The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin’
– Bob Dylan
Background
The rate at which today’s technology is advancing – particularly artificial intelligence, robotics and renewable energy – is unprecedented in recorded history. And recorded history is the correct way of saying this because no one really knows what may lurk in unrecorded antiquity. The same is true regarding international politics, where seismic changes akin to the flow of lava are taking place. Yet, in terms of spiritual growth, humanity is still infected with the same age-old irresistible lust for dominance, as if we could take it with us when we draw our last breath. And so, the risk of extinction that it casts on us and all other species on this planet we think we own, keeps growing unabated. No wonder the Bulletin of the Atomic Scientists has set the Doomsday Clock to 89 seconds to midnight, an ominous metaphor of the growing probability of terminal apocalypse. It is through the prism of this regrettable truism that we look at today’s unfolding events.
The Conundrum
While the scope and magnitude of problems confronting the U.S. today are indeed unprecedented, except for nuclear war none are more urgent than the need to preserve the dollar’s role as reserve currency of the world. This privilege, not a right, has allowed the federal government to incur perennial trade and fiscal deficits, amass the largest public debt in history, and export a substantial portion of its inflation. More importantly, the privilege has kept us from facing sovereign bankruptcy. When governments approach insolvency, namely being unable to meet their obligations, global investors may demand much higher interest rates or simply refuse to buy their sovereign bonds.
The U.S. has been heading in that direction for close to 50 years. As a result, its accumulated debt is higher than it’s ever been, to the point that the Congressional Budget Office projects that by the end of 2025, 100% of the debt will be held by the public, the federal budget deficit will reach $1.9 trillion, and that by 2035 the federal debt will rise to 118% of GDP.
The root cause of this predicament is the government’s propensity to overspend, outsource manufacturing, and underinvest in nation building. This has created a steep inequality, a chronic and persistent shortage of affordable housing for working-class first-time individual homebuyers, a skyrocketing cost of medical care, and a plummeting fertility rate.
As of February 12, 2025, it’s encouraging and uplifting to see that president Trump appears to be fully cognizant of, and has taken spot-on steps to address, the aforementioned all-important issues. Certainly, The interim steps he has taken to deal with the trade deficit, specifically to impose tariffs on friend and foe, is a matter of necessity. The $37 trillion (plus) debt makes it unsustainable, for example, to keep borrowing just to essentially give the money away.
Accordingly, as it pertains to his interim actions, the president deserves the highest praise. Truth be told, tariffs are politically expedient because (a) they can be imposed at the president’s discretion without legislative action, and (b) not being responsible for them, members of Congress are held harmless at election time from the wrath of their constituents. However, tariffs are a regressive tax, and as solutions go, they’re only a palliative, not a cure. The root cause of the trade deficit, which will at some point have to be publicly acknowledged and addressed, is that the country’s non-outsourced manufacturing sector must compete globally, not just in the U.S. market, and to do so two things are necessary: (1) a comprehensive and honest free trade agreement devoid of subsidies and tariffs among all the nations, and (2) the U.S. must mass produce and successfully sell quality items the rest of the world may be willing and able to buy. That means, for example, low-priced small electric automobiles capable of competing with Chinese brands.
Regarding the dollar’s privileged role, let us remember the simple fact that in this world nothing lasts forever. Indeed, since 1450 AD several nations have enjoyed that privilege, and they all lost it. Accordingly, any attempt to forcibly and artificially extend the dollar’s reign should include the caveat that, even if successful, it’s still going come to an end. Loss of that privilege is usually, but not always, gradual, unrelenting and irreversible, like flowing magma. In fact, in some ways, it’s already begun. Accordingly, Mr. Trump’s threat to impose 100% tariffs on BRICS countries should they attempt to create a common currency akin to the euro may at best only postpone the inevitable. On that vein, though the president’s interim actions are indeed cause for celebration, it’s equally alarming that no one in his administration is known to have announced a comprehensive plan to mitigate the catastrophic consequences that will surely befall us the day the dollar is finally dethroned. Perhaps one that lifts the GDP by 16 or 17% in twenty years?
Dynamics
Nobody knows how the incipient trade, technological, political and military rivalry with China will evolve, particularly in Latin America, Taiwan, and more broadly, in the Pacific. What is certain is that in terms of naval power, the importance of which will become more apparent as the confrontation progresses, China already has the largest and fastest-growing navy in the world, and its capability is increasing. In addition, the U.S. presently lacks the shipbuilding capacity to keep up with it. By that measure, disagreements with Russia are secondary, fixable and preferable.
Fossil Fuels and the Dollar
Regarding energy, Mr. Trump appears to subscribe to the belief that fossil fuels are the wave of the future, not a relic of the First Industrial Revolution. In fact, he withdrew from the Paris Agreement and wants the Keystone XL pipeline completed as soon as possible.
A critical supporting element of the dollar’s prowess is its relationship to oil. On August 15, 1971 president Richard Nixon discarded the Bretton Woods system of fixed exchange rates and converted the dollar to a fiat currency, just like all other currencies. In 1974 Saudi Arabia and the United States reached an agreement whereby the former would recycle its windfall oil revenue by investing into the U.S. economy. Later that same year the Saudis stopped accepting the British pound as payment for oil. Thus, all countries that were not oil self-sufficient were required to earn dollars to pay for their oil. The only country that did not have to do so was the U.S. All it has had to do is print money as it sees fit. It is for that reason that no issue save nuclear war is more important to the U.S economy.
In view of these facts, it’s unsurprising that President Trump’s first phone call to a foreign leader in his second term was to the Crown Prince of Saudi Arabia, who promptly announced that the Kingdom wants to invest $600 billion into the U.S. over the next four years. Not quite satisfied, the day after their phone call Trump said during virtual remarks to business and foreign leaders at the World Economic Forum in Davos, Switzerland, that he would ask the Prince to “round out” their investment to around $1 trillion”. If so, that would average $250 billion per year. To put it in perspective, that would amount to 28% of the $892 billion in interest that the U.S. government paid in 2024. If it holds, this agreement all but guarantees that Saudi oil will continue to be priced in dollars. More importantly, it would for all intents and purposes indefinitely extend the 1974 pact and likely limit Saudi Arabia’s cooperation with BRICS. That is particularly important because Iran is already part of BRICS and has a bilateral relationship with Russia. Were Saudi Arabia to join BRICS, both shores of the Persian Gulf would operate under the auspices of an organization that specifically excludes the U.S.
However, the proposition to perpetually rely on oil to support the dollar evokes images of rowing against the current on a category 4 whitewater river. Not only is the president rejecting an opportunity to compete with China on renewable energy among countries that intend to walk away from fossil fuels, which are many, he appears to have discarded the possibility of gradually replacing oil with green and white hydrogen to prepare for the day when the demand for petrodollars begins to recede. A prudent alternative might be to chart a hybrid course: oil and fossil fuels in the short term paired with a simultaneous massive investment in white and green hydrogen over the next twenty or thirty years.
Inequality and Education
There are two additional particularly thorny issues: rising inequality in the U.S and abroad, and lack of a concerted effort to fully overhaul America’s education system.
Inequality, a taboo subject, is enshrined in the altar of capitalism as a necessary evil. Yet, it is a subject of extreme concern among the working classes who are compelled to cope with the chronic shortage of affordable housing and making ends meet. And this is true not just in the U.S. but in Canada, Spain, and virtually everywhere else. For that reason, China’s proven track record of lifting 800 million people from poverty in 40 years speaks volumes and attracts adherents worldwide, particularly in the Global South. Accordingly, the President and Congress should freely and publicly discuss inequality at least as much as UFOs and the Kennedy and MLK assassinations. In fact, a good place to begin might be to create a bipartisan task force empowered to hold public hearings and recommend ways to reduce and minimize it.
China is far ahead in the number of STEM graduates and leads the world in critical renewable energy technologies, including solar panels and batteries. Clearly, the U.S. should invest more by orders of magnitude on education, renewable energy, domestic infrastructure, public transportation, and all those things on which China is now the undisputed leader. In particular, no one in the current administration is known to have proposed a specific plan to make higher education free, or nearly so, for talented and meritorious youths whose parents simply lack the means to pay for it. Mantras like democracy or individual financial responsibility simply won’t deliver the need to compete on an even keel with China. If our esteemed elected leaders truly aspire to create the necessary conditions for the nation to do so, not just with China but with India in the 21st Century and beyond, they’ll have to encourage, inspire and steer a very large percentage of our qualified indigenous youth to choose STEM careers and, simultaneously, to create lifetime reliable jobs in those fields. And even then, there are no guarantees.
Medical Care
Medical care, the proper term as opposed to medical insurance, should also be high on the agenda. Whatever Mr. Trump decides to do, if anything, to the Affordable Care Act, the need for subsidized coverage for 20.8 million enrollees will persist. Otherwise, they won’t be able to afford the premiums and all other related costs.
A Possible Alternative: A Global Mechanism to Calculate, Allocate and Enforce the Exchange Rates of all Currencies Based on Per Capita Production of White and Green Hydrogen
Since time immemorial gold, or its equivalent has been the fuel that allowed the rich and powerful, whether clan potentates or emperors, to amass armies and enslave others. This was attested to by Cicero in his Fifth Philippic, Nervos belli, pecuniam infinitam: “The sinews of war [are] unlimited money. The concept has been seconded by others worldwide, including the ancient Maya, whose city-states lived in a continuous state of war as their kings strove to control trade between the coast and the highlands, and Cardinal Richelieu many centuries later: “Gold and money are among the chief and most necessary sources of the state’s power… a poor prince would not be able to undertake glorious action.”
That truism, combined with the universal lust for dominance, has historically been, and remains, at the heart of wars. It’s not inedible philosophical, economic or political mantras. It’s about having others do that which the powerful don’t like or want to do – menial chores, raising their own children, personally caring for their aging parents. Enter slaves, surfs, the destitute and the homeless, powerless human beings without a decisive voice with which to reform the pecking order. By the same token, given the state of today’s technology, those at the top have the means to divvy the world’s resources and to keep everyone else from having a “place in the sun”, as Kaiser Wilhelm might say.
Today’s weapons of mass destruction combined with the instantaneous accessibility to heretofore classified information means that the genie is out of the bottle. Case in point, North Korea, India, Pakistan and Israel, none of which existed as independent nations prior to 1945, are now nuclear-armed. And Iran certainly has the knowhow and raw materials to follow suit should they choose that path. That is the first powder keg.
The second powder keg is a sudden acute and uncontrollable confrontation between the U.S. and China, one where neither backs down from their attempt to become –and remain – “primus inter pares”, first among equals. And Taiwan is ground zero at the end of a short fuse, just waiting for a flame.
Enter climate change, impervious to human machinations, aspirations, suffering and quarrels. It may in fact be our way out, but only if we grasp the lifeline it’s throwing to us.
A Suggested Solution
These observations revolve around the premise that a nation with a dominant currency, effectively rules the world. Indeed, as noted earlier, that is a historical fact.
Since ancient times monetary systems were backed either by silver or gold. In fact, silver was much more widespread, from the Sumerians (3000 BC) until 1873. In the 16th century vast deposits of silver were discovered at the Cerro Rico in Potosí, Bolivia. That spawned an international silver standard in conjunction with Spanish pieces of eight. These coins played of international trading currency for nearly four hundred years. In 1821, following the independence of the Spanish colonies, and with it, the loss of the silver stream to Spain and thence to Europe, Great Britain formalized the gold standard and introduced it to its colonies. With the exception of China, most of the world followed suit over the next 35 years. By 1935 China and the rest of the world had abandoned the silver and gold standards, respectively, and introduced fiat currencies pegged to the pound sterling or the U.S. dollar. In the U.S., from 1792 to 1834 silver served as the primary backing. That year it began transitioning to a gold standard following the demonetization of silver in 1873. Note that these events took place as a result of the loss of the silver stream from Bolivia and Mexico to Spain. In 1933 Franklin Delano Roosevelt confiscated all privately held gold. From 1933 to 1971 the dollar remained on a quasi-gold standard, meaning that each unit of currency was convertible into a specific amount of gold. As a result, the government had to hold enough gold reserves to back this currency. In 1971 Richard Nixon abandoned the dollar’s convertibility to gold and converted it to fiat currency – essentially backed by nothing.
Today all currencies, including the dollar, are fiat. However, the dollar has managed to retain its position as reserve currency of the world, as outlined above. There was a time when American industrial prowess was unmatched. This was particularly acute following World War II, when much of Europe and Japan were in ruins. As a result, the dollar was backed by America’s surplus economy. But that is no longer so. In 1960 U.S. GDP represented 40% of global GDP. By 2014 it had been cut in half. It is safe to say that the dollar’s dominance is not because they can be redeemed by American-manufactured goods. It’s because oil is priced in dollars. As a result, nations who need to buy oil, which are almost all, need to buy dollars to pay for it. That creates quasi-infinite demand and attracts capital to the U.S. stock market. Ironically, it also contributes to the trade deficit because it simultaneously allows the U.S. economy to pay for anything made anywhere with fiat currency and the federal government to spend beyond its means.
This against a backdrop of the rise of China, whose GDP measured in terms of PPP (purchasing power parity) has overtaken the U.S. In his book The Thucydides Trap: Are the U.S. and China Headed for War? Graham Allison shows that in 12 of 16 past cases in which a rising power has confronted a ruling power, the result has been bloodshed. The similarity between the naval rivalry between Great Britain and Germany just prior to World War I, when the latter’s GDP surpassed the former, and between the U.S. and China today, when the latter’s navy and GDP, as measured by purchasing parity, have overtaken the U.S. World War I resulted in the death of 8.5 million soldiers from wounds or disease. It also laid the foundation for World War II, the end of European global domination, the disintegration of the British and French empires, and ushered in a new world order characterized by America’s overwhelming economic domination which is now coming to an end. The question is whether a terminal war can be avoided.
The way to do that is to negotiate an irrevocable agreement to create a neutral, unbiased mechanism to distribute wealth equitably among nations and individuals. Only that would preclude any one nation to reach, by whatever means, Cicero’s critical threshold of ‘pecuniam infinitam’ with which to attempt to dominate the world. This does not mean that richer nations and individuals would transfer wealth to the poor. Rather, it would create a pathway whereby emerging economies would gradually achieve parity in purchasing power. One way to do so is to design and adopt a formula that would use per capita production of green and/or white hydrogen to determine the exchange rate of all national currencies. Thus, regardless of population or territorial size, all countries would the means to eventually achieve economic and financial independence. One variation of this criterion is explained here.