Whither the dollar? Ruthless Criticism

Whither the dollar?

[Originally posted July 2011]

1. The US economy is the big exception in global capitalism: its national credit and the wealth of the world are the same.

If the common criteria for the solidity and stability of a nation's economy were applied to the US, it would have been over-indebted long ago; and even more so since the crisis:

Taken together, these are normally alarming signals for finance; even more so if the nation's deficits are ongoing. Usually, the markets react to these signals by raising interest rates. If the central bank is also feeding the markets with "cheap money," they reckon on looming inflation and hedge their expectations with rising interest rates. All the more so if they come to the conclusion that the state is deliberately calculating with inflation; then they raise the price of credit and reduce the exchange rate. If the trade deficit of a country is accompanied by a rising need for credit with impacts on the exchange rate, finance buys the bonds of a country at constantly rising interest rates and in the end no longer at all.

The normal case shows that the US is a special case: America does not need to borrow foreign money in order to remain solvent; it uses its own money when it runs up debts. This is because the whole world has and needs dollars and has no interest in getting rid of them by exchanging them into other currencies so that there would all of a sudden be a glut of dollars. Dollars are used as the means of payment for all sorts of business all over the world -- not only in business with the US, but also in transactions that have no relation to America. Its balance of payments is straightened out by the fact that American debts can be marketed around the globe, not only with corporate customers but also with the central banks of other countries that hold them as reserves. These debts are capital and are used as such worldwide. It is the interest of the outside world that certifies the quality of American debts as money capital, turns them into world money by using them as a means of business and by creating credit in them.

This is America's exceptional position in world capitalism: the use of credit denominated in dollars exceeds its domestic basis. In the normal case, a national economy has to certify national credit as capital; in the American case, it is the entire world that achieves this. The global trade with dollars is the foundation for the financial power of the USA. Finance active on the world markets frees the American state from its national basis.

In summary, the comparison that finance draws between US debts and those of other currencies turns out accordingly: the supply and demand for dollars on the world market does not reflect the deficit or surplus of the American nation but the needs of the accumulation of the global financial system. In this exceptional case, the material with which the world does business is compared to other merely national monies and to the few alternatives that are also world money. And this comparison confirms the equation in which the exceptional economic case of the United States is summarized: US dollars represent the capitalistic wealth of the world -- and not only that of a merely national economy.

2. The price of this equation falls due with the crisis: America now has to prove its creditworthiness.

Global finance brings about an over-accumulation of US credit. Its devaluation affects every investor in the world -- not American and foreign wealth equally, but the source of the financial power of the USA. All the important financial powers are affected and they all have to buy up "toxic papers" with newly issued state debts. But the US has to do the same to an even greater extent: in the interest of bailing out its domestic business, it has to guarantee with its state credits that US credit remains intact as money capital all over the world.

It does what every great financial power does: it substitutes valueless titles with state guarantees -- in the necessary amount. Economically, these guarantees represent nothing but America's political power. And as soon as the masses of state debts are issued, finance does business again. However, the success of this act of power has a price.

First, there is the necessity to service these new debts which augment the amounts of debts. But there is a transition in quality: finance no longer regards them as solid investments. They can only be marketed because the Federal Reserve itself buys them in huge amounts. Private investors become reluctant or even sell them entirely. Rating agencies warn of the possibility that American debts will lose their AAA rating. The markets no longer regard America's debts as money capital beyond any shadow of a doubt. However, they do not execute the verdict that would fall due in the normal case: an enormous reduction in the value of money. America succeeds in keeping its fictitious capital in the market, but when the Fed announces that it will buy up new state debts to a lesser extent, this has its effect: the dollar keeps its value, but a transition in quality happens. Finance doubts whether the rising national debt is good enough to replace all the wealth that it has ruined by its over-accumulation. This is a practical reminder of the other side of the worldwide success it has achieved: the position of the US dollar by far exceeds what the American national economy can justify and state power can guarantee with its national budget. Finance exercises caution: the unconditional standing of the dollar gets lost. America's financial power no longer plays in a league of its own without rivals.

3. America's rivals are no longer the same

The Europeans that have contributed to the over-accumulation of fictitious capital are also affected by the crisis. They also had to ward off the failure of their banks with lots of credit. But their problems are different: some of the member-states really become bankrupt, which necessitates even more debts issued by the countries that had to run up the most debts to rescue their banks. But the common central bank buys up the bonds of the most harmed countries in order to rescue the common credit system. In comparison to the dollar, the euro even gains in value for the time being. Obviously, the Europeans have an alternative to the Treasuries and credit money from America. And this alternative is in demand, not only with foreign investors but with important nations around the world.

Together with China's rise to the second largest economy in the world, the BRICS states (Brazil, Russia, India, China and South Africa) threaten to change the balance of power in world capitalism:

Conclusions: new steps in enforcing the crisis through the crisis policies of the nations

The US administration feels that the country is in dire need of a revival of its industrial power. It sees itself compelled to keep an eye on the level of its debts and the value of its money. The dispute with the Republican opposition is about how this should be done. They agree on the need to foster growth and the necessity to cut back on the social expenses of the poor. The diagnoses and alternative remedies in discussion, however, miss the matter at stake, the politico-economic matter.

America still does not live on foreign money. Its economic position is still that of the source guaranteeing the power of credit with which nations and capitalists all over the world finance growth. This is the basis of its exceptional standing. Now, in the crisis, the American state takes the liberty of issuing so much debt -- in order to keep its special position -- that finance raises doubts as to the sustainability of these debts. There is more at stake than what could be rescued by domestic growth: America's exceptional position as the source of money capital all over the world. If this gets lost, more is damaged than just the United States. The rest of the world only has wealth at its disposal insofar as it recognizes America's financial products and America's T-bills as money capital. Now that America's rivals work on their capacity to no longer rely on America's financial power, they undermine their own capacity along with the financial power of the US.

This is the "state of the nation" in America: with its unavoidable policy of mastering the crisis, America endangers its credit. This provides an example for the lesson that by dealing with the crisis, the state enforces it in practice. America worries that -- this time -- this effort could fail. This concern is what makes the dispute between the Democratic administration and the Republican opposition so fierce -- so fierce that it could probably trigger the ruin of the world power's credit.

This debate reveals in the end that when the country is in crisis, the "common understanding" that everybody has to stand together means that the rich must never be taxed, but the poor must be made ever poorer. They come back to Marx's basic truth: this debt economy is a mode of production in which people are subordinated to the power of money and can only live when they are made into a resource for its accumulation. The exploitation of labor has to function so sufficiently that competition can be won all over the globe and that other nations lose. In this, one thing is clear: rescuing the prosperity of America and the power of the dollar necessitates the impoverishment of the American working class.

And every nation does the same.