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Paul Craig Roberts
Institute for Political Economy
The Problem is the Weaponization of the Dollar, not the US National Debt
The Problem is the Weaponization of the Dollar, not the US National Debt
Paul Craig Roberts
Elon Musk expressed his disappointment in the Trump administrations bill, passed by the House, that avoided an automatic tax increase that would have occurred at the conclusion of 2025 by making permeant the 2017 tax reductions and which increased spending on defense and US border security. Musk mistakenly thinks that this bill undermines his and DOGE’s effort to reduce the federal deficit.
Musk should see his and DOGE’s success not in terms of deficit reduction, but in terms of eliminating waste, fraud, and grift from the federal budget. According to reports, Musk and DOGE have stopped the theft of $175 billion from American taxpayers who have desperate needs for their own money. Instead, the money has gone to fake companies set up by Democrats to enrich themselves and their political allies via government contracts at the expense of the American people.
Reducing the grift by $175 billion is no small achievement. It could be much larger, but corrupt Democrat judges and media are at work blocking DOGE and shutting down Elon Musk.
What Musk should emphasize is the contrast between Trump being the peace president and Trump’s increase in military spending.
America has dangerous internal enemies, but its foreign ones are manufactured by the CIA, which needs enemies for its budget and power, by the Israel Lobby, which hopes to continue using the US against Arabs and to convince Washington to attack Iran, and by the Zionist neoconservative closely allied with Netanyahu who assert US hegemony as defined by the Wolfowitz Doctrine.
I am now going to make a statement that Musk, financial journalists, American conservatives, and Republicans will dismiss as nonsense:
The US deficit is not a problem as long as the US dollar is the world reserve currency.
The national debt of the country that is the world reserve currency comprises the reserves of the central banks of the world. As long as the US dollar is the means of settling international balances, an increase in the issue of US Treasuries means an increase in the reserves of the central banks in the world. The foreign central banks and their governments are happy. With more reserves (US debt held in US Treasuries), central banks can expand their country’s money supply and the country can grow.
The world would be unhappy if the US debt ceased to grow as it would mean the central bank reserves of all other countries would stagnate, thus limiting growth.
Those who worry that the US cannot pay off the bonds representing its national debt do not understand that the US debt is denominated in US dollars and can be easily paid by the Federal Reserve creating dollars to redeem the bonds.
It seems forever that I have been trying to teach economists, the Treasury, the Federal Reserve, the financial journalists, the Republicans, and conservatives that as long as the dollar is the reserve currency America’s national debt will be held in the form of US Treasuries as reserves in the world’s central banks. As US debt rises, so does the reserves of the world’s central banks, and everyone is happy.
The danger to US national debt is not its size. The danger is the weaponization of the dollar which threatens the continued acceptance of the dollar as reserve currency. Sanctions on countries and the seizure of the Russian central bank’s dollar reserves introduce real risk into holding reserves in US dollars.
What is threatening America’s ability to finance its debt are the US sanctions that have caused the rise of BRICS and the search for alternative payment methods to the US dollar.
Why this simple fact is too complicated for economists, financial journalists, politicians, conservatives, and Elon Musk to understand is beyond me. The US dollar has been the reserve currency for about 80 years. For most of this time conservatives and David Stockman have predicted America’s imminent death by debt.
Losing the role of world currency is deadly. When Great Britain lost the role to the US after World War II, the British transitioned from riches to rags.