Tuesday, October 6, 2009

Sic Transit Gloria Dollarii Mundi

I have not published a chart of US public debt in some time, having mostly concentrated on household and corporate debt with its various alphabet-soup permutations ( CDOs, CLOs, CDSs, etc.).

However, after almost two years of financial sector bailouts (handing out borrowed public money to mega-rich junkies addicted to sophisticated gambling) the amounts wasted are hitting the books in a rush. They give full meaning to the title of this blog (see chart below, click to enlarge).

Sudden Debt

Public debt has increased by $2.5 trillion since just the end of 2007, when the current Great Recession is deemed to have started. It now stands at $11.7 trillion and represents 83% of GDP, up from 62% at the end of 2007.

It stands to reason, therefore, that the entire world is closely re-examining the status of the dollar as its global reserve currency. Those that are most directly affected by such a flood of new dollars (remember, more debt = more dollars) are commodity producers who price their goods in our curency, chief amongst them the oil producers.

According to Reuters, Gulf Arabs are meeting in secret (please see P.S. below) with representatives from Russia, China, Japan and France in order to agree on a basket of currencies that will be used for the daily pricing of crude oil. This is very different - and much more important - than merely settling oil trades in euro or other currencies, which is already taking place (e.g. Iran).

Unless the United States takes immediate and convincing steps to prove its commitment to a strong, valuable dollar it will very soon face the catastrophic end of Dollar Hegemony, the foundation upon which it erected its economy post-WWII. It will lose the ability to finance its massive deficits on a global scale via its own printing presses and will be forced to accept a much lower living standard.

What should be done?

It is of paramount importance to realize that the Dollar Hegemony must end, anyway. Not because other global powers desire it, but because it is in our best interests. We ourselves should base our economy upon a more robust foundation, one that is in tune with today's challenges and opportunities: environmental and climatic change, resource depletion, transformation of energy sources and networks, transportation overhaul.

We must realize that energy security is no longer achieved by waging war in Central Asia and patrolling the sea-lanes with staggeringly costly carrier forces, but by developing renewable and inexhaustible local sources. Solar, wind, geothermal, biofuels - all must come into play as quickly as possible and transform the economy into one that grows based on infrastructure capital investment, financed with domestic saving.

Expensive? I say it is cheap, considering the alternatives.

And, anyhow, we should keep honest accounting books if we wish to compare prices honestly. Once all of the external costs of Dollar Hegemony are included and properly apportioned (defence, healthcare, environmental degradation, finance) I doubt anyone in his right mind would want to keep it going - apart from those benefiting directly from it, of course. But even they have children , don't they?

P.S. The Reuters story mentioned above has already -within hours- changed title to "Oil states say no talks on replacing dollar". It is originally based on reporting by Robert Fisk, the legendary Middle East correspondent whose book "The Great War for Civilisation: The Conquest of the Middle East" I highly recommend.

I am sure Bob Fisk would never stake his reputation on a story of such obvious importance unless he was absolutely certain of its validity.


  1. Congratulations, Hell, although I would appreciate it if you would translate your Latin ; all the Latin I know was gleaned from singing various religious masses and requiems, and it does not go very far in the economic world.
    Do you feel like a voice crying in the wilderness yet ??
    Why should the U.S. government do ANYTHING when so much energy (lol) is being spent in convincing EVERYONE that black is white (if necessary at gunpoint...) ?
    We voices crying in the wilderness have to hang together. But it can get pretty depressing sometimes, right ?
    Look on the bright side. The U..S is the world's number one producer of.. DEBT.
    That's quite an achievement, isn't it ?
    But "we" are STILL producing something. Only real sticklers would tell us it is negative.
    You're starting to sound like Swift. Wonderful job.

  2. Hell,

    Can you show us the public debt/GDP ratio of other leading countries, such as Japan, UK, France, Australia, etc.? Dollar is just a relative currency, and its value is what we get in terms of other currencies. Showing a chart of US public debt is not enough to call doom for dollar, unless you can show that the competing currencies are more responsible.

    Of course, you may say that all paper currencies are doomed and they will all fall in terms of gold. However, you were an anti-goldbug for as long as I remember.

  3. Factret -

    A second objection I have with this post is that borrowing money is equivalent to shorting the currency, unless the government shows every intention to print money and get out of debt (i.e. government shows every intention to go against the interests of moneyed classes). So far, I see no attempt to do so.

  4. Biofuels???????

    So you want to so directly connect food and energy???

    if the source is something "strange" as algee I would understand. But biofuel as strikes me as a dangerous proposition. Where a free market approach could easily starve parts of the world (SUV fuelled by otherwise food stuff)

  5. @Greenie re: "Who is Swift?"

    Forgive us white people for referring to Anglo-Irish history.

    Johnathan Swift was one of the most famous and influential Irish satirist authors of all time. He lived in the 18th century and wrote many stories/books- perhaps the most famous being titled Gulliver's Travels.

  6. And Hell

    As always, you remain deserved of your loyal readers returning time after time.

    Nice post

    Never think for a moment we do not care about our children.

  7. Re: biofuels

    I am against turning food into fuel, of course. I was referring to grass, algae, etc. Perhaps even sugarcane, as they do in Brazil, if it can be done without putting pressure on sugar production.

  8. Those of us who live here in the U S A could never imagine that the responsible nations of this planet might place "sanctions" on us for our miserable behavior. At least that is not how we convey these actions to ourselves.

    We only see sanctions as something that we would implement against what we perceive as a rouge state without ever taking into account that the world may perceive us as a rouge state. That the responsible citizens of the world are imposing sanctions on the U S A, is something that we will not hear in the MSM.

    American consumerism, militarism and exceptionalism has become a burden the world is no longer willing endure, tolerate and ignore. The meetings that are referred to as secret were no secret. The fact is that an American delegation requested entry and were denied without explanation.

    The World is clearly saying... "NO MAS...!"

    Best regards,


  9. As far as "biofuels" go, it would be very simple to regulate that, for instance, soy oil is first used for food (cooking), then the waste oil filtered and used in generators, semi-trucks, US Navy boilers, etc. No "food" would be taken from anyone's mouth, and replace perhaps 1% of the petroleum based fuels.

    Not hard to do, I converted a 1997 F-350 pickup tp waste veggie oil, collected it a a local restauarant, and filtered it through a tissue paper filter. With diesel @ $3.50/gal on Guam, everytime I filled up (90 gallon aluminum tank I made), I saved over $300, and spewed much less toxic exhaust. Ran just like diesel, you couldn't tell when it switched 9automatically) to veggie oil from diesel. Sold the truck, now live in Thailand, and the exhaust here on many vehicles has that "veggie exhaust" aroma...

    We can "kill two birds with one stone" by using existing, already in use technology to clean the air from power plant smoke stacks by capping them, running tubes down into water, growing algae from the captured carbon emissions and convert that to biofuels usable in vehicles. I've seen it being done. It's not "future" it is here now, in use. Just not in the US.

    Yes, indeed, the US uses 25% of the world's energy, with 5% of it's population. The US Navy is the largest user of diesel fuel, over 50% of what the US uses.

    Instead of funneling trillions to incredibly hubris-filled Wall Street banksters, we could have placed these wonderful, compact and quiet horizontal style wind turbines on every household (youtube the 25KW race.com wind turbines for a peek,S.S. and aluminum, made here in the good ol' USA, no bearings, rides on magnetic field, 2' tall, 1' wide, incredible technology), employed thousands doing so, and saved power over the course of our lifetime.

    Placed acres of solar panels in the desert, hundreds if not thousands of wind turbines off-shore and in the Rockie mountain states.

    Instead, we got "Wall Street Bonuses" thrown in our faces. And nothing solved.

    Mostly though, we need to overturn NAFTA, all "Free Trade" agreements, and start talking protectionism like every other country that still manufactures goods does. Like China. Like Japan, Thailand, Korea.

    Reciprocity, baby, reciprocity.

    If protectionism is so "bad" for us, how come China is owed all the money?


  10. Econolicious, since I have always revelled in being the devil's advocate, I must say that here in Western Europe I don't see too much difference between the spending behavior of people who (still... but for how long ?) have money, i.e. the ever dwindling bourgeoisie, in France, and in the U.S. (And to be fair, you know that the debt problem is directly correlated to dwindling salaries that buy less and less too, thus encouraging debt to just get by from month to month, not be comfortable.)
    This problem is a WORLD problem, at least a problem of western "civilization" (yep, I put those quotation marks for a reason).
    It is yet another symptom of United Statesian (and not American...) exceptionalism to imagine that WE are the worst, just the other side of the coin (lol...) of "we" are the best.
    I was actually thinking of the Swift of " A Modest Proposal, For Preventing the Children of Poor People in Ireland from Being A Burden to their Parents or Country, and for Making them Beneficial to the Public", 1729, that scandalous pamphlet in which Swift suggested, tongue in cheek, that the solution to Ireland's famine problem was to... put a poor man's baby in every kettle.
    Y'all may be interested to know that ON TOPIC, Hell, if you please, Swift in 1724 published a series of letters under a pseudonym encouraging the Irish to reject £100,000 in new copper coins (minted in England by William Wood, who had obtained his patent through court corruption) which, it was feared, would further debase the coinage of already poverty stricken Ireland.
    Just so that we can keep a check on our own historical EXCEPTIONALISM, right ??
    Mea culpa, Thai, I have NEVER read Gulliver's Travels. Maybe in the next life ?

  11. Econolicious, I can't resist :
    Please, please don't take offense, I'm not taking potshots at you.
    In your comment here you substituted "rouge" for "rogue".
    As it turns out, "rouge" is French for "red".
    Now... just WHAT could a RED state be, perchance ?
    (A little hint for my friends on the other side of the Atlantic who have not marched on May 1, the initial labor day created in the U.S., if you please...)
    It is the historical color of the Communist Party.
    Delicious, Econolicious. Thank you.

  12. Debra:

    Your right... I did mistakenly substitute rouge for rogue (check out the time I wrote this). However, you did get my point. From a historical, or better said a universal perspective, I'm not debating the the goodness nor the virtues of Americanism. After all we all know that, "the ratio of douche bags is constant" (my father used to say, that anyone who makes that claim never attended Harvard).

    Americanism, as a matter of policy, is on a tragic collision course with a concrete wall of global reality. That others in other nations, the elite, the middle classes, the working class have similar genetic impulses, does not change the fact that unrestrained Americanism poses the greatest threat to the environment, and the security of the planet.

    Best regards,


  13. Hell,

    Great as usual! On small point of concern - 'growth'. I would dispute this with you (gingerly of course). Growth means, well growth. But of what?

    If I understand you properly, you are proposing 'shrinkage' and I believe you are correct in this.

    J Swift also wrote an engaging Little Proposal to solve our over population problem, (mid XVIII). Black humour at its most devastating.

    Brian P

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  15. Nice post Hell
    "we should keep honest accounting books if we wish to compare prices honestly"
    Unfortuntely nobody in DC is interested in honesty. Honesty doesn't pay very well today. The time horizon any of our politician operate on is at most 4 years. During that time they must maximize the benefits to themselves. After that it is somebody else's problem, namely ours. This will cary on as along as the current system is in place where politician are bought by lobbyists.

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