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The following is a guest post by my friend “Joe Harvard”. For a listing of all of Joe’s posts, click here.
Human history can be best summarized by the following: Countless episodes of gory blood letting warfare, and death interspersed by periods of intermittent peace brought to us via the courtesy of the winner(s) of the blood letting contests. These epochs of peace, Pax Sinica/Romana/Britannica, and most recently Pax Americana are all product of an overwhelming military might supported by a giant every growing economy.
But like all good orgies, they come to an end. In the case of the Romans, excessive frivolous government spending on things such as 120 days of gladiator games (game days in Rome are public holidays) coupled with lack of economic growth (Rome ran out of places to plunder) and inflation (Rome printing coins with ever declining silver content), led to severe reduction in military funding, and finally resulting in total economic collapse and ass kicking by the barbarians at the gate.
Unfortunately, I think Pax Americana is heading toward a similar fate as our party loving Roman brethrens. First, the US economy, the sole source funding for US military, is structurally floundering at its core. The US dollar has been the world’s reserve currency for the past 60+ years. As a reserve currency, all major global financial transactions (e.g. oil, gold, copper trades) are carried out in US dollars. The dollar’s special status confers upon it unprecedented global financial power. The US is the only country that does not need to keep a foreign reserve, thus enabling it to run much higher budget deficits than any other country. The US currency also influences interest rates across the globe enabling the country to affect monetary policies, and thus, the world’s economy.
But the US reserve currency status is under tremendous threat. In fact some experts have argued that US dollar has already lost its venerable status, and that the Euro is the new reserve currency. Read the rest of this entry »