Ever since the Nixon Shock of 1971, the United States took its currency off the gold standard, marking an end to the post-World War II Bretton – Woods system. This decision meant that the US Dollar, the world’s main reserve currency, would be backed by nothing more than trust, thereby giving the Federal Reserve (the US Central Bank) and the American Government immense control over the liquidity in world markets and the prices of goods and foreign currencies of various other countries, which enables the US to obtain greater economic influence. This great economic power, on the other hand, comes at a cost, one that the US is still paying, and must accept if it desires its currency to keep its status as the major reserve currency.

If we look at the ever greater expansion of the productive capabilities of the various nations of the world, mainly because of technological reasons, it is therefore logical that each country has larger surplus production with each going year, meaning there is more to sell to the wider world at a lower price! , great right? As there is more supply of goods, the demand for dollars increases as well, now to the point where there is no more left to meet it with capital earned by production. The only option left is to print, which is what the US does.

Unlike the rest of the world, the United States does not abide by the same rules of inflation. The growing world economy guarantees that a steady pour of dollars doesn’t diminish its value. This has allowed Washington to outsource much of its industry to other countries whose economies benefit greatly due to the constant inflow of dollars. The more these countries produce, the more they have to sell, as a result they become richer with capital that allows them to invest more into various technologies that increases their production, and the cycle repeats.

Because of this, the middle-class American gets economically destroyed as jobs are either scarce or pay very little in comparison to the basic costs of needs in the US Mainland. Much like their Government, the US citizen lives a life of debt, as it is the only way to live it normally. The reason why the European citizen can afford such great and cheap health and education services, or why the Chinese economy has more than doubled its size in the past ten years, is because the American citizen pays for it with money that he/she doesn’t have!

The US Economy must be productive for its society to live well, for it is the only way for jobs not only to exist but to pay, so that its workers can afford to live. It is how the country became the world’s foremost economic producer in the 50s with a cost of living unmatched that accounted almost 50% of the world’s GDP. Yet the only way for Washington to keep its economic dominance in the world by the way of its dollar is to keep printing it, keeping its balance sheets on a constant negative. The Nixon Shock was made to keep Western countries prosperous, and therefore averse to communism and the USSR was defeated because of the economic prosperity of the West. Yet, the situation is different now—the Cold War is over. The United States is at a crossroads: domestic economic prosperity or international economic dominance. Having the perks of owning the foreign exchange currency of the world are essential and bring much benefit to American geopolitical strategy, yet nothing is really ever free.

 

SOURCES:

https://tradingeconomics.com/china/gdp

https://en.wikipedia.org/wiki/Triffin_dilemma

https://en.wikipedia.org/wiki/Nixon_shock