Congress Pushing the Dollar Over a Cliff

Have you been watching the US dollar lately? It is down almost 10% for the year and plunging. There is a reason for that, which should not come as a surprise to anyone who follows this column.

A few weeks back, I explained that since 1975 world demand for dollars has been sustained by the petrodollar agreement between the US and the Saudis, as well with most other OPEC countries. It is a coercive system. Countries of the world must have US dollars to buy OPEC oil and gas. To obtain dollars, they must import goods to the US. So the petrodollar has been the driving force and financing mechanism of the US trade deficit all these years. But because the two are linked, if OPEC loses control of the world energy market, the US simultaneously loses control of the world currency market. When the countries of the world no longer need OPEC oil, they also don't need US dollars. And that is why the dollar is dropping. Nations are tired of US currency coercion, are no longer solely dependent on OPEC, and as a result demand for dollars is decreasing.

We have also talked about how President Trump is attempting to deal with the demise of the petrodollar. Trump knows that as the value of US dollar decreases worldwide, prices on imports will rise. And because the US manufacturing and industrial base has largely relocated overseas, there are real concerns that a declining dollar, if not compensated in some fashion within our domestic economy, could bring about acute shortages of goods, including food, normally imported from other countries. The only way to fix that problem would be to bring these industries back to America, Trump’s plan. That way, regardless of the value of the dollar around the world, US currency would always be good here at home, and marketable goods, produced domestically, would remain available.

Now if I know this, and you know this, you might think that congress would also know this and be devising ways to overcome the potential for major shortages of goods we import and no longer produce domestically. Instead, congress is enacting bipartisan legislation helping to push the dollar over the cliff, daring the world to abandon it even faster.

Last week I received word from my US Representative Rob Woodall, which he seemed quite eager to promote, that the US House had overwhelmingly passed the “Countering America’s Adversaries Through Sanctions Act” (H.R. 3364). That simply means imposing more international sanctions and more petrodollar-based, international coercive measures. Here’s the problem: While US bullying may have worked at one time, in a time when the world is dropping the US dollar like a hot rock, imposing dollar-based economic sanctions against countries using the dollar only provokes them to leave it that much faster. That lowers demand for the dollar that much sooner, which accelerates the decline of the dollar. Did I mention that the dollar is plunging? The sanctions Representative Woodall crows about remind me of the kid who takes his ball and goes home, never grasping that all the other kids brought their own balls.

Rob’s sanctions are designed to largely punish, you guessed it, Russia and Iran…again. Reacting to the House vote, Russian Deputy Foreign Minister Sergei stated unequivocally that US sanctions are pushing Russia towards developing alternatives to the dollar reserve currency system. Also reacting, Europe erupted in protests over Rob’s bill because those countries receive 1/3 of their natural gas from Russia. Most of those purchases are paid using US dollars.

Now some time ago Iran told the US to put the dollar “where the sun don’t shine,” only using it now sparingly. Remember Obama’s Iran nuclear deal? The evidence shows that Obama’s deal was never about nukes, but instead about dollars. Remember the planeload of $1.7 billion Obama sent to Iran, in cash? Obama was priming the Iranian economic pump with dollars, as well as bribing Iranian politicians to use the dollar. Because it was cash, Obama knew the US Treasury Department would have no way of imposing sanctions on those dollars. Handing out that much payola, with politicians waiting to receive it, Obama’s hope was that Iran would resume its role as a petrodollar devotee, which of course is not going to happen. You might also recall that two years ago, as Congress was starting a play fight over Obama’s Iran nuclear deal (yes, they were all in on it), Secretary of State John Kerry predicted that if the deal were not accepted, the US dollar would cease as the world’s reserve currency. As I said, the deal was about dollars, not nukes. Iran took your tax dollars and never looked back.

So here we are; the world is dumping dollars at an alarming rate. Your US representatives are working to make it worse, and stymieing Trump’s efforts to transition the US to a new prosperous domestic economy.

It is time for a new congress, friends. Don’t look back.