The dollar is on top. Every other currency is below. Having the dollar on top gives the United States decisive international advantages. Charles de Gaulle once said that the dollar was the most "insidious" form of American imperialism. He once complained, "Western Europe has become, without even being aware of it, a protectorate of the Americans." European economic integration and Europe's new currency, the Euro, might be seen as an attempt to break free of the dollar's dominant international position. But the Euro has yet to replace the dollar, perhaps because the dollar's rejection as the world's reserve currency would unleash chaos. And nobody wants chaos. Even if everyone agreed that a return to an international gold standard would be best, the passage from here to there would take us through the fires of tribulation. Everything around us has grown up on the basis of certain assumptions, and the dollar may be the most fundamental assumption of all.
And so, the dollar is on top. Every other currency is below. The dollar's dominant position is obviously unfair, if one assumes that all currencies should be "created equal" and endowed with certain "rights." Of course, such assumptions are ridiculous. Currencies are not created equal. Countries are not equal. History is not in the business of parceling out advantages in equal measure to each and every nation. As it happens, the United States is the most unequal of all countries, blessed with the ability to export its inflation and, as some would claim, to levy an indirect tax on other countries. It can thereby finance its wars on behalf of a peaceable international order despite possessing a hollowed-out consumer economy with an attached welfare state.
There are those who wonder how long this situation can continue. Princeton Professor Harold James has written a book touching on this question. His book is titled The Roman Predicament: How the Rules of International Order Create the Politics of Empire. Of course, the American empire isn't bloody or coercive. It isn't the empire of the gun. It is the empire of the dollar, of blue jeans, McDonalds and Coca-Cola. It was the failure of fascism and the rise of individual choice that has made the United States and its dollar supreme in the world. The cultural traditionalists and would-be aristocrats may sneer at American culture, but how many nuclear rockets are in a sneer? Short of leveling the United States, the American idea of "the pursuit of happiness" has proven resilient - however corrupt, stupid or inane the country's cultural artifacts may be. Even people who hate so-called American imperialism love American freedom with its shopping malls and lifestyle choices.
According to Professor James, America's economic dynamism locks Asia and Europe into a system of buying and selling and investing that everyone benefits from. This system continues because of American domestic stability, and because America's sustained growth rates are consistently better than other developed countries. "The question about sustainability then turns into one about the probability of continued growth rates that are higher than those of the rest of the industrialized world," noted James. "For much of the 1990s, foreign capital inflows reflected a foreign view that the peace dividend, fiscal prudence, and technological dynamism represented an ideal environment. In the years after 2001, this environment clearly deteriorated."
The U.S. economic position - the position of the dollar itself - is threatened by what James calls "long-term fiscal problems arising both out of military commitments and the burdens of ensuring social security for an aging population." We have seen the erosion of the dollar since 2001. It has been steady and apparent to all. But the biggest threat to the dollar is in Asia. According to James, increasing financial turbulence could bring about an end to the dollar's reign. "The world economic environment is ... clearly not made by the United States alone," he wrote. The United States cannot shield itself from financial turbulence abroad. High growth in China and India is likely to result in bubbles, and the bursting of these bubbles will send shockwaves across the Pacific. James wrote, "it is likely that the world financial system will become more vulnerable than at any time since 1945. The United States will be unable to isolate itself from this general financial volatility. Historically, eras of financial volatility have tended to tip the balance against globalization."
Chaos will come, whether we want it or not. Nobody can smooth all the wrinkles out of the world economy, and the reign of the dollar cannot last forever. America's enemies abroad, and those whose envy leads them to an uncharitable assessment of the United States and its motives, will grasp at any opportunity to knock the dollar off its perch. This opportunity is sure to come, and it will probably come in the next few years. Globalization, led by the United States, will be reversed. The world is not destined to become a global village because man is a tribal animal. His trust of others, especially his trust of foreign peoples, is limited. Consequently, the U.S. economy will be shaken to its foundations, and the patterns of consumption known to Americans will finally prove unsustainable. The integration of the various national economies into a global economy is a utopian project, and those most invested in this project will be most hurt. The integration of country with country cannot advance beyond a certain phase. Globalization will be stopped by ethnic, national and religious antagonisms. James calls this process "the victory of Mars." All previous globalization attempts in history, he explained, "almost always end with wars."
According to Professor James, the world can be viewed in two ways: "as a system of rules, or as a series of exercises or applications of power." Well, we know what Machiavelli would say. He would say that the world is predicated on power and power relationships. The rules, at any given time, merely result from an application of power (e.g., the U.S. victory in World War II). Globalization and peace depend on rules, but the rules depend on power. In the present instance, the rules are challenged when lesser powers threaten to break free of their "containment." The Cold War was a kind of containment, and that containment ended almost two decades ago. Ever since, the Russians and Chinese have been developing mechanisms for breaking American power. The politics of oil and the politics of Islam are being manipulated to this end. Trade and currency wars are looming on the horizon, and rising anti-Americanism will accompany these phenomena.
There is a natural human proclivity for violence, says James. Civilization applies various solutions. But no complete or final solution exists. The pirates and plunderers of history will use whatever opportunity is at hand to upset the system of civilization itself. They can be counted upon to attack the leading institutions of civilization as "unfair." It is not that they intend to replace these with something better. They simply want to inflict death and destruction without fear of retaliation or defeat. They want to use war and terror as a means to dominate. They do not intend to dominate through products, like Coca-Cola, or currencies that they have always been incompetent at using. Genghis Khan was not a finance man. "Political power flows out of the barrel of a gun," said Mao. "We will build our new missiles and break out of the CFE Treaty," says Putin.
The dollar is on top, but the atom bomb destroys top and bottom at one blow.
