The Basic Problem in the Budget/Debt Ceiling Crisis - America Spends Too Much and Obama Leads the Shopping Spree

When the world is watching the American budget and financing crisis play out in the full view of everyone, there are the beginnings of grumblings in the international community about the stability and value of the United States world financial and economic leadership. For example, China today said that there should be an alternative - "a de-Americanized world." But, if we believe the financial media and worldwide financial businesses, the world's financial markets are set to fall into disarray and lose about 40% of their value. Now, those are two diametrically opposed positions. China wants to replace the US with "X", while the rest of the world is poised on the brink of financial collapse. Perhaps the only worrisome beginnings of a shift in the international financial system - and it has almost nothing to do with the current American budget and debt crisis - relates to the position of the US Dollar as the world's reserve currency. The US Fedderal Reserve has been inflating the Dollar massively, reducing its purchasing power in relation to commodities, causing many of the world’s great trading nations to use other currencies occasionally for bilateral deals. It has been rumored, for example, that DuPont settles many of its international accounts in Chinese yuan and European euros. In spite of this, the dollar retains its reserve currency status because other currencies have been inflated, too. For example, Japan has inflated the yen to a greater extent than the Dollar in an attempt to revive its stagnant economy by cheapening its currency. So the monetary destruction disease is not limited to the US alone. The Dollar will be very susceptible to losing its reserve currency position only when the first major trading country stops inflating its currency. There is evidence that China understands what is at stake; it has increased its gold holdings and has instituted controls to prevent gold from leaving China. Should the world’s second largest economy and one of the world’s greatest trading nations tie its currency to gold, demand for the yuan would increase and demand for the Dollar would decrease. In practical terms this means that the world’s great trading nations would reduce their holdings of Dollars, and the one-half of all issued Dollars held overseas would flow back into the US economy, causing prices to increase. President Obama’s imminent appointment of career bureaucrat Janet Yellen as Chairman of the Federal Reserve Board is evidence that the US policy of continuing to cheapen the Dollar via Quantitative Easing will continue. Her appointment increases the likelihood that demand for Dollars will decline even further raising the likelihood of much higher prices in America as trading nations holding other currencies as reserves for trade settlement increases. Perhaps this key pressure from a sovereign country like China will wake up the Federal Reserve to the consequences of its actions and force it to end its Quantitative Easing policy. But, that will have to await the new US President elected in 2016 because Obama will not do it. But if China wants to replace the US, with the reserve currency and as world leader, it will have to step up to several important decisions it has to date been unwilling to take. (1). In fiscal year 2011, the US government allocated the following amounts for aid: Total economic assistance : $31.7 billion, of which, USAID assistance: $14.1 billion. France, Germany, the UK and Japan combined gave $41 billion in economic assistance in 2011. China's foreign economic aid is fundamentally different. It is not in the form of grants but given as technical cooperation agreements and private-government direct investment in Africa, South America and Asia. China establishes lines of credit backed by the recipient country's natural resources or undertakes projects to develop natural resources and takes back a percentage of the output. So Chinese "aid" is really in large part a way of ensuring its future raw materials and food needs. (2). The US gives $8 billion each year to the UN operating budget, including the peacebuilding budget. The US payment represents 23% of the UN total budget, far outstripping any other country, including China. (3). IMF Member Quota in Special Drawing Rights, which equate to the financial aid available from each member to be used by the IMF : USA 42,122.4 SDR (18% of total contributions); Japan 15,628.5 SDR (6.6%); Germany 14,565.5 SDR (6%); France 10,738.5 SDR (4.5%); UK 10,738.5 SDR (4.5%); China 9,525.9 SDR (4%). ~~~~~ Dear readers, as the iconic American humorist and writer, Mark Twain, said when he read his own obituary in a newspaper : "The reports of my death have been greatly exaggerated." America needs to get its government working again -- stop devaluing its Dollar, gradually pay down its national debt instead of always increasing it, create a balanced budget every year, and send home those Congress members and Presidents who oppose these clearly necessary actions. Obamacare is not the basic problem - it is the symptom of a Democrat congressional majority and President who have taxed-and-spent America to the brink of disaster. They are the basic problem. Send them home. Mr. Obama - do the honorable thing. Resign.