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Biggest risks today are the deficit and the potential for the dollar to be dethroned as the world reserve currency.
The deficit can be reduced, but it will take political will. We need to reduce the size of government AND likely increase tax revenue. The latter will happen automatically as we create jobs and people return to paying taxes and stop collecting government subsidies.
Government subsidies should be redirected toward creating jobs through tax reductions on business and tax incentives toward job creation. These will be self liquidating as the jobs create tax revenue. By reducing the products produced off-shore in favor of products produced here, we will expand employment so we need to subsidize our business community, helping them to reduce the disadvantage of producing here through reduced taxes and regulatory burden. That is not to say caveat emptor but the burden of government reporting needs to be minimized.
We also must create a work force that is commensurate with the tasks required in today’s world of production. We need students with a strong work ethic and strong math and science knowledge. We need to subsidize education for these specific items, especially in the adult population via retraining.
These two items can reduce the deficit and go a long way toward remedying the housing problem as well. People with jobs will buy and PAY for their homes. We need to look at making bankruptcy more difficult going forward. There must be consequences for bad behavior with consumers as well as business and government.
Dethroning the American Dollar from its position as the reserve currency for the world is not something the US alone can prevent. The dollar has been the reserve currency since the fall of the British Pound. Political strife between developed countries has taken on a new battle field, that of economics rather than guns and blood. As a result there is pressure to remove the USA as the 800 pound gorilla by creating a basket of currencies or even a “World Currency” based on a basket of currencies or on Gold. If this were to happen then commodities like oil, gold, even wheat could be priced in this currency which would make pricing very stable and each country (or Union of countries) would be responsible for the value of its own currency in relationship to the “World Currency”. This would mimic the behavior of the global market place after WW II when the US Dollar was pegged to gold at $37 per ounce. It wasn’t until the late 1970’s that Congress allowed the dollar to float. This has resulted in inflation in the current reserve currency (The US dollar) to its present level of $1350 per ounce for Gold.
The danger of a new Global Currency is that the USA could no longer run deficits and borrow like a drunken sailor without creating inflation like we had in the 1980’s, when interest rates were 22% and mortgages were 16% (variable) and fixed rate mortgages were not available. For many of you, that was before your time but it was only 30 years ago. It could easily happen again.
We need to get deficits under control to prepare for a New World Currency. If we do this, a new world currency is less likely AND if it does happen the effects will be blunted. If we don’t get the deficit down then the likelihood of a Chinese / Russian / Middle Eastern coalition could bring about a push in this direction. Remember, the Middle-East and Russia are large oil producers while we are large oil importers. Since China already has too many US dollars, they really would prefer export in a fixed Global Currency than collect still more dollars that are going down in value. They all get hurt by weaker dollars. They’d like us to have the pain instead.
Well that is it for 2010. I wish us all a smarter, wiser Congress in 2011 and I wish each of you a Merry Christmas and a Happy, Healthy and Prosperous New Year.
