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mr-absentia

The Spoils of Economic War: How the US, Saudis Profit From Sanctions on Venezuela and Iran

«The "almighty" dollar would fall from grace with back up from oil

Trump opens war fronts everywhere, which wouldn't seem to make sense unless they were a distraction. But they're not.

The rise of China as a global power has been silently transforming the international monetary system, another element triggering the U.S. into endless economic bullying.

Since the abandonment of the gold standard in 1971, the U.S. dollar is not linked to any assets, becoming a fiat currency. In these kinds of cases, only a country's output could back the currency in the long term. But what happens when monetary expansion occurs faster than increases in productivity?

Bringing new meaning to the "In God We Trust" motto coined so long ago, the dollar’s value depends on its capacity to remain an international reserve currency; that is, a currency other countries hold as part of their foreign exchange reserves and use in their international transactions.

In a world where economic agents don't ask the Federal Reserve to convert their notes into gold or any other physical asset, trust is the only thing keeping the U.S. upright. As a result, the dollar has remained a mighty currency because most international transactions are traded in U.S. dollars.

On Jan. 30, U.S. National Security Advisor John Bolton, in fact, revealed very little when he blatantly admitted that the coup attempt in Venezuela was really about grasping for oil resources. In reality, aggression by the U.S. hides something much more than that.

If the dollar stops being the world's most traded currency, the U.S. will not be able to issue the notes it needs to finance an almost 50-year-old federal deficit which rose from US$666 billion in 2017 to US$779 billion in 2018.

"The U.S. budget deficit by year is how much more the federal government spends than it receives in revenue annually. The Fiscal Year 2020 U.S. budget deficit is expected to be US$1.1 trillion.

"That's the biggest deficit since 2012," wrote Kimberly Amadeo in The Balance, noting how President Trump has ramped up the U.S. deficit to pay for record-high levels of military spending.

The dollar losing status as the world's preferred currency would give the U.S. problems paying for imports in an economy where its lack of international competitiveness has given it a trade deficit since 1976, which widened to US$50 billion in March.

Last but not least, if the dollar stops being almighty, the U.S. will have a very difficult time maintaining itself as a first-world-class economy, since it's federal debt exceeded US$22 trillion in February. This amount represents over 76 percent of what the U.S. is able to produce in one year. Nevertheless, this is most likely to get worse: the debt-to-GDP ratio in the United States will rise to 150 percent by 2049, according to the Congressional Budget Office.

Besides preventing Venezuela and Iran from exporting their natural resources, the U.S. is actively seeking to avoid the dollar's collapse, an inevitability in the next few years, as the history of previous empires has already shown.

This is why the Trump administration is prone to fighting the use of barter, virtual currencies or other alternative international payment methods.

U.S. sanctions are not whimsical expressions of this president. They are tools used to retain hegemonic power in a multipolar world no longer willing to tolerate such an aspiration. At the core of U.S. bullying is not ideological disagreement but economic decline.»

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