Trump's New Plan to RESET the Dollar: Top Economist Warns

If we lost the world standard dollar, that would be like losing a war, a major world war. We would not be the same country any longer. They've taken the temporary sugar hit of being the dominant currency on the planet. They're now going to pay the long-term, effectively diabetes price of doing that, that they're going to lose out to their rivals. Meet Steve Keen, the economist who predicted the 2008 crash before it happened. Dollar's global dominance didn't make America stronger, gutted its factories, inflated its currency, and put it on the exact same path that collapsed every empire before it. When it goes, what we'll see, of course, is a plunge in the value of the dollar. It has to fall dramatically, and those wonderful days of cheap imports will be over. As well as having ruined their manufacturing sector, America is now on the brink of ruining its financial sector. If we pay more for those goods, then they won't have any way to fight that inflation because it'll be inflation caused by devaluing dollar. Other countries trying to take the place of America as the international currency, that would be a monumental mistake. One of the obvious side effects of the political instability globally is wondering what's going to happen to the value of the American dollar because that's been central to post-World War II trade ever since the World War II ended. The reason that is that like every other country that regarded itself as the empire after a major military conflict, the United States regarded itself as the winner of World War II and effectively where the Bretton Woods Agreement insisted that the US dollar should be used for international trade. The situation before that was the British pound was used for international trade. World War II drastically weakened the UK for obvious reasons. It had to fight a battle for its own survival. Its influence over the colonies was usurped by the war, so there's no way you could go back to the British pound. But the proposal that was actually on the table of Bretton Woods was not to have a national currency at all, but to use a specifically created unit of account, not actually a currency, called the Bancor. And the idea was that for trade to occur between different nations, and nations, let's say that a British company wanted to buy American goods, then the British company would need to convert the British pounds into Bancor, which would occur at a place called the International Clearing Union, use those Bancor to purchase American dollars, and with the American dollars, buy the good. So everything was passed through a neutral unit of account. What the Americans insisted upon was, no, it shouldn't be a neutral unit of account, it should be the American dollar. So, as happens with virtually every time that a new empire arises, that new empire's currency became used for international trade. This had happened with the Spanish doubloon, it had happened with the Dutch guilder, it happened with the British pound. This is a common element. When a particular country becomes militarily dominant over most of the planet, then that most of the planet uses its currency for international trade. Now, I've always been a critic of this, and I want to start with saying why I'm a critic, because one obvious side effect of your dollar being used for every transaction, not just when a country wants to buy goods made in your country, but when a country wants to buy goods made in any country, but needs to convert that, its domestic currency, into your domestic currency before it can make the purchase, then there's going to be a finance demand for your dollar, or your currency, over and above the demand for your goods. And what this can mean is, no way we can actually calibrate this, but it's obvious the market will drive the value of that particular currency, let's call it the imperial currency, drive the value of the imperial currency well above the others. So, just as a rough rule of thumb, I'm going to say, let's imagine that this means that your currency is 50% overvalued. What that means is, when you want to compete in terms of exports and imports, any of the other countries, let's say there's a company in one of those vassal states that taps a market your particular manufacturers aren't taking seriously, or it produces exactly the same good and tries to sell into your market, it's going to have a 50% sale at cost advantage. If your currency is one and a half times overvalued, then that car is going to be two-thirds the price of the same car made in the imperial heartland. And what that means over time is that you lose your manufacturing sector. And the only way you become an empire in the first place is by having a manufacturing sector that makes weapons, that means you can invade the rest of the world. So, we saw that with the British and their ships and their mastery of the sea. We saw it with their use of cannon, of weaponry in Africa and parts of Asia. To become an empire in the first place, you need to have a manufacturing advantage over the rest of the world. And when you have that manufacturing advantage, your military is stronger, and you end up defeating your rivals. Obviously, in one case for the UK, for example, they invaded and defeated India. That was done as a commercial enterprise for the East India Company, but it was still a British defeat of the ruling system in India. You became the emperor because your manufacturing sector could make better weapons than your rivals could do. But now you're facing 50% cost disadvantage because your currency is more expensive. It means that your vassals can out-compete you in broad manufacturing, and that will happen over a while. And that'll look good to people in the imperial country because they're getting goods cheaply from overseas. They send pieces of paper and they get physical goods back. That can look like a good trade. And frankly, this is one of the reasons I'm a critic of part of modern monetary theory, because they say precisely this, that exports are a cost and imports are a benefit. So if you can import stuff more cheaply than you make it, why not go ahead and do it? Long-term result of that is that your manufacturing sector atrophies, or the manufacturing sector's, your vassals, rise in complexity. If it's cheaper to buy their goods than to buy yours, then over time, your manufacturing sector declines and theirs rises. And what that means ultimately is maybe one of the vassals gets to the point where they can make weapons. They can defeat the imperial power. They take over. They become the imperial currency. And the same process repeats once more. Now, I think this is a major reason why empires collapse. It looks like it's a victory. You take over the crown. You're the dominant power on the planet. Therefore, your currency gets exalted above all others. And that's certainly the attitude the Americans have to the American dollar right now. But the result of it being stronger is it's weaker. Your dollar's stronger. Your manufacturing sector is weaker. You can't compete as much. So over time, your rivals, and let's go back to the British these days, because we all know the war of independence that gave birth to America in the first place. 250 years ago, the American nation began by driving out the British. Now, part of what they did was they set up trade barriers back in the days when these things could work, and they developed their own capacity to produce textiles. That actually involved stealing trade secrets from England to enable that to happen. So let's not take too many swipes at China for doing a similar thing in recent time here. They stole the capacity to create textiles. They had to create their own steel industry. Ultimately, the American economy was able to build far more powerful weapons than the British could do. Of course, they didn't defeat the British directly. The British won a war against Germany with the help of Russia and America and many other allies. The major reason why America won World War II is they rapidly turned out weapons of modern warfare, the tanks and the ships that they didn't have before the war began. And the scale of turnaround is something which most people aren't conscious of. There were virtually no decent shipyards in America before World War II. They reorganized and put them on a production line process rather than a craft process, produced hundreds of Liberty ships, and those Liberty ships were why they could manage to get their weapons across the Atlantic and help the British and the Russians defeat the Germans. So this huge manufacturing boost is what gave America dominance. When World War II ended, of course, it was the only country that hadn't suffered significant invasions. The only country whose manufacturing sector was well and truly intact. Well, if this video has alerted you to the fact that what you thought you knew about Kitty Comics is wrong, you'll thoroughly enjoy the free book bundle that has been requested by over 5,000 people already. It's worth $50, but it's free right now. Click on the link in the description or go to stevekeene.com and click on the black button and fill in your information. In about 60 seconds, you'll get the free book bundle. And after that, if you want to study with me personally and use my proprietary software Revell, there'll be an invite to join that course as well. So it started World War II with a huge manufacturing advantage. And one reason why the Americans didn't want to have a neutral currency, as Keynes was expressing, is because at the time they had a trade surplus. And the whole idea that Keynes had in his proposal for using what's called a bank or for trade rather than using a domestic currency, it would put penalties on both surplus and deficit nations. So that both running a sustained surplus, so a trade surplus, or running a sustained trade deficit would ultimately lead to penalties on both surplus and deficit countries, which would be levied in this international unit of account and then given to third world countries to enable them to develop because the only thing you can spend that international currency in was imports from other countries. So if there were penalties imposed on the major economies that benefited third world countries, which could then import their goods, so it boosted aggregate demand around the world as well. Now the American attitude when World War II began is we're running these trade surpluses, we don't want to be penalized, so we won't take on Keynes' system, which would penalize us. That's a major reason why they turned it down. But this is a classic case of mistaking a short-term advantage for a long-term development trend because having taken the American dollar as the reserve currency, then every country on the planet had to have American dollars to buy goods from anywhere at all on the planet. The dollar gets overvalued and that means the American manufacturing sector, even though it was very dominant at the end of World War II because it had the only factories that hadn't been bombed out to oblivion, suddenly found it couldn't compete with the new products coming on board. There's a whole range of reasons behind that. One is that some of those countries, like Japan for example, exploited a whole of them in the market that Americans hadn't exploited, which was, as Americans call them, subcompact cars, small cars. So Toyota and Honda and all these other companies started turning up with cheap cars that fitted into a part of the bracket the Americans didn't have anyway. And the Americans laughed about this initially. The cars were jokes, etc., etc. They weren't jokes after a while. And so what happened was Japan's manufacturing sector got stronger. It's gone out of people's minds, I'm sure. But in 1990, the expectation in America was that Japan was going to dominate everything. Now Japan made its own mistakes to collapse at that point. But this growth of the manufacturing sector of a vassal state at the expense of the imperial center comes out because using your currency for international trade overvalues your currency and gives you a competitive disadvantage against manufacturing sectors elsewhere in the world. So the cycle that I see happening over the very long run of history is a country builds up its manufacturing sector to the stage where it can outcompete the rest of the world and particularly militarily creating weapons the others can't fight off. It becomes the empire. It makes its currency the international currency. That overvalues its manufacturing sector. From that point on, its vassals have a chance to displace it. One of them finally does. If that vassal makes the same mistake of insisting that its currency get used for international trade, the cycle repeats. So this is what we saw back in 1944, the Bretton Woods Agreement. America made that mistake, which it thought was an advantage. Now 70-plus years on from that experience, coming up to 80 years since Bretton Woods, America went from being a surplus nation to in the 1970s being a trade deficit nation. And now it's running a sustained trade deficit in the region of 3% to 6% of GDP every year. So American manufacturing can't compete with the rest of all. It certainly can't compete with China, which is the vassal which has risen at the expense of America in this particular process. So I think we're at the end of this period of American dollar dominance. The Americans losing their manufacturing dominance and therefore losing their military dominance. And we're seeing that live right now with the ridiculous war in Iran that the American president thinks it's winning just because he always wins. But in fact, they're losing. We're seeing how the manufacturing sector America has simply can't produce weapons that can compare to what's produced in the rest of the world, not only the most powerful of its vassals like China, but even what it can't compete with what Iran can. This decline of the American manufacturing sector is a major reason why America is declining as a nation right now. When it goes, what we'll see, of course, is a plunge in the value of the dollar. It has to fall dramatically. Now that's going to have all sorts of chaotic effects upon the global economy. One obvious one for America is they're going to get a lot more imported inflation because if their currency does start falling in value, then they will have to pay more to buy imports. And those wonderful days of cheap imports will be over. They've taken the temporary sugar hit of being the dominant of a currency on the planet. They're now going to pay the long-term, effectively diabetes price of doing that that they're going to lose out to their rivals. And in the particular case of China right now, they are so far behind in manufacturing. The cost of production, particularly the energy cost of production, where China has been run by engineers, has gone gangbusters for massive energy capability. It's extremely hard for America to turn that around. So I can see not just a decline in the American dollar, but a continuing decline in American manufacturing because they've lost such a design advantage to their China's rivals. And we'll see a decline in the value of the American dollar, imported inflation into America as a result of it. The question is, what are we going to have as a currency system on the other side of this? And there is nothing like the situation that applied at the time the Bretton Woods Agreement was signed. Because, of course, at that point it was obvious in 1944 that the Allies were going to win, including Russia, but they decided not to join. The thing which is very different about today compared to Bretton Woods is that for Bretton Woods we came out of a period of immense horrors imposed by another country, Germany, obviously. Germany itself can blame in terms of the Treaty of Versailles for it going to war in the first place, but clearly Germany was the evil empire in 1944. Everybody around the table wanted to avoid a repetition of the same events that put us in that horror, and those events included both the Great Depression and the World War II itself. So there was an immense goodwill and a desire to create a system at the international level that would not lead to the same farces as we had in the lead-up to World War II. Now, of course, there's no goodwill this time around. The country responsible for the mangled state of global politics these days is largely the United States. The phenomenon that General Dwight D. Eisenhower identified in his last day in office took over, and emphasizing it was General Dwight D. Eisenhower, he was the one who coined the phrase the military-industrial complex. So he saw the capacity of the military combined with the American industrial system to create a sycophantic system where the American government was twisted towards the desires of the arms manufacturers because that gave them immense power and immense wealth at the same time. Eisenhower warned about the dangers of the military-industrial complex twisting America away from its actual supposed objectives of bringing about the maximum human happiness, which is the statement you can find in the Declaration of Independence. Instead, they went for the maximum military impact. But we now know that a lot of suffrage produced by the military-industrial complex was there for show, not for use. The weapons, certainly, obviously, the atomic bomb ended World War II, and America was militarily extremely powerful at that period. The whole idea of the military-industrial complex is to skew as much government money creation towards the military as possible, and that's been extremely successful. But what it's meant is the weapons they've produced are farces. They haven't kept up with the technological developments. They have a very expensive military, which is a source of great profits to the people who supply them with those weapons. When you want to use those weapons in a war, we're now seeing how ineffective they are, how expensive they are compared to modern warfare technology. The American military-industrial complex basically bled the American system to make those companies more profitable without making America more militarily dominant at the same time. We wouldn't necessarily have found it out without the farce of the war in Iran. America's finding it out the hard way. So the military-industrial complex perverted the development of American industry. They've lost every conflict they've got involved in, arguably since the Korean War itself. It's just a series of failure after failure after failure. Now this is a pivotal failure. The other thing Americans did with the monetary system was, like everything else, they turned it into a weapon. They didn't let Iran take part in the SWIFT system, which is the telecommunications means behind financial transfers. They've saved the accounts of other countries. So obviously Iran wants reparations for money America has taken from it. So they weaponized their own payment system. Now that itself gave an encouragement for other countries to look at alternatives. But now what's happening with Iran and with the craziness of Trump's on-again, off-again tariffs and all the other chaos he's coming in, this I think is encouraging people to look for alternatives. But rather than having the cooperative element we had at the end of World War II in Bretton Woods, this is a rivalrous behavior. How do we get away from the Americans? Now a lot of what's being proposed are bilateral systems. So countries will exchange goods in their own currencies and then deal with the accumulation of currencies that causes when you have trade deficits and surpluses. There's talk of forming an international currency system as well. The BRICS companies have been talking about it for decades now. That may well happen. But certainly we're going to see international trade no longer conducted in the American dollar. And what this means is that having weakened the American manufacturing sector over the last 70 years, now what we'll see is the weakening of this American financial system, which has really been the only beneficiary of having the American dollar as the means of international payments. Because you needed American dollars for every international transaction. So American financial corporations became extremely powerful globally. Now what's going to happen if the American dollar declines? What happens if trade no longer goes through the American dollar? What happens if you can buy assets in a third country without needing American dollars in the process? This will mean that the power of the vampire squids starts to decline. As well as having ruined their manufacturing sector, America is now on the brink of ruining its financial sector. I could think of nothing better to happen for the global economy than getting rid of the American financial system for all the damage it's done, not just to the rest of the world, but to the American economy as well. So I'm not going to cry any tears over America losing its dominance of international payment systems. But it does imply a period of quite an enormous chaos, certainly for America and then for the global economy. If the American currency ceases being used for international trade, then the ups and downs we see on a daily basis are going to be replaced by a general trend of devaluing the dollar over time. And that means Americans who are now reliant upon imports, a larger part of their consumption than applied in the 1950s, are going to pay more for those goods, and they won't have any way to fight that inflation because it'll be inflation caused by devaluing dollar, not caused by excessive demand, which is the mindset that the Federal Reserve has when it puts up interest rates. So I expect a lot of chaos to come out of this. My one hope is that the countries which are considering creating an alternative international payment system realize what Keynes realized back in 1944. Having a national currency to use for international trade is a recipe for disaster in the long term. That's 80 years ago. The long term has arrived. And now we have to see what can be organized on the other side. I'm not optimistic. I've seen so many cases where ego and testosterone gets in the way of making decisions rather than cool, calculated thinking, which is what Keynes did back when he made those proposals for Bretton Woods. We need that cold, rational decision making. And if we do, what we'll do is design a very similar system to what Keynes talked about, where there's an international unit of exchange, which is used for international trade, which sums to zero. It cannot be created or destroyed. Countries running surpluses get a positive balance at the International Clearing Union. Countries running a deficit gets a negative balance. The sum is zero. And then you put penalties to reduce excessive surpluses and deficits. Because again, one thing which Keynes realized back in the 1940s was the scale of the trade deficits themselves weakened countries running trade deficits financially and in terms of their manufacturing sector and strengthened those running surpluses. So he wanted to stop what he called beggar-thy-neighbor policies and minimize the scale of trade deficits and trade surpluses. Now, one reason why he didn't win that argument is that conventional economists, neoclassical economists, the ones that I attack all the time, don't worry, the market will reach equilibrium. And the idea was that floating exchange rates, which we started in 1971 and 73, would eliminate these imbalances and we'd get back to the stage of balanced trade. So conventional economic theory tells you that price adjustments in terms of currency ratios will lead to the stage where trade imbalances are eliminated. Well, bollocks to that. We've got countries running trade surpluses and trade deficits equivalent to 10% of their GDP. And I think this is a huge part of where the instability and chaos of the global economy comes from. So we have to deliberately limit the scale of exports and imports. We have to deliberately limit the scale of trade imbalances, which was Keynes' idea in the first place. That's quite compatible with floating exchange rates. I've seen some people criticize the banker idea on the basis that Keynes had a fixed exchange rate, which you had to then apply to the International Currency Union to change. In fact, it can work just as well with floating exchange rates. So we can have an international payment system using a unit of account run through one institution, and all countries in the world would have access to that, and none could prevent others from getting access, unlike what the Americans have done. And then we could get rid of the impact of trade surpluses and deficits and international financial transactions as well, causing a level of instability we've seen in the global economy. Now, frankly, I think I'm talking pigs might fly stuff. I think we're most likely to see other countries trying to take the place of America as the international currency. That would be a monumental mistake.