counterparts. A full-blown dollar crisis would wreak havoc on the US and world economy.