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.