No 883 Posted by fw, October 17, 2013
“…it’s time to end the world economy’s dependence on the dollar as the central currency. We need a globalized currency like the special drawing right the IMF has created or something like that so that we can reduce the dependence of the world economy on these crazy political battles here in the United States.”—Gerald Epstein
To watch the interview with economist Gerald Epstein on TRNN’s website, and access the full transcript, click on the following linked title. Alternatively, below is an embedded version of the 6:17-minute interview, followed by an abridged transcript with added subheadings.
[Gerald Epstein is codirector of the Political Economy Research Institute. He’s here to discuss what exactly the debt ceiling means. Epstein is the sole source of the following comments].
Debt ceiling debacle is contrived; it signals the beginning of the end of US dollar as key and safe global currency
This debt ceiling debacle really is a sign that the United States government is in disarray, which we have known. But it’s more of a sign to the world that the whole regime that was started after the Second World War, in which the United States was the dominant power and the economy was based on the U.S. dollar as the key and the safe and the central currency, that whole system is now falling apart, and the debt ceiling debacle more than anything else really signals the beginning of the end for that system.
Debt ceiling is “odd legal rule” set up in 1917 that lost its usefulness after 1974 budget process reforms
The debt ceiling is an odd legal rule that was set up in the 1920s to try to give Congress some say over borrowing. But in fact it’s redundant because the United States Congress and the president make decisions about spending, and by making decisions about spending they’re also make decisions about how to finance it. And if their budget requires borrowing, then that’s implicit in the decisions made by the Congress. So it’s completely redundant and adds a political complication to the whole structure that we now are living with.
Big problem for US is not amount of debt owed, but efforts of billionaires to paralyze government
The big problem for the United States is not the amount of debt that it owes, but it’s the way that it’s been investing in social assets–in education, in infrastructure, in all the things that can make the economy develop properly. There hasn’t been enough investment in green technology and so forth. So we really should be focusing on the investments in the real economy, in the infrastructure and the education. And oftentimes those kinds of investments, they pay for themselves in terms of more and more revenue. But as the economy grows, the amount of debt relative to the GNP goes down anyway. And I think most economists, including at the Congressional Budget Office and elsewhere, realize that this whole debt is a secondary issue. So what is the issue? The issue, from the perspective of the Congress, financed by big billionaires, the right-wingers that are financed by big billionaires like the Koch brothers and others, their goal is to completely dismantle those aspects of the government that threaten them, and that includes threaten them with higher taxation, threaten them with environmental regulations, carbon taxes, etc. They want to paralyze the government so it’s not able to impose those kinds of things. And this debt ceiling fight has gotten out of control. They can’t necessarily control the system, and it’s led to a very dangerous impasse.
We now have a “kind of globalized casino economy” that will get worse – watch for a rise in interest rates on the debt and a debt sell-off as investors head for the exits
As we’re already starting to see, there are starting to be cracks in the global financial system, because, as I said before, the U.S. dollar and U.S. Treasury securities and government debt are really the foundation for the global financial system. And interest rates are starting to go up on debt that’s coming due, U.S. government debt that’s coming due at the end of the month and the beginning of November. And built on this debt as a result of the kind of globalized casino economy that we have is a whole pyramid structure of other debts and bets and claims and counterclaims held by banks and pension funds and governments. So what we’re going to start to see is, little by little, an increase in the interest rates based on that debt. We’re going to start to see selling more of that debt and other debts. We’re going to start to see financial institutions that are in trouble. All of that is going to get worse and worse as investors begin to realize they might have to make an exit for the door.
One way out of “these crazy political battles” is to end global economy’s dependence on the dollar
And part of the problem is that it’s time to end the world economy’s dependence on the dollar as the central currency. We need a globalized currency like the special drawing right the IMF has created or something like that so that we can reduce the dependence of the world economy on these crazy political battles here in the United States.
Gerald Epstein is codirector of the Political Economy Research Institute (PERI) and Professor of Economics. He received his Ph.D. in economics from Princeton University. He has published widely on a variety of progressive economic policy issues, especially in the areas of central banking and international finance, and is the editor or co-editor of six volumes.