United States President-elect Donald Trump and his “Make America Great Again” agenda have one Achilles’ heel: the rise of the Global South. This weakness that will test the limits of US power and Mr. Trump’s ability to drive his America First agenda.
The so-called “BRICS” countries — Brazil, Russia, India, China and South Africa — together with new partners such as Turkey, Iran and Saudi Arabia are determined to create an alternative currency and financial infrastructure to rival the US dollar and dollar-based institutions. It will not happen anytime soon, though this is clearly the direction of the Global South.
Since the 1944 Bretton Woods Agreement enabled the US dollar to become the world’s reserve currency, the dollar has ruled the world economically and logistically. All sustainable currency pegs to the dollar, which is at the top of a basket of western currencies from the euro to the yen.
A lock
In other words, the dollar has a lock on the world economy. It has also allowed the US to control global inflation and decide the value of metals, commodities and energy. The dollar decides value and has become a hegemon that beats up countries that fail to conform.
All this means that the US controls global monetary policy and capital flows through the printing presses of the US Federal Reserve, the sole producer of the dollar and dollar-based instruments — also known as debt, whether paper or digital.
Additionally, SWIFT, the Society for Worldwide Interbank Financial Telecommunications, is a logistics beast based in the European Union but linked with the Federal Reserve. SWIFT possesses hegemonic power in the transfer of cash and securities between jurisdictions. SWIFT, if withdrawn, can impede a country’s capital development and stop the movement of cash from that country to elsewhere.
Power
The Federal Reserve — which is the US central bank — possesses the ability to create cash out of thin air by creating debt and enabling huge imbalances (deficits) with the countries that trade with the US, which is most nations. This power derived from history. The US emerged triumphant from World Wars I and II as the sole economic hegemon in full control of global debt and capital management. The US also emerged from the wars as the most powerful military and logistics power on earth.
The US dollar is a monopoly currency and the face of US power. The dollar essentially sucks up the world’s goods and services in exchange for dollar debt provided by the Federal Reserve, where the world’s major central banks place their reserves. US national debt is valued at over $34 trillion. Mainly American investors and organisations own that debt, along with some external countries, such as China and Japan. In terms of global cash management, the Federal Reserve is omnipotent.
Alice in Wonderland
US debt is an Alice in Wonderland-type credit card, with limitless spending power and sellers and creditors happy to receive that debt with a promise that the US will pay up at some future date — a date that does not necessarily exist. The national debt infrastructure is an Aladdin’s Lamp with a genie that offers unlimited treasure to the US from investors and dollar-dependent economies in return for dollar payments from the Federal Reserve — but only as long as the world believes in magic. This is the trust factor. The world sends the US its goods and services in return for a piece of paper that is an IOU called the dollar.
The dollar, in other words, is debt in paper form. It reflects an American culture of debt. Americans hold $18 trillion in credit card and loan debt — digital dollar debt — while savings are in serious decline, at less than $1 trillion. It is all part of the debt culture. Most Americans live paycheque to paycheque while a handful of multimillionaires and billionaires own the major corporations. It is in the interests of these multimillionaires and billionaires — the one percent — to sustain the debt status quo. That national debt narrative is becoming a fairy tale, but it may not end happily ever after.
