The uncontrolled issuance of US dollars without economic support will generate inflation, loss of purchasing power and the supremacy of the greenback, a currency considered a world reserve and the main currency used in trade.
In an interview with Prensa Latina, Faustino Cobarrubia, the head of the Department of Commerce and Integration of the Centro de Investigaciones de la Economía Mundial, explained that, to cushion the blow of the Covid-19 pandemic, the Federal Reserve promoted the excessive printing of dollars, which will have long-term consequences.
In 2020 alone, the North Central Bank issued 20% of the greenbacks circulating in the country, a chilling figure for a year, says the expert.
As well as this, the government approved important stimulus packages, one of two trillion dollars, promoted by then-President Donald Trump and considered the largest in history, estimated at 13% of the Gross Domestic Product (GDP) of the first world economy.
Likewise, the current president, Joe Biden, authorised another ambitious economic plan for about 1.9 billion dollars, the largest for a first year in office, Cobarrubias explains.
But the generalised indebtedness, he points out, is the “other face of the economic outlook that they try to sell us, a situation that encompasses companies, families and even the government.”
The government debt alone amounts to about $28 trillion, more than 110% of GDP, he added. This means that the United States should use all of a year’s production solely to pay back what it owes.
In addition to the public debt, there is also the exorbitant fiscal deficit – the annual balance of the government’s accounts – which in 2020 reached a record of 3.3 trillion dollars, and more cannot be spent more than is earned.
“Of course, if it were an underdeveloped country,” reflects Cobarrubias, “international financial organisations would have already imposed the obligation to apply adjustment policies, but the pandemic broke all the rules of capitalism, because according to the International Monetary Fund, countries can only have a fiscal deficit of up to 3% of GDP,” he clarifies.
However, he says, at the moment capitalists appear to be the good guys, by giving money. If you give $1,400 to someone who has not worked for it and they earn more than when they do work, it is supposedly generous.
In Cobarrubias’s opinion, this will further indebt the government. It is a momentary escape of what will end in the dollar losing its dominance, so there are few changes between the policies of Trump and Biden.
Another significant aspect is the amount of bubbles generated by the surplus of printed money, since it was not intended to increase productive capacity, he remarks.
Biden’s idea was to deliver money to companies and banks so that they could exercise their role as lender but that did not happen and it ended up as speculation, the expert on economic issues from the United States further explains.
In his opinion, businessmen invested in the stock market and government loans or issued the money for Latin America and the Caribbean in search of higher interest payments because rates are low in the northern nation, and thus the money would return multiplied.
Stock market shares can inflate and burst the bubble, a practically bankrupt government can go bankrupt, it is a great risk, he explains.
For Cobarrubia, there are several things at stake, such as the economic recuperation of the United States, the risk of a debt crisis in Latin America, and the danger that this entails for the global recovery.
According to the analyst, Washington is at a dead end, divided between internal and external economic problems and its conflicts with China and Russia, the health situation, and also other global issues to address.
Where is it all happening?
“Speaking strictly about the pandemic and the vaccines, one wonders who made the vaccines. The conflicts generated around this subject in the end are about who has supremacy and are resolved by who makes the antigen, that is, who has the gift of saving the world.”
Dominance in a general sense has several dimensions: economic (bestowed by the strongest currency, who has the highest GDP, the largest market, the country with the greatest buying power), cultural and military.
The United States has three pillars on which its dominance is based: the dollar, and its military and cultural powers, he clarifies.
Cobarrubia affirms that at this moment the economic plane “is being questioned because it is predicted that China will surpass the northern country in five years, which is perfectly possible. Despite everything they are doing to avoid it, it will be inevitable.”
However, he adds, the US maintains its military and cultural strength.
Cobarrubia believes that it is a transition of economic dominance, manifested in many indicators from participation in production and world trade, since the Asian giant leads in both areas.
Before, investors looked for gold as a safe haven asset, but now there are other alternatives, which ultimately, he says, reflect loss of dominance.
But also, he adds, there is the debt. “A country with such a large debt shows a clear symptom of the loss of economic power when its government issues dollars without productive support.” However, he says that the US’ dominance is maintained because confidence in the majority of holders of the dollar, used in commerce and finance, persists.
He also warned that this prevalence could be lost as people take refuge in other assets such as cryptocurrencies, while China and Russia, for example, seek out other currencies. (PL)