Dali’s Magic Cheque Book: America’s Economic Dilemma

Dali’s Magic Cheque Book

Spanish surrealist painter Salvador Dali had a magic cheque book, no matter how much he spent, his cheques were hardly ever cashed, he had made a realisation that was to make him the most generous host and dinner companion in the whole of Spain. He would regularly wine and dine his friends and retinue in the finest restaurants, eat the very best food, drink the very best wines and cognacs and seldom it would cost him a single penny. After a lavish evening, Dali would call over maître d’, thank him for the excellent service and ask him for the bill, when the bill was presented, Dali would take out his oversized cheque book, write out the cheque for the cost of the meal plus a generous gratuity and sign the cheque, but before handing the cheque over Dali would turn it over and on the back make a pen and ink sketch, unsurprisingly Dali’s cheques were seldom cashed, however much the extravagant dining had cost the value of a Salvador Dali sketch was so much greater. For the sake of a couple of minutes of doodling Dali and his friends were able to dine for free and the restaurateurs were delighted they had just be handed something of great value by one of the most famous artist alive. Sometimes, some things are worth a great deal more than their face value.

The Power Of The United States Dollar

In the years that followed the end of the Second World War, the United States became the world’s dominant economy, replacing the United Kingdom and its diminishing empire. Along with this economic dominance came the gradual adoption of the US Dollar as the world’s prime reserve currency, this meant that the US Dollar became the principle currency for international transactions and therefore nation states, international banks and companies operating globally needed to keep large reserves of US Dollars. In 1971 OPEC (Organization of the Petroleum Exporting Countries) adopted the US Dollar for all crude oil transactions, this for the first time in history this made a currency, the US Dollar, the de-facto official world reserve currency.

With the adoption of the US Dollar, the United States, it’s banks and corporations were placed in a unique position, because of the need for nation states, banks and companies to hold reserves of US Dollars it effectively gave them a real world advantage. The United States Federal Reserve was able to keep the value of the US Dollar relatively stable on international exchanges whilst keeping domestic US interests rates and US domestic inflation relatively low. Because of its importance as the world’s primary reserve currency the US was effectively able to manage the world economy to its own advantage, the effective costs of borrowing in the United States was modest compared to the rest of the world, this allowed the creation of an affluent consumer led economy with cheap and easily available credit for US consumers and US business. It also allowed the United States government to spend and increase the national debt whilst paying very modest yields on government bonds and gilts. This unique position allowed the United States to become the world’s first hyper power and sustain not only the world’s largest military but also be the major player in a world economy that was becoming more and more integrated.

The Burden Of Debt

In absolute fairness to all United States presidential administrations both Republican and Democrat, the United States federal deficit and the United States national debt were relatively modest until the election of George W. Bush in 2000. Even under Ronald Reagan who publicly stated he wished that he had done more to contain federal spending, the United States debt and deficit was similar to that of other industrialised nations and was in no way problematic. It was only with election of George W. Bush that spending and debt started to become a problem, Bush inherited a budget surplus in his inaugural year of 2001, he immediately proceeded to cut taxes, a modest tax cut for middle class Americans and huge tax cuts for the rich and corporations. After the attacks of September 11th 2001, his administration embarked upon two wars firstly in Afghanistan in 2001 and in Iraq in 2003. Rather than fund these wars from current fiscal year spending which would have increased the deficit, the cost of these wars was added directly to the national debt. With the banking crisis of 2008 and the real fear of a complete collapse of the world financial and banking system the US government massively increased the national debt again to bail out and reinforce the banking and financial system.

After winning the 2008 presidential election Barack Obama was faced with a mounting deficit, a spiralling national debt and an economy in recession he took the decision quite rightly to slow the rate of spending increases whilst still managing to stimulate the economy, however he has been unable to raise taxation on corporations and the rich because of the political rhetoric of the Republican controlled House and the use of the filibuster in the Senate. This has lead to a slight increase in the US federal deficit under the Obama administration, but the claims made by his political opponents are without substance. The US national debt now stands at 103% of Gross Domestic Product and without raises in taxation on those that can afford to pay the United States even with its status holding the world’s principle reserve currency will face steep rises in interest rates if the situation is not addressed. It is only via taxation that this problem can be solved, cutting federal spending would almost certainly force the United States into yet another recession.

Absolute Power Corrupts Absolutely”

From 1987 onwards Alan Greenspan in his role as Chairman of the US Federal Reserve deregulated the US financial markets, effectively ending the oversight of US financial institutions by regulators. Greenspan a devotee of Ayn Rand and her Objectivist philosophy believed that financial markets would become self regulating and this absence of regulation would lead to stable and continuing growth, however Greenspan appears to have underestimated the sheer criminal greed of those involved in the banking and finance industry. It isn’t just outright crooks like Bernie Madoff that stole peoples money, many major banks, insurance companies and hedge funds produced financial products that they happily sold into the market that were little more than junk and the credit referencing agencies gave them triple A ratings. How could system exist where ratings agencies that rated products were paid to rate those products by the very institutions that were producing them? This was absolute power corrupting absolutely and it very nearly led to the collapse of the entire financial system.

This Coming Election

The rise of The Tea Party in 2009-10 and their influence on the Republican Party have effectively drawn the battle lines for the forthcoming presidential election, the Republican party are now in a position where they are unable to raise taxation and therefore forced to to make massive cuts to US public spending in order to address the deficit and national debt, be in no doubt a Republican administration would cause the biggest recession in world history and even further widened of the gap between rich and poor.

I have checked and rechecked every statement I have made in this article because I want my friends and those who may just casually read to realise exactly what is at stake over the next few months. The US can get back to the days of cheap credit and long term investment, the US Dollar can remain the world’s prime reserve currency if steps are taken to regulate effectively financial markets and realistic taxation is used to address America’s debt crisis.

Please in November vote for the future of your wonderful nation and vote against self interest and greed.


10 thoughts on “Dali’s Magic Cheque Book: America’s Economic Dilemma

  1. the unfortunate reality of the U.S. economic situation is the fact that americans, for the most part, are unformed on matters of economics. i would not, however, blame the pubic as the failure is on the part of the media. the media (as the “fourth estate”) has failed to do its part (i.e. to inform the public as to how dire the situation is). this fact is compounded by the fact that our elected officials refuse to treat the public like mature adults that not only deserve to know the economic/financial process, but are capable of understanding the system. politicians resort to false patriotism and sloganism to distract the public and to taint any dissent as “un-American” or worse yet, “socialist”. the dream/fantasy of living the american dream enables politicians to obfuscate and outright lie to the american people (primarily the idea of social mobility (the belief that everyone can be rich)) to get the people to vote against their own interest. unfortunately, the econonic crisis is as much a psychological or sociological problem as it is a problem of debt and a devalued dollar.

    • Ian Reynolds says:

      I really couldn’t agree more, there’s a profound failure throughout the western world especially in the United States of the media, especially the broadcast media, to provide any kind of explanation of economic issues. It is only of ignorance that accusations of socialism or perhaps even communism can be thrown at Barack Obama and the Democratic Party and it is out of complete ignorance that these ridiculous claims are accepted or even believed. I often wonder how many Tea Partyers actually know what is meant by socialism in its contemporary context? Right wing commentators that are actually fully aware of the meaning of socialism are profoundly misleading their audience and creating a sense that somehow the fundamental values of America are being undermined, this is absolutely dishonest and it would seem the more often you say something the more it is accepted as a truth.

      Let’s be in no doubt some people in the United States are suffering and have been suffering for a long time due to the economic and banking crisis of 2008 and the subsequent recession, however due to the actions taken by the current administration this suffering has been greatly mitigated. These action were in no way socialist they were Keynesian and the simple truth is that a Keynesian stimulus is the one sure way to encourage growth and aid an economy out of recession. If one needs evidence one only needs to look to Europe where the policies advocated by the Republic party have been tried, these economies are still in recession and there is no growth and mass long term unemployment , whereas in the United States where there has been a stimulus the economy is growing and jobs are being created.

      • it is very true that many (i’d bet most) americans do not know the meaning of “socialism” beyond connotations of the “evil empire” soviet union and american cold war anti-soviet propaganda. we are a nation that has “in god we trust” on our currency — any nation that is grounded on a principle of atheism is inherently evil and un-american.

        our government has elements of socialism: medicare/medicaid, social security, etc., but politicans have been careful to disassociate our socialism from socialism.
        the problem with our lack of information concerning the economy (and many other complex topics) has to do with the paradox of democracy. the democratic process is based on the idea of freedom (liberty), and the people want to use their god-given right to choose. but exercizing choice gives the people the capacity to vote against government interests. the government must figure out how to convince the public that they are free to choose (and to get them to vote in the government’s interest) while also curtailing the public’s use of their god-given liberty?

        the solution is to keep the people uninformed and to ensure that their choices are trivial (the right to choose pepsi over coca cola, burger king over mc donalds). unfortunately the side effect is that the people are unaware of what truly affects their lives — like the global economy. the lack of information has made us unable to act to solve or at least mitigate the damage.

        if you are unfamiliar with walter lippmann i would suggest reading on his opinions on the problem of “too much democracy”.

      • Ian Reynolds says:

        I only really know of Lippmann for The Cold War and his critique of the military industrial complex, I will endeavour to check that out.

        It is strange that freedom and liberty seem to mean to so many Americans the freedom of consumer choice, that after all was the last thing on the minds of Jefferson, Washington, Hamilton, Madison, Franklin and Adams, it is also strange that the US was probably the first functioning social democracy with the “New Deal” of F D Roosevelt. It was the revival of the US economy under Roosevelt which paved the way for victory in the Second World War and also established the United States has a super power. Ironically Western European states were made over in the image of America, perhaps the only addition to the Roosevelt’s New Deal was universal health care, something both Roosevelt and Truman had wanted but lacked the resources to do.

        America really was to many a pioneer of socialism, a very good socialism, a socialism that worked and built a strong economy and massive growth. Jefferson had been a huge admirer of Jean Jacques Rousseau and saw the creation of the United States as the creation of Rousseau’s state of the social contract. The constitution of the US is really not about limiting government, it really is about limiting the power of government to remove the rights of an individual, how these two distinct ideas got mixed up is anyone’s guess. Perhaps we all need to become history teachers, perhaps the truth of the founding fathers can save America from this impasse?

  2. Ian Reynolds says:

    A funny aside:

    A Tea Party, birther commneted on teapartynation.com Obama’s economic policy,

    “Obama want’s us to be like Africa, with all this Kenyanist economics, more proof if it was needed that Obama ain’t no American.”

    I have no idea if this was some clever Democrat taking the piss or a genuine Tea Party intellectual, all I do know is the comment quickly disappeared.

  3. interesting you should bring up the link between freedom and consumerism. that fact of american life, unfortunately, is, in large part, due to edward bernays, the nephew of sigmund freud and the “father of public relations”. bernay’s influence on american society is — let me dig up a few things (if you haven’t either read bernays or read about bernays) to demonstrate bernays’ influence on american society.

  4. massaa662 says:

    Nice piece about Dali but the writing style is atrocious. Need to learn to use full stop.

  5. […] vandaag tegenaan op een blog van een Britse Keynesiaan waar ik nog nooit had gehoord, een zeker Reynold – maar dat doet er verder niet toe, het gaat hier om de Spaanse surrealistische schilder en […]

  6. desmond R says:

    This reads like an almost word for word copy of Mark Steel’s (political comedian) show from the late 1990’s. Credit should be given. From the chart onwards however, that looks different.

    • Ian Reynolds says:

      Actually Desmond the original story of ‘Dali’s Magic Cheque Book’ comes from Austaralian art historian and critic Robert Hughes and the first time I saw it applied to oil trading in US dollars was in a Christopher Hitchens’ article for The Nation in the mid-nineties. The Mark Steel radio show was written (mainly) by Mark Thomas and also used on his Channel 4 show. I also believe that it was also the focus of Rob Newman TV show around the same period.

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