By Paul-Martin Foss
The US Treasury Department has warned the Chinese government that it will be paying attention to China’s new currency regime. Any further devaluations of the yuan will likely result in a strong denunciation from Washington. Meanwhile, the Federal Reserve continues to devalue the US dollar, but you won’t hear a peep from the Treasury about that. After all, do as we say, not as we do, right?
Every time an American official opens his mouth, one cannot help but be astounded at the outright hypocrisy that emanates. It is as though American officials believe that the world financial system is designed to benefit the United States to the exclusion of other nations, funneling wealth to the US and sticking other countries with the bill. This isn’t a new viewpoint, of course, and you can understand why these people think what and how they do. American policymakers by and large are members of the same socioeconomic class, products of the same schools, being taught the same propaganda by the same professors, regurgitating the same pap on their exams to get good grades, and never questioning what they are being taught. They are ignorant of other points of view, intellectually incurious, and completely lacking in empathy or understanding. They adhere to a perverse type of American exceptionalism, that America is a special nation with a mission to rule the world, and that America doesn’t have to play by the rules she imposes on other nations.
We have seen the results of this mindset in foreign policy, where the very simple concept of blowback is completely unknown to policymakers. The US expects to be able to attack any country in the world without anyone else objecting, and if anyone should dare to retaliate against US government actions, the US government acts as though it is a horribly aggrieved party. Iran is a perfect example of this, where the CIA overthrew the Iranian government, propped up an autocratic Shah and supported his terroristic secret police. Yet when the American embassy in Tehran was overrun, the US government expressed complete shock that something like that happened. How dare those Iranians violate our embassy? After a quarter century of violating the sovereignty of a 600,000+ square mile country, the US government went apoplectic when the sovereignty of its little postage stamp of an embassy was violated. That hypocritical attitude continues to this day in foreign policy as it does in economic policy.
Financial blowback will come in the form of the dollar eventually being pushed aside as the world’s reserve currency. Ever since the Bretton Woods system was created in the aftermath of World War II, the United States has used its privileged position to benefit at the expense of others. Under Bretton Woods’ gold-exchange standard, under which the dollar was supposed to be as good as gold, the US created far more dollars than it had gold to back those dollars. As gold redemption threatened to exhaust US government gold stockpiles, the gold window was closed. Closing the gold window in 1971 removed the last major restraint on dollar creation, and the Federal Reserve has taken full advantage, driving up the money supply and prices along with it. The US continues to export its debt and inflation abroad, importing goods in return. When the bill finally comes due, expect the US to default. As Treasury Secretary John Connolly said in 1971, “The dollar is our currency, but your problem.”
To American policymakers, it’s perfectly okay for the United States to devalue its currency, offload its debt, and export its inflation abroad. But if other countries, such as China, dare to do the same thing, the gloves come off. Of course, Treasury Secretary Lew’s comments were made last week, before this week’s market declines. For all we know, the Treasury may fear that a collapsing Chinese stock exchange will destabilize American markets, and may very well push China this week to intervene in the stock markets and make further moves to devalue its currency. American policymakers, remember, have no underlying principle save to support what they claim to be in “America’s best interest,” something which can easily change from week to week.
This article was originally published at The Carl Menger Center.