The national debt has now reached $40 trillion. This rise comes as tax cuts have limited revenues while costs continue to rise.
The bond market is also experiencing volatility. Former State Department official and University of Illinois Economics Professor Emeritus Roy Wehrle said it is putting the dollar in danger. He spoke with Sean Crawford.
SC:
So Roy, what do you mean by dollar in danger?
WEHRLE:
The world is causing the danger that I'll describe. It is not just the United States actions, although those are significant. It's the arming of Europe against Russia, and it's the incredible demand for AI funds in the bond market for their data centers. That's the backdrop that we're talking about today.
But I want to go back to the end of the Second World War and start with the magnanimous peace treaty that we did. And I would have said that that's probably the most magnanimous and healthy peace treaty that any country, major country after war has done. We learned from the First World War, and we owe Dean Acheson and George Marshall, in particular President Truman, for the fact that they were willing to send dollars, Marshall Plan, over to Europe to help them rebuild into Japan and also to support democracy. But the success was a prosperity that lasted for 70 years. That's not a bad record.
It's exactly the opposite of what President Trump says now, that everybody was kind of dissing on us all those years. That's not true. We helped them get started and we gained from that. We gained from that because by sending dollars over to Europe, the Europeans were able to rebuild. They didn't send all the dollars back to buy imports in the United States, that's true, but they used the dollars for payments among themselves and for investment in United States treasuries to store their wealth. That itself created the dollar as the dollar is sound. It was acceptable every place.
SC:
So you mentioned US privilege at one point. What do you mean by that? What is US privilege?
WEHRLE:
The fact that we could send, that we could finance our deficits with treasuries, which other countries bought, means that they were helping to finance our deficit. There was a great privilege in the fact that we could run a budget deficit and have it financed by both our citizens and the world buying the treasury because the dollar was good. It was the safest place to go. And because the dollars would stay overseas and finance expansion of their own countries.
SC:
In other words, it was budget deficits being financed by foreigners.
WEHRLE:
Yes, that's essentially what it was. Of course, we help finance them too. But the world is the one that allowed us to live beyond our means. And this is important.
People, I think, don't understand that when we were able to import much more than we exported and then finance that through dollar IOU sending abroad, and the people there use those, That benefit that we got allowed us to become partly the world hegemon and to keep the sea lanes open and to enforce the norms that came out of the United Nations. So it's not just that this was something that we didn't sacrifice. It was something that benefited everybody to a great extent.
SC:
So the privilege you say is considerable, but what is the danger then?
WEHRLE:
Well, I guess we should get to that, shouldn't we? The danger is a question of responsibility. It's a little bit like when you give the keys to your adolescent son and you worry about his responsibility and his privilege. He gets a privilege, but his responsibility is to behave correctly. Well, the United States did not behave correctly. That is, for a long time, we managed our use of our privilege for good. But then after a while, we got carried away. And that's not unusual.
When you get a benefit that you don't have to pay for, I think it's in human nature to say, okay, we're going to try that a little bit further. And we're in a situation now where the whole world is trying to use debt to to help themselves out. Well, what is responsible use of the privilege? It's to manage our budget deficit in such a way that we bring it back to balance. And so we're in a dangerous situation. It's not going to happen tomorrow.
But if this continues, there could be a meltdown with a bond market. The bond market was scared to death this summer. They call it the rout. If they're scared to hold the debt, they're going to move it into gold. They'll move it into cyber, which is not too smart. And they'll move it into Chinese (funds) and they have done that. We don't have to balance a budget immediately. We have to move toward that.
SC:
It's not a pretty picture that you paint there, but we're not even having that national discussion right now about... that action. So I mean, are you optimistic that that's going to happen?
WEHRLE:
That's really interesting. That's a really good end point because we should be having a big national discussion on many things, including AI and its dangers, but that's not the nature of our situation now. And the foreign policy almost doesn't appear in our elections.
