The Most Significant Threat To America Nobody Talks About
It’s not climate change. It’s not Covid. And no, it’s not the prospect of a civil war. Those threats still lurk and may yet hasten our demise. But other dangers persist that don’t make the headlines in the national news or Twitter-verse because they’re not salient.
It’s about the money, the almighty U.S. dollar in particular, and it affects anyone reliant on a 401K, a pension, Medicare, Medicaid, Social Security, and even SNAP.
First, let’s back up to the year 1252 in what we know today as Florence, Italy. The Republic of Florence struck the first Floren, a coin that many financial historians regard as the first modern currency. By the 14th century, Florence came to dominate trade in Western Europe, and the Florin became the world’s first reserve currency — a medium of payment used for international trade and commodity pricing. A country that controls the reserve currency enjoys preferential pricing and demand for its debt, allowing them to borrow almost unlimited amounts of money.
When Florence declined, Portugal briefly became a dominant power, followed by Spain. The Dutch Gilder in the 17th century became the de facto reserve currency due to their global trade domination. In the 18th century, however, they overextended themselves and lost a war to Great Britain, which then held the reserve currency status until 1944. But Britain’s decline happened long before. They overextended their empire, borrowing from their colonies to finance their holdings, and by the end of World War II had become bankrupt.
The repeating pattern
Each country that has held reserve currency status has followed the same pattern, according to Ray Dalio, author of Principles for Dealing with A Changing World Order. A country achieves currency reserve status due to its trade, infrastructure, and education investments. Eventually, investment peaks and they begin to borrow more than they can afford to keep their empire together. Meanwhile, the income inequality gap expands, creating civil unrest.
Investment in education and infrastructure suffer, and a decline begins, culminating in an often abrupt and painful loss of reserve status.