by Jon N. Hall 3/7/18
Could the U.S. dollar ever be ruined? Other currencies, like the German mark in the 1920s, have been ruined, why not the dollar? Recently, I wrote a book review of The Mandibles: A Family, 2029 – 2047, a novel by Lionel Shriver that deals with the demise of the dollar due to a default on the national debt. The novel’s default is a response to outside pressure, namely, the creation by foreign powers of the “bancor,” a new currency meant to supplant the dollar as the world’s reserve currency. Adding insult to injury, the creators of this new currency demand that U.S. debt be repaid in bancors and that “American bonds sold to foreign investors must henceforth be denominated in bancors.”
Upon the debut of the bancor, the dollar plummets in value. But America doesn’t accede to the foreign demands, and makes it a felony for Americans to hold bancors, even abroad. Then, in a speech to the nation the president announces the renunciation of the national debt whereby all U.S. Treasury securities are declared “null and void.” (Don’t try this at home, kids; the feds are pros.)
WE DON’T NEED NO STINKING BANCORS
In keeping with the creeping Latinization the novel sees for America, the feds soon replace the dollar with the dólar nuevo. But the “new dollar” moves beyond specie and paper money and becomes totally cashless; i.e. electronic, digital. Ultimately, however, the feds cave and sign on to the bancor. Adios, U.S. dollar.
Shriver imagines one way by which the Almighty Dollar could be ruined, and die. But a different type of currency death might be possible; one that wouldn’t be due to foreign actions and the federal government’s (chosen) responses to them, but is instead due to the gradual erosion of the value of the dollar through inflation. And of course inflation is what’s been happening to the dollar for the last century or so. In this alternate scenario, the dollar limps along until it buckles, falls to its knees, and expires; rather like riding a horse to death.
This second scenario, the slow death, would make for a rather different novel than Shriver’s. The feds would just keep borrowing and printing money until they can no longer do so because the sheer size of the debt becomes unmanageable and the currency becomes worthless.
However, one wonders if the second scenario is as plausible or as probable as Shriver’s scenario. For will the world allow the U.S. to continue down the merry path we’ve been on, borrowing and printing dollars? Or will the world intervene and establish a new monetary world order, ending the Bretton Woods system we’ve had for seventy-four years? Shriver’s “intervention” seems the more likely scenario. (By the way, the idea for a supranational currency was floated back in the 1940s by J.M. Keynes, who called it, uh, … oh yeah, the ”bancor.”)
But if a consortium of foreign powers sought to strong-arm America, even in such an insulting highhanded manner, would we actually renounce our debt, and choose default? Defaulting on the debt by way of renunciation would consign America to “pariah nation” status. Also, much of the debt is held by Americans.
If reneging on the national debt would not be the “proper response” to Shriver’s scenario, what would be? The proper response might be to remind holders of U.S. debt that they made a deal, as did the U.S. Treasury, and that America will keep its side of the deal by repaying maturing debt in precisely the manner stipulated. That is, they’ll get their money back just as promised — in U.S. dollars.
BUST A DEAL, FACE THE WHEEL
But what’s the difference between losing your money from default and getting your money back when its value has been inflated away? Holders of our debt wouldn’t want repayment in a worthless currency. In order to stay in the good graces of the nations that have been buying our debt, the U.S. would need to demonstrate a new course of action. What would that be? The only thing that would suffice would be to stop borrowing, which would entail balancing the federal budget immediately.
And just how would we do that? Assuming that we wouldn’t disband the military, the only way to immediately balance the budget would be to cut entitlements and welfare programs by hundreds of billions of dollars; Social Security, Medicare, Medicaid, Obamacare, all of it would need to be pared back, if not ended. If we wanted to save our currency, and remain in the community of nations as a member in good standing, nothing else would do.
In Shriver’s 2029 America, however, the government is controlled by Democrats. And her Democrats would rather risk ruining the currency, and risk America becoming a pariah than to touch the welfare state and entitlements, (which is entirely plausible if one looks at today’s Democrats). Indeed, Democrats should be urging spending cuts on the welfare state now. The reason that Democrats would rather bust a deal and default on the debt is because they don’t want to renege on their other “deals,” primarily their promises to America’s old folks.
THESE HORSES NEED REST AND GRAIN
This is one of the big takeaways from The Mandibles: those who fare best in the novel are old folks, retirees. As Americans struggle in Shriver’s post-default depression, folks look forward to old age: “People used to dread being put out to pasture. Desperate to qualify for entitlements, these days everyone couldn’t wait to be old [p. 322].” In a 2009 article at MacLean’s, Mark Steyn presaged Shriver:
… for the political class, it’s easier to default on foreign debt and risk unknown consequences than to renege on social commitments and ensure the certainty of violent insurrection. As attractive as it might be to tell ingrate geezers to go eat dog food, it’s not politically feasible …
Should what’s “feasible” and “easier” for politicians be the determining factors here? Defaulting and ruining the currency would be far more painful than cutting back on social programs. (Shriver’s treatment of geezers reminded me of the Steyn quote, which I had used in a 2009 article.)
In April of 2017, Ms. Shriver appeared on The Mark Steyn Show to discuss The Mandibles. The two quickly wade into the possibility of the collapse of the dollar. At the 5:45 point, Steyn observes:
Everyone assumes, they look out the window, they see the skyscrapers, they see the fancy restaurants — the assumption of permanence underlies almost everything we do in our lives as we plan. And the great thing about the book is the almost dizzying speed with which a prosperous Western society unravels.
(Those who know Mr. Steyn only for his appearances on Tucker Carlson’s show on Fox News or as a guest host for El Rushbo will see a different side of the Canadian. It’s a master class in what talk shows should be. The courtliness of his interview reminds me of Dick Cavett. The interview was shot in London, and one has a nice view of the Thames in the background. The video quality is excellent. It starts at the two minute point and goes on for 32 minutes. I highly recommend it. Click above.)
If the U.S. dollar ever were ruined, the agent of that ruin would almost certainly be the federal government. If so, the heartache, loss, and degradation flowing from the destruction of our currency would have been caused by the refusal of Congress to control their spending and by their run-up of the debt. So, are we going to ride the dollar to death? Or are we going to grow up and start paying our way?
Jon N. Hall of Ultracon Opinion is a programmer/analyst from Kansas City. • (95 views)