Rick Grimaldi: Dollars And Sense

by Rick Grimaldi - 05/11/12 -

Debt, debt, debt. The President can suggest that this election is about any number of things but at the end of the day it is about the short and long term health of the economy both here and around the world.

It has been fifty years since a President has actually reduced spending and there appears to be no one on the horizon prepared to do so now.  Is it any wonder that the majority of the American public is not only disaffected but angry with government.  Should it surprise anyone that the tea part and occupy movement continue to play a role in the process. People are looking for answers – not hope and change – but real answers to the economic issues facing this country.

Let's be clear, we can whine all we want about the European debt crisis but the reality is the debt crisis is ours and the fact that the dollar is on less than solid ground could spark a world economic crisis. So says a Senior fellow at the Competitive Enterprise Institute..

So how did we get here?  Well first as I said, we continue to spend more and more. Secondly, according to Scott Powell of the CEI, we have to go back to 1973 when the Saudis helped the dollar become the reserve currency for the world by agreeing to accept only greenbacks in return for protection of the monarchy and oil fields. Within two years that reserve status was established with all OPEC members. Since then Central banks around the world have maintained disproportionately large reserves of dollars to facilitate trade which enabled the US to print excessive amounts of currency with seemingly little risk of inflation.  This, as Powell writes, allowed us to import more than we exported and, consume more than we produced and spend more than we earned. Powell goes on to say that this is about to change.

The US dollar is already being abandoned by a number of countries in favor of the Yen and the Chinese Yuan. Southeast Asian nations entered into credit agreements with China, Japan and South Korea; moving them further away from dollar dependency. The erosion and loss of the dollar as reserve currency means less demand and more dollar selling by Central banks around the world. Guess what ensues? Yep, inflation and the potential for a dollar that collapses.

So the next President will not be able to kick the can down the road. This will be a real problem that muse be dealt with and no amount of "I inherited this" will be acceptable. The real question is whether the President will have the economic savvy to understand what this means for the country.