Get Ready for Obama's Impending Economic Free fall
Despite what the president may say when the Day of Reckoning finally arrives, he is ultimately responsible for what is likely to take place.
Unbeknownst to most Americans and despite the fact that inflation at the grocery store and at the gas pump is beginning to take its toll, the simple fact that the dollar is the global reserve currency has protected U.S. citizens from the kind of commodity price increases that set off the Arab Spring in Tunisia. But things are beginning to change rapidly. Iran is moving ahead with its plan to trade oil in other currencies besides the dollar on March 20, 2013:
Last week, the Tehran Times noted that the Iranian oil bourse will start trading oil in currencies other than the dollar from March 20. This long-planned move is part of President Mahmoud Ahmadinejad's vision of economic war with the west.
"The dispute over Iran's nuclear programme is nothing more than a convenient excuse for the US to use threats to protect the 'reserve currency' status of the dollar," the newspaper, which calls itself the voice of the Islamic Revolution, said.
"Recall that Saddam [Hussein] announced Iraq would no longer accept dollars for oil purchases in November 2000 and the US-Anglo invasion occurred in March 2003," the Times continued. "Similarly, Iran opened its oil bourse in 2008, so it is a credit to Iranian negotiating ability that the 'crisis' has not come to a head long before now."
Iran has the third-largest oil reserves in the world and pricing oil in currencies other than dollars is a provocative move aimed at Washington. If Iran switches to the non-dollar terms for its oil payments, there could be a new oil price that would be denominated in euro, yen or even the yuan or rupee.
India is already in talks with Iran over how it can pay for its oil in rupees.
The dollar's position as the global reserve currency has been under attack for several years now. A sampling of recent articles on the subject point to the ramifications of a shift in the dollar's status:
- Why the Dollar's Reign Is Near an End
- The dollar's days as reserve currency are numbered
- The Curse of the Reserve Currency
I have focused attention of this crucial issue for a couple of years. Two of my commentaries address it specifically:
- The U.S. dollar is under siege and for good reasons.
- What are commodities, and what do commodity prices tell us?
What does this economic gobbledygook mean for average Americans? This is the simple answer: you can expect inflation to skyrocket at some point in the near future and with it will come a rapid decline in our nation's ability to influence global political events. The root cause is misguided U.S. policies, and since policies are a function of people, in this case that means President Obama is to blame. He has had four years to right the ship of state, but he has failed the test.
As the dollar loses the protection provided by its global reserve currency status and countries are no longer required to stockpile dollars for oil trades, the dollar will rise or fall in value based on the strength of the U.S. economy. So will interests rates and inflation. Unfortunately, with deficit spending looming for as far as the eye can see and our debt burden growing more ominous every day, that doesn't bode well for the dollar's ability to compete on an even playing field.
Our government officials in Washington should have dealt with our debt and deficit problems before our economic situation deteriorated to a crisis point, but they didn't and calamity is just around the corner. For example, our penchant for routinely spending more than we collect in tax revenue, subsidizing able bodied men and women who contribute virtually nothing to our economy, paying the bills of illegal aliens who should not even be in our country, and ignoring our burgeoning debt problem because interest rates are at historically low levels have the effect of weakening our economy at a time when we should be doing everything that is humanly possible to shore it up.
It's obvious that President Obama is incapable of dealing with the serious problems that we face. His first term in office provided all of the evidence we needed to prove that he is an ideologue who is willing to do just about anything to advance his political agenda even if it means that the American people have to suffer needlessly.
Regrettably, President Obama was re-elected before the consequences of his dismal first term performance became obvious to average Americans, but the day is rapidly approaching when they will feel the effects of his ineptitude in dramatic ways. From energy policy to foreign policy to environmental policy to fiscal policy to social policy, Obama has set our nation on a collision course with reality.
Economic principles don't change because an ideologue is in the Oval Office. History teaches that the laws governing how economies work prevail in the long-run and that nations ignoring them pay the price. Even so, President Obama is a master at the art of misdirection and he is a world-class dissembler and placer of blame. That's why died-in-the-wool Obama supporters may never understand the truth. I hope that doesn't include most Americans, but given the results of the 2012 presidential election, I fear that it might.
Despite what the president may say when the Day of Reckoning finally arrives, he is ultimately responsible for what is likely to take place. I can't predict exactly when it will happen and I can't tell you how quickly the effects of his policies will devastate our economy when it's time to pay the fiddler, but I can say this: the U.S. economy is floundering at this pivotal moment and it's Obama's fault. Keep these things in mind as we move to the current crisis point -- sequestration, and rest assured that others will follow, probably in rapid succession. Buckle your seatbelts because we don't have four more years to fritter away.
Neil Snyder is the Ralph A. Beeton Professor Emeritus at the University of Virginia. His blog, SnyderTalk.com, is posted daily.