Imagine the following: China secretly buys up gold futures in the hopes of stockpiling a war fund to fight inflation caused by US ‘quantitative easing’. If the US goes too far in trying to fund its stimulus by debasing the dollar, China triggers a crisis by buying up gold. The ultimate statement of lack of confidence in the US dollar (which is the key currency for all international trade and capital reserves) leads to a catastrophic run on the dollar and a collapse of globalization as each country tries to ‘beggar’ its neighbour with cascading tit for tat devaluations. In his book Currency Wars: The Making of the Next Global Crisis, Jim Rickards presents several scenarios by which the world could come to the brink of collapse as a result of governments’ efforts to manipulate their currencies, thereby stimulating their economies at the expense of their trading partners. Indeed, it is not hard to imagine how the monetary underpinnings of globalization could easily come crashing down given the wobbliness of the top currency, the high level of US debt, and the lackluster response of the US consumer, traditionally the world’s growth engine, in recovering from the 2007 recession. Indeed, one could argue that even a much less complicated scenario might lead to crisis: what if China simply decided to use it’s so-called ‘nuclear option’ and stop buying US treasuries, triggering a cascading dive of confidence in the world’s reserve currency? What if politics really did take over economics?
The alarmism over a coming hyperinflationary crisis appears to be growing, and it’s not without some foundation. Fiscal stimulus appears to have met its match in the global system of monetary exchange, where politics and economics do not just interact, but essentially meld. However, at least some of the alarmism should be taken with a grain of salt. The calls for curbing the US fiscal deficit (quite apart from the debt) are at least in part motivated by an ideological discomfort with government’s influence on the market as well as a moral panic over Americans’ dependency and perceived complacency. This view tends to see the world as a dangerous, zero-sum place where countries await any and every opportunity to force an advantage over their competitors. However, economic competition is not exactly the same as political rivalry, and should not be equated. While it is not impossible for countries to mutually try to obliterate each other (see the Great Depression) it is not likely given the availability of much more palatable options.
It is important to remember that unlike real wars, currency wars that result in hyperinflation are not really deliberate—they result from governments’ fumbling and lack of effort to cooperate or lead rather than from single-minded plans to dominate the world. They are tragedies (or tragicomedies) rather than evils. They are not so much caused by politics as by a lack of politics. Because of the uncertain results of currency manipulation, it is a very blunt and unpredictable instrument of policy indeed. As with nuclear deterrence, mutual deterrence is more likely than not to push countries to cooperate and to head off crises before they get out of hand. Indeed, this is exactly what has been happening for the last (almost) 42 years. The players may change, but the game will remain: keep the poker face on and ensure the world continues to have a world reserve currency with some usefulness to everybody. The alternative is just too awful to contemplate.
araphrase Edsall, are ageing, embattled, middle to upper class whites living in decimated and depopulated suburbs who are increasingly bitter about the direction of the redistributive state. In the past, the right’s call to arms was a kind of negative freedom (‘Don’t Tread on Me’) which fought to preserve the individual’s ability to choose their own forms of happiness unimpeded by state regulations. The premise of this, we know now, was the expectation that everyone could gain from a growing pie. No more. Programs for which supporters of the right are the primary recipients (including Medicare and social security) are considered sacrosanct. Programs from which others benefit (read black, immigrants, poor or public sector workers) like Medicaid, the Patient Protection and Affordable Care Act, or income supports, are untenable ‘entitlements’. On the left, there is a counter-move to protect the public sphere from erosion while simultaneously trying to remain coherent in the face of a fiscal crisis and an unrelenting personal attack on Obama during an election year. The left is increasingly turning to middle class minorities, immigrant and young voters who are far less steady in their support and are on the whole less well-established and more vulnerable both economically and politically.
Dr. Rosalind Warner 
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