Paul Craig Roberts: "Hegemony's Cost" [View All]

AN EXCERPT:

The U.S. dollar is under double assault. One assault is from the offshoring of American jobs, which turns U.S. gross domestic product into foreign GDP and worsens the U.S. trade deficit. It is not possible to achieve a trade balance when the production of goods and services for the U.S. market is being moved offshore by U.S. corporations.

The other assault is from the U.S. budget deficit. Americans have become so hard-pressed that their savings rate is negligible. The U.S. government has to rely on foreigners to lend it money for its annual expenditures. Washington's two biggest bankers are China and Japan, the countries with the largest trade surpluses with the United States.

The transformation of the Iraq "cakewalk" into an interminable war has run up a $1 trillion price tag, and an even larger war with Iran is looming. U.S. generals and neoconservative ideologues predict a decade or multi-decade-long war in the Middle East. Washington's bankers are waking up to the reality that they will not be repaid.

The only reason the dollar has not already lost its reserve currency role is that the only alternative is the euro. Yet even the euro, a virtual currency, may have taken the dollar's role by the end of 2008.

Full of hegemonic hubris, the U.S. government does not understand that U.S. power and hegemony have always depended not on missiles and military force, but on the financial power conveyed by the dollar's role as reserve currency.

The reserve currency is world money, good in any country to pay any bill. The reserve currency country is not a debtor in the usual sense. As the reserve currency can be used to settle international accounts, the reserve currency country can borrow at will until lenders lose confidence in the currency.

There is abundant evidence that the loss of confidence in the dollar is underway. When it is complete, the United States will no longer be a superpower.

The decline in American power and influence could be dramatic. Part of America's power results from European countries going along with Washington. The sharp rise in the euro's value has hurt European exports, however, squeezing profit margins and wages, and encouraging offshore production. Fights over monetary policy between European capitals could doom both the European Union and the euro, leaving the world with no reserve currency and America with embittered former allies.

By going to war for hegemony, the Bush regime has brought about American decline. While the neocons have spent two administrations trying to deracinate Islam, real threats to America's power have been neglected. Offshoring, which turns U.S. GDP into imports and larger trade deficits, together with war debts, has eroded the dollar's status as reserve currency, undermining the foundation of American power.

http://www.creators.com/opinion/paul-craig-roberts/hegemony-s-cost.html