Nine Infirmities of the World Dollar Standard

The classical gold standard — the ability of people to exchange the currency for gold coins, or gold coins for their currency — was the monetary system of choice for centuries, and, in its precursor, millennia.  Since 1971, the world has been on a World Dollar Standard.

That means, as savant Jim Grant wittily observed on the Charlie Rose Show, that for the first time in history we rely upon “faith-based” money — money based on nothing but “the full faith and credit of the United States.”

This world dollar standard brings with it many infirmities.  These infirmities, and their consequences, are social, political, and economic.

Social infirmities of the world dollar standard are:

• it invisibly but powerfully erodes other social standards;
• it breaks the social compact of equality of opportunity; and
• it creates a toxic sense of entitlement in the culture.

Political infirmities of the world dollar standard are:

• it violates the constitutional order as defined by the Founders;
• it leads to a loss of legitimacy and lack of respect for the Congress and President; and
• it creates international animus toward the holder of the “exorbitant privilege” of providing the international reserve asset.

Economic infirmities of the world dollar standard are:

• it causes a persistent trade deficit, hollowing out our industrial base;
• it enables a persistent and alarmingly high federal budget deficit; and
• it destabilizes the value of the dollar, fomenting euphorias — “irrational exuberance”— and panics, stagnation, and protracted recessions.