CHAPTER 16 THE INTERNATIONAL MONETARY REGIME AND DOMESTIC POLITICAL ECONOMY: THE ORIGIN OF THE GLOBAL FINANCIAL CRISIS BAI GAO

CHAPTER 16 THE INTERNATIONAL MONETARY REGIME AND DOMESTIC POLITICAL ECONOMY: THE ORIGIN OF THE GLOBAL FINANCIAL CRISIS

BAI GAO

The factors that have led to the global financial crisis consist of both domestic and international ones.

The domestic factors include financial innovation, deregulation, and corporate greed. The adoption of adjustable-rate mortgages, mortgage-backed security, collateralized debt obliga­tions, and credit default swaps have enlarged the creation of credit. The passage of the Gramm-Leach-Bliley Act in 1999 repealed part of the Glass-Steagall Act of 1933, and reduced the separation between commercial banks and investment banks. The relaxation of the net capital rule in 2004 enabled investment banks to increase their debts, and the lack of regulation in the shadow banking system has allowed them to take on more debt (Campbell 2010; Davis 2009; Krippner 2005, 2009). Risk-taking behaviors have resulted in huge corpo­rate debts for financial institutions, and overborrowing by consumers and households has led to the substantial increase of US household debt (Fligstein and Goldstein 2010).

The international factors involve the global glut of savings, which refers to over­accumulated capital by both export-oriented and resource-rich countries, and the global glut of liquidity, which refers to excessive money supply, especially in the United States. The inflows of capital from over-saved countries elevated the real exchange rate for the United States. This led to shrinking of US sectors that produce tradable goods and services. The Federal Reserve Board cut the interest rate to promote economic growth and prevent unemployment. This low interest rate led to an excess demand for tradable goods and serv­ices (Bernanke 2005; Greenspan 2008; Wolf 2008). Meanwhile, the oversupply of liquidity caused low real interest rates, which led to a rapid growth of credit to American consumers and a collapse of US household savings. The excess spending generated huge trade deficits and corresponding outflows of dollars. When the dollar was weakened, floating currencies were forced up to uncompetitive levels while pegged currencies were kept down by open- ended foreign currency intervention. This led to a massive accumulation of foreign cur­rency reserves that eventually came to the United States (Duncan 2003).

I argue that in order to understand the origins of the global financial crisis, we need to explore the driving forces behind the formation of these domestic and international fac­tors. This chapter highlights the impact of postwar international monetary regimes on the domestic political economy in the United States. It demonstrates that the dollar’s key currency status and US payment deficits to supply liquidity have created both the sei­gniorage problem in the mechanism of liquidity creation and the benign neglect prob­lem in the mechanism of adjustment. These institutional defects in the postwar international monetary regimes, moreover, have affected the United States in three dis­tinctive ways. First, the Federal government has regarded its policy autonomy as a top priority and pursued its policy goals with heavy debt financing. The resulting budget deficits and Federal debts were the major sources of the global glut of liquidity. Second, the US financial industry has emphasized its competitiveness in credit creation, securi­tizing various assets in society, lending out money with high leverage, and escaping from government regulation. This contributed directly to changes that accounted for the out­break of the subprime loan crisis. Third, affected by the dollar’s key currency status, the US manufacturing industry led the development of global production. This nurtured the global glut of saving in export-oriented countries and OPEC (Organization of the Petroleum Exporting Countries). As multinational corporations invested heavily over­seas, the job-creating capacity of US manufacturing was seriously weakened.

本章重點討論戰後國際貨幣制度對美國國內政治經濟的影響，說明美元關鍵貨幣的地位和美國收支赤字提供的流動性，產生了在流動性創造機制的鑄幣稅問題和調整機制的善意忽略問題。
這些制度缺陷在戰後國際貨幣制度，在三個特別的方式影響美國
首先，聯邦政府將政策自主權視為優先考量目標，用債務融資追求政策目標，結果造成預算赤字和聯邦債務成為全球流動性過剩的主要來源。

其次，美國金融產業一直強調信用創造的競爭力，證券化社會不同的資產、高槓桿的借出貨幣，以及逃避政府的監管，這直接導致說明了次貸危機的爆發。


第三，受美元關鍵貨幣地位的影響，美國的製造業領導全球製造的發展，也支持了出口導向的國家和石油輸出組織OPEC全球過剩的儲蓄，隨著跨國公司大量投資海外，美國製造業的工作創造能力嚴重地削減衰退。

Gold and the dollar’s key CURRENCY status
黃金和美元的關鍵貨幣地位

The mechanisms that eventually induced both global liquidity and saving gluts emerged under the Bretton Woods system. Under this system, the dollar served as the only key currency, and played the important roles of the reserve, intervention, vehicle, and trans­action currencies in international finance.

The concept of a key currency has a strong tie with gold. It used to refer to the cen­tral currencies, including the pound sterling, the dollar, franc, and mark, under the gold-exchange standard in 1925-31 (Shinkai 1975: 61). These key currencies main­tained their par values against gold, and other currencies tied themselves to these cur­rencies. The key currencies played an important bridging role with countries that did not have enough gold to back up their own currencies directly, enabling these coun­tries to engage in international trade.

The United States’ holdings of gold provided the foundation for the dollar’s key cur­rency status in the postwar period. Between 1913 and 1944, the United States’ share of the world’s publicly owned gold increased from 27 percent to 60 percent (Hansen 1946: 86). When the Bretton Woods system was established after World War II, none of the member countries, with the exception of the United States, had a sufficient amount of gold to choose the option of selling and buying gold to maintain the par value of their currencies, and many of them did not even have enough dollars for the same purpose (Shinkai 1975: 55).

The Bretton Woods agreement gave the dollar the same role as gold in the postwar international monetary regime. It introduced a par value system in which currencies were exchanged at equal value. The values of various member countries’ currencies were measured by gold or the dollar. In theory, the par values of various currencies were measured by gold. Only, for the purpose of easy calculation, the Bretton Woods system used the dollar to reflect a currency’s value against gold via a fixed exchange rate, with one ounce of gold equaling $35.

The dollar’s role as the key currency is reflected in both official and private domains. In the official domain, the dollar has functioned as both the reserve and the intervention currency. The term “reserve currency” refers to the currency used as foreign exchange reserves. “Intervention currency” refers to the currency used by central banks to inter­vene in foreign exchange markets. The reserve function and the intervention function of the key currency are two sides of the same coin. The central banks must hold the key currency as reserve in order to intervene in the foreign exchange markets when it becomes necessary (Yamamoto 1988: 168).

In the private domain, the dollar has functioned as both the vehicle and the transac­tion currency. The term “vehicle currency” refers to the currency used by private banks in their interbank foreign exchange transactions. “Transaction currency” refers to the currency used by private corporations in their foreign trade transactions. Here the key currency plays the role of the transaction currency not only between the issuing country and its trading partners, but also among the countries’ exports and imports that do not involve the issuing country, the United States (Yamamoto 1988: 168).

The dollar’s dominance in the postwar international monetary regimes started with its role in the official domain. Under the Bretton Woods system, all international mone­tary fund (IMF) member countries were obligated to maintain the par value of their currencies, and the market exchange rates between its own currency and other curren­cies within 1 percent of its par values. When the market exchange rates of a currency went up or down beyond 1 percent, the central bank of that country had to intervene to reestablish its value through either gold or the dollar. However, in the postwar period no country other than the United States had enough gold to establish convertibility between gold and its currency. As a result, these countries had to use the dollar as the interven­tion currency.

The dollar’s official functions as reserve and intervention currencies helped it become the vehicle currency in foreign exchange in the private domain. Since the dollar could be used to determine other currencies’ par values, holding the dollar could significantly reduce a country’s foreign exchange risks. The dollar’s official functions also reduced the risks associated with foreign exchange in the private domain. Because of these benefits, private banks involved in foreign exchange business in various countries all used the dollar as their vehicle currency in interbank foreign exchange transactions (Shinkai 1975).

As more private banks used the dollar as their vehicle currency, private corporations also began to use the dollar as transaction currency in settling their foreign trade. In the 1950s and 1960s, the dollar competed intensively with the pound sterling in providing import insurance. The dollar won this battle because of the size and the low interest rate of US banks’ supply of credit in the acceptance system. Since the United States was the key currency country, the New York acceptance market was sizable. Because of the econ­omy of scale of this market, American banks were able to provide credits to foreign trad­ing companies with interest rates between 0.3 and 3 percent lower than those provided by the London market. As a result, many foreign companies began to use the dollar to settle their transactions in international trade (Inoue 1994).

布列敦森林協議最終造成了全球流動性和儲蓄過剩的出現，在這系統下，美元儲備成為唯一的關鍵貨幣，在國際金融上扮演重要的角色；準備金、干預、調節和轉換匯率。
關鍵貨幣的概念與黃金有強烈關聯，在過去使用集中貨幣包含了英鎊、美元、法郎和馬克在金本位制下1925-31(Shinkai 1975:61)
關鍵貨幣維持與黃金兌換的價值，而其他貨幣緊盯這些貨幣，關鍵貨幣扮演和其他國家的重要橋樑，是否有足夠的黃金支撐他們自己的貨幣，使這些國家參與國際貿易。

美國戰後持有的黃金比列從27%增加到60% ，提供美元關鍵貨幣的基礎(Hansen 1946:86) 。
二次大戰後當BW系統的建立，除了美國之外，許多國家沒有擁有黃金的有效帳戶執行選擇賣和賣的選擇權，來維持國家貨幣的票面價值，有沒有足夠的美元來達成同樣的目的(Shinkai 1975:55) 。
BW同意給予美元像黃金同樣的角色在戰後國際的貨幣制度，介紹了票面價值的系統在相同價值下的匯率交換，個別成員國的貨幣價值是藉由黃金或美元來衡量。
為了容易計算的目的，BW系統使用一盎司黃金等於35美元的固定交換利率。


美元作為關鍵貨幣的角色反應在官方和私部門領域，在公領域，美元作為準備和干預貨幣的功能：準備貨幣的使用外匯交換的準備金，干預貨幣的使用中央銀行調節外國的外匯市場。
中央銀行必須持有關鍵貨幣，為了調節國外的外匯市場，當有需要的時候(Yamamoto 1988:168) 。
在私部門領域，美元的功能是調節和交易貨幣：調節貨幣的使用是私人銀行和銀行間外匯交易，交易貨幣的使用是私人企業他們的國外貿易交易。
IMF會員國有義務維持該國貨幣的面值，一旦有1% 的變動，該國的中央銀行會涉入重建貨幣的價值經由黃金或美元。

然而，戰後除了美國，沒有國家有足夠的黃金去建立可轉換性，在黃金和該國貨幣之間，結果，這些國家必須使用美元作為干預貨幣。
美元的官方做為準備和干預貨幣的功能幫助他成為調節貨幣在私部門領域的外匯交換。既然美元能夠決定其他貨幣的票面價值，持有美元能夠降低國家的外匯風險。
因為這些好處，私人銀行涉入外匯交易的商業在不同的國家，全部都使用美元作為調節貨幣在銀行間的外匯交易(Shinkai 1975) 。

1950和1960年，美元和英鎊在提供進口保險的競爭，因為美國銀行在信用的提供，規模上和低利率的優勢，贏得了戰場。

The continued dominance of the dollar AFTER the BrETTON WOODS SYSTEM

BW系統失敗後美元持續的優勢

Since the Bretton Woods system collapsed, the dollar has maintained its key currency status, sustained partly by its old role of pricing oil and other commodities and partly by its new role associated with managing the risks of the foreign exchange rate in the float­ing system.

Oil is one of the most important commodities in the world. After the gold window was closed in 1971, the rapid depreciation of the dollar triggered two oil crises. By 1973 the dol­lar had fallen to about one third of its previous value. Under strong pressure to avoid losses, the OPEC countries launched oil price hikes that tripled the oil price in the first oil crisis in 1973-4 (Morris 2008: 10). Between January 1977 and April 1978, the US dollar again depre­ciated rapidly against other major currencies. In addition, at this time OPEC countries held roughly $70 billion in liquid reserves and some $80 billion in foreign placement, half of which was kept in dollar deposits and dollar assets. Because of this, OPEC countries tri­pled the price of crude oil in the second oil crisis in 1978-9 (Amuzegar 1978).

Between the two oil crises, OPEC countries seriously discussed the possibility of replacing the dollar with other alternatives to price oil. As early as in June 1975, a pro­posal to switch to special drawing rights (SDR) was discussed at the OPEC ministers’ summer meeting in Gabon. In mid-1976, interest in a multicurrency basket as the basis for oil pricing was revived (Amuzegar 1978).

The dollar survived as the key currency because the United States successfully negoti­ated with Saudi Arabia to continue using the dollar to price oil. The fact that OPEC continued to use the dollar to price oil provided the dollar with a new base of legitimacy as the key currency. So long as various countries needed to import oil, holding the dollar as their foreign reserves would significantly reduce the risks associated with the fluctua­tion of foreign exchange rates and thus maintain energy security. The United States also promised favorable interest rates for the petrodollars that were recycled back to US Treasury bonds. By doing so, it obtained the capital necessary for surviving the eco­nomic downturn (Spiro 1999).

The dollar’s key currency status was also sustained by its roles as vehicle and transac­tion currencies in various newly created financial instruments. These roles were reflected in three distinctive areas.

First, managing exchange rate risks demanded greater supplies of the dollar. The col­lapse of the Bretton Woods system shifted the responsibility of managing exchange rate risks from central banks to private banks, corporations, and individuals. Public authori­ties were no longer obligated to intervene in the exchange rate because such interven­tions became discretionary. In order to avoid the exchange rate risks, banks that had exchange business had to rely on capital mobility to fill the gap in its settlement of pay­ments, using speculative short-term capital to balance their daily settlement residues. This significantly increased the demand for the dollar (Eatwell and Taylor 2000).

Second, as a response to the need to manage exchange risks under the floating exchange rate system, financial instruments such as currency options and currency swaps experienced major development. In the past, the oversupply of the dollar had been the major destabilizer in the international monetary order. Ironically, under the dollar standard the oversupply of the dollar became the precondition for the operation of various financial instruments designed to reduce exchange rate risks. As a result, despite the fact that the dollar became weaker, the need to hedge the weaker dollar resulted in its greater usage (Kataoka 1992 [1986]).

Third, since the early 1970s, Germany and Japan have emerged as the major competi­tors to the United States. Despite the fact that the Japanese yen and German mark increased their shares in international reserves, they could not directly exchange with each other without using the dollar as the vehicle currency. Technically, the exchange rate between yen and mark could not be calculated against each other; they had to be calculated by using the yen-dollar rate and mark-dollar rate. As German and Japanese banks and corporations rapidly expanded their international businesses, they needed more dollars for the settlements of payments (Kataoka 1993).
美元仍維持關鍵貨幣角色的原因，在於保持石油和原物料仍採美元計價以及能夠處理流動系統中外匯交易風險的問題。
兩次石油危機，1973年美元票面價值跌到只剩1/3，和 1978-9年OPEC石油輸出組織將原油價格提高3倍，1976年OPEC認真考慮取代美元定價的方案，屬意重新使用一籃子貨幣為石油計價的標準，因為美國成功地與沙烏地阿拉伯協商繼續使美元計價，到目前個別國家仍須使用美元進口石油，用美元做準備金能夠降低外匯波動的風險，維持能源安全。

美元關鍵貨幣的地位藉由作為調節貨幣和交易貨幣，在不同創新的金融工具仍使用美元，在三個特別的領域
管理匯率風險，仍需要更多的美元提供，BW系統的失敗轉換了處理匯率風險的責任從中央銀行，變為私人銀行，公司集團到個人，為了避免匯率交易風險，銀行必須改變商業模式仰賴資本的流動性，使用短期投資資本去平衡每日的結算差額，更增加了美元的需求。         (Eatwell and Taylor 2000)
金融工具例如匯率選擇權和貨幣交換經歷重要的發展，過去美元過分供給，成為國際貨幣制度下不穩定的製造者，諷刺地是、在美元本位制下，美元的超額供給變成操作個別金融工具的設計下，降低匯率風險的先決條件，結果造成了美元雖然變弱，因避險需求造成更大程度的使用。 (Kataoka 1992)


自從1970年早期，德國和日本成為美國的主要競爭者，雖然日圓和馬克在國際儲備增加他們的股份比例，但是他們仍然無法彼此兌換沒有使用美元作為調節貨幣，技術上，日圓與馬克也無法彼此計算匯率，必須藉由個別轉換為美元才可以計算，所以德國和日本銀行和公司快速擴張他們的國際貿易，仍需要更多的美元來清算的支付。(Kataoka 1992)

The seigniorage problem in the mechanism of liquidity creation

Under the Bretton Woods system, the United States served as the major supplier of liquidity for the international economy. It pledged to maintain the convertibility of the dollar with gold. In exchange, the United States was exempted from two major obligations: maintenance of its payments balance, and stabilization of exchange rates between the dollar and other currencies. These exemptions contained major defects:

they created the problem of seigniorage in the mechanism of liquidity creation, and the problem of benign neglect in the mechanism of adjustment.

Seigniorage originally meant “the difference between the circulating value of a coin and the cost of bullion and minting, involving a once-for-all gain to the coin’s issuer (the sovereign or ‘seigneur’)” (Cohen 1977: 67). In its contemporary usage, however, sei­gniorage refers to “the capacity that a monetary monopoly gives national governments to augment public spending at will” (Cohen 1998: 39). Issuance of the key currency in the world provides the issuing country with “structural power” (Strange 1986), or “exor­bitant privilege” (d’Estaing, cited in Eichengreen 2011). Since many other countries need the key currency for reserves, issuing such a reserve currency can become “an alterna­tive source of revenue for the state, beyond what government can raise through taxation or borrowing from financial markets” (Cohen 1998: 39).

The problem of seigniorage was directly linked to the practice under the Bretton Woods system of relying on US payment deficits to supply liquidity to the international economy. Since the dollar was the only key currency for much of the postwar period, it became inevitable that the United States, as the major supplier of liquidity to the inter­national economy, would have enduring deficits in its payments. Under the Bretton Woods system, central banks around the world had to use the dollar to measure the par value of their own currencies and as their reserve currencies, and to intervene with the dollar in foreign exchange markets to maintain the parity between the dollar and their own currencies. Because of these international demands for the key currency, the total supply of the dollar had to be much greater than the United States’ own need (Arima 1978).

Robert Triffin points out that the postwar supply of liquidity relied on the payments imbalance of the United States. The deterioration of US payments, however, would inevitably affect international confidence in the dollar. Since the goal of the key cur­rency country in its monetary policy is different from the goal of the system as a whole, this would lead sooner or later to either a change in the practice of relying on one country’s currency as the key currency by creating alternative sources of liquidity, or the collapse of the Bretton Woods system. His argument on the instability of relying on a reserve currency gained increasing support with the US government (Odell 1982: 130-6).

The oversupplied liquidity from the US payment deficits created a dollar glut as early as the beginning of the 1960s. Despite the fact that the central bank of the recipient coun­try would use this capital, these dollars in fact remained in an account with a commer­cial bank in New York City in the form of deposits, an account used by the central bank to intervene in the foreign exchange market to keep its own currency in parity. As a result, these dollars were used at least twice: first as American purchasing power in Europe since the United States was the creditor, and then as domestic purchasing power within the United States. No matter how much deficit appeared in US payments as a result of supplying liquidity for other countries, there was no impact on its own domestic purchasing power. When the movement of capital across national borders became

THE INTERNATIONAL MONETARY REGIME 323

intense, such mechanisms became the major reason for inflation on a global scale (Rueff 1971: 28-9, 36-41).

In theory, under the Bretton Woods system US holdings of gold should have func­tioned as a checking mechanism against the oversupply of liquidity into the interna­tional economy. If the United States oversupplied liquidity, its payments condition would deteriorate rapidly. Increasing payment deficits would lead to the loss of interna­tional confidence in the dollar, which in turn would trigger conversions from dollars to gold by foreign central banks. In reality, however, such a fear was never a sufficient threat. European countries began to convert their dollars into gold in the late 1950s.

When the United States decided to close the gold window in 1971, its gold holdings had declined nearly 60 percent, from $24.4 billion in 1948 to $10.2 billion (Gavin 2006: 209).

After the dollar standard replaced the Bretton Woods system in the 1970s, the constraint on the US supply of liquidity no longer existed. The dollar was no longer backed by gold, and US borrowings from overseas were no longer backed by domestic savings (Duncan 2003). The checking mechanism of gold conversion, although not perfect, disappeared completely.

Why did the United States and the international community not change the practice of relying on one country’s currency as the key currency after the collapse of the Bretton Woods system? The reason was that the minority view represented by Charles Kindleberger and his associates in the debate on the dollar provided legitimacy for the attitude of benign neglect after the gold window was closed.

#                                                                                                                                                                                                                                    # The problem of benign neglect in the mechanism of adjustment

The minority view in the debate on the dollar presented a different interpretation of US payment deficits from that presented by Robert Triffin: it argued that the payment defi­cits of the United States did not represent a disequilibrium because these deficits were offset by the inflows of capital from foreign countries that attempted to put their monies into liquid dollar assets. In international finance the United States did not simply supply liquidity; rather, it provided an intermediation service in not only lending long-term capital but also providing better opportunities for foreign short-term capital to make profits. Thus the United States did not have to raise the interest rate to cool down its overspending. So long as savings in Europe were high, the free flows of capital would still exceed the real transfer of goods and services (Despres, Kindleberger, and Salant 1966; Schwartz 2009).

Supported by this minority view, the problem of benign neglect worsened after the early 1970s. Benign neglect was a policy of officially doing nothing to address the issue of current account deficits.

The problem of benign neglect in the mechanism of adjustment first resulted from the arrangement under the Bretton Woods system that exempted the United States from the responsibility of maintaining parities between the dollar and other currencies. According to the IMF agreement, the United States, by committing itself to buying and selling gold with a fixed exchange rate with the dollar, the responsibility of maintaining the value of the dollar against other currencies was in the hands of other member coun­tries (Iwano 1977: 100; Shimazaki 1983: 225).

In theory, under the Bretton Woods system the intervention of monetary authorities in the currency market functioned as an adjustment to the shortage of the dollar in the international settlement of private banks. When a country’s international payments had deficits, the demand for the dollar increased. As a result, the dollar became stronger in its exchange rate with that country’s currency. To fulfill its obligation under the Bretton Woods agreement, the monetary authority of that country had to intervene by selling the dollar in an effort to contain the fluctuation of the exchange rate within a certain range. The dollars used in these interventions came from either trade surpluses accu­mulated in the past or exchanges using the country’s gold reserves. The former repre­sented a process of dynamic payments balance over time, and the latter represented the ultimate settlement with gold, since gold-dollar exchanges and public interventions had become an integral process, and both served to adjust the shortage of the dollar in the private sector (Kataoka 1993: 61).

In practice, however, payments settlement through the gold-dollar exchange was not always achieved because the imbalance in international payments did not always lead to interventions by monetary authorities. Even after the payments imbalance took place, the equilibrium of exchange rates could still be maintained by credits from private banks in the form of short-term capital movement, which functioned to repeatedly delay set­tlement of the imbalance in international payments. In this case, the imbalance of pay­ments did not immediately result in gold-dollar exchanges by the monetary authorities (Kataoka 1993: 62).

After the gold window closed, the monetary authorities gave up their responsibility to intervene in the currency market except on rare occasions. As the need of using gold for international settlements disappeared, so did the pressure for immediate adjustment. Under the new system international settlements take the form of balancing out debts and credits with exchange transactions. When the payments cannot be balanced, coun­tries would rather delay settlement by relying on international supplies and acceptance of credits to fill the gap. Under the dollar standard the dollar has lost its backup by gold, and its usage is completely sustained by its perceived purchasing power (Kataoka 1993: 63). As a result, partial settlement with gold under the Bretton Woods system disap­peared, the clearance by introducing short-term borrowing to fill the gap in the current account became a common practice, and the time horizon for the delay increased sub­stantially (Andrews 2006: 11; Cohen 2006: 31).

Under the dollar standard, countries rely on finance strategy instead of adjustment strategy to muddle through payment deficits. A government has two options to deal with deficits. With the adjustment option, the government tries to reallocate resources.

It either changes the country’s expenditures by adopting deflationary monetary and fis­cal policies that reduce the quantity of money available in the economy or by increasing taxation and reducing public spending in an effort to decrease the aggregated demand, or switches the country’s expenditure by relying on price changes that alter the alloca­tion of total spending between tradable and non-tradable goods, aiming at promoting exports and bringing deficits down (Cohen 1977: 26-7).

With the finance option, the government avoids reallocation of resources. When pay­ment deficits take place, the government or the central bank seeks to sell foreign exchange or to intervene in the financial and exchange markets to induce inflows of short-term capital. In order to counteract the negative impacts of the change in the country’s net foreign liquidity on internal purchasing power, they conduct domestic open market operations in government securities, or adjust private bank reserve require­ments or liquidity ratios. In order to close the gap in payments they accommodate flows of public and/or private funds and at the same time keep incomes, prices, existing demand-and-supply schedules of foreign exchange, and the prevailing exchange rate untouched (Cohen 1977: 26).

The financing option is always more popular than the adjusting option in domestic politics because it involves no changes in income and prices, and the effects of adjust­ment are smaller. Choosing the financing option, however, requires that the government has access to a stockpile of internationally acceptable liquid assets. Treasury bills or notes become useful because US monetary authorities hold a large pool of government securities for domestic market operations. Since the United States can always sell dollar- based debts to foreign countries, it has the capacity, unlike any other country, to gener­ate the flows of capital needed for the financing option in the adjustment of payments disequilibrium.

Benign neglect has functioned to eliminate adjustment pressures on the United States that would otherwise force it to address its payments imbalance. Delaying any adjust­ment to its rising current account deficits opened a window for ever-increasing deficits in US payments that have led to ever-increasing Federal debts, since the United States had to borrow both internationally and domestically to make up these deficits.

The seigniorage problem in the mechanism of liquidity creation and the benign neglect problem in the mechanism of adjustment in the postwar international monetary regimes have significantly affected the behaviors of domestic actors in the United States.

Policy autonomy, budget deficits, and Federal debts

The seigniorage problem in the postwar international monetary regimes enabled the US government to maintain a strong preference for policy autonomy and act freely, insulated from outside pressures in its policy formulation and implementation (Cohen

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Total Millitary Cost of War — National Defense — % of GDP

figure 16.1 National Defense and Major War Spending of the US Federal Government, 1950-2008

Sources: National defense spending and GDP: Office of Management and Budget; Historical Tables: Budget of the US Government, Fiscal Year 2010; Total military cost of war: Stephen Daggett, Costs of Major US Wars, Congressional Research Service, July 24, 2008/Value in current dollar. War costs only include appropriations

enacted through June 30, 2008.

2006: 32). Such a strong preference for policy autonomy is reflected in its spending, especially in national defense, tax cuts, and social spending. Among these three, national defense has received bipartisan support, while tax cuts have been supported more by Republican administrations and increasing social spending has been supported more by Democratic administrations.

Global strategic objectives have been the top priority in the policy autonomy guarded by the US government. In the postwar period the United States launched several wars, including the Korean War, the Vietnam War, two wars in Iraq, and the war in Afghanistan. As Figure 16.1 indicates, spending on wars always substantially increased the weight of defense spending in GDP (gross domestic product). In war finances the initial estimates of war costs have invariably fallen short of actual expenditures. The executive branch has relied heavily on supplementary appropriations to fund military conflicts, despite frequent clashes with Congress. These appropriations are not calcu­lated against the total annual budget, and they tend to mask the actual size of annual budget deficits (Miller 2007). In addition, the US government has spent significantly on military and economic aid to its allies and its various military bases overseas. Despite the concern over the negative impact of overseas military spending on US payment bal­ances during the four administrations in 1958-73, the US government never withdrew its commitment to military capacities (Gavin 2004).

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figure 16.2 Revenue Effects of US Major Tax Cuts

Source: Tempalski (2006).

Notes: Values in current dollar. The revenue effect is based on the two-year average (1970-7) and four-year average

(1978-2006).

#                                 # Tax cuts have been another major objective for the US policy autonomy, beginning with the Kennedy Administration and continuing through much of the Johnson Administration. Later they were supported more by Republicans, especially under the Reagan and Bush administrations. As Figure 16.2 indicates, tax cuts under these two Republican administrations had substantial implications for government revenues.

Taxes on dividends, interest, capital gains, estates and gifts, and corporate profits are considered the lifeblood of the entrepreneurial class (Morgan 2009: 209). The Republicans’ attitudes toward tax cuts have been sustained by two versions of supply- side economic theories. The earlier version perceived labor expansion and technological innovation to be fixed elements, and argued that tax cuts could boost capital expendi­ture, which in turn would promote production capacity. In contrast, the later version believed that tax cuts as well as technological innovation and the economic potential of such innovation would outstrip what was possible through the growth of capital expend­iture alone (Morgan 2009: 209-10).

Social spending is the third policy priority. As Figure 16.3 shows, the rapid increase of social spending started with the Great Society program under the Johnson Administration in the 1960s. Once social spending became a policy priority, it was diffi­cult to abandon. Even the Republican administrations after Johnson accepted the premises set forth in the 1960s, and this policy priority lasted at least until Reagan came into power. Despite the image of Republicans (represented by Reagan) as against social spending, however, significant social spending has not been limited only to the

---- Education, training, employment, and social services Health — Medicare — - Income security ---------------- Social security

figure 16.3 Social Spending of the US Federal Government, 1950-2008

Source: OMB (2010). Values in current dollar.

#                                      # Democratic administrations. Both Richard Nixon and George W. Bush were known for their spending on social programs. In the beginning the architects of the Great Society program were interested primarily in creating opportunities for the poor to participate in the economic mainstream; over time, however, the Great Society program created an unexpected expansion of income security programs that allowed welfare-type programs (Kaplan and Cuciti 1986).

The strong preference of the US government for policy autonomy is exemplified by the fact that it has often pursued multiple costly policy objectives simultaneously. As the four cases below demonstrate, the US government has either made major tax cuts that reduced revenues while pursuing a war or a major defense program, or substantially increased social spending during a war. This kind of overspending has inevitably led to skyrocketing budget deficits and the rapid increase of Federal debts. Easily accessible capital and the need to fill the gap in deficits and debts have created a favorable environ­ment for the formation of a liquidity glut.

The Johnson Administration not only expanded the war in Vietnam and launched the Great Society program, but also refused to raise taxes to finance them. Between 1960 and 1965, the US defense expenditure increased on average by merely 1.6 percent annu­ally, and the total expenditure of the US government budget increased on average by 5.1 percent annually. After Johnson signed on to both the expansion of the Vietnam War and the Great Society program, on average defense expenditures grew 18.9 percent annually and nondefense expenditures grew 13.0 percent annually (Mowery and

Kamplet 1982: 17). During the Johnson years decisions on new legislation and defense spending were made with no coordination with budgetary preparation, and defense decisions that had major economic implications were not communicated to Johnson’s economic advisers (Mowery and Kamplet 1982). President Johnson attempted to avoid jettisoning his ambitious Great Society program during a period of mushrooming defense expenditures in Vietnam. Despite severe obstacles to the pursuit of a guns-and- butter policy, “Johnson chose to ignore or override as many such obstacles as possible. Inasmuch as such obstacles were manifested most clearly in the fiscal and budgetary policy processes, Johnson chose in the later years of his administration to bypass these policy processes” (Mowery and Kamplet 1982: 16). This spending led to severe inflation and an overheated economy, which seriously undermined international confidence in the dollar. This was a major factor that contributed to the collapse of the Bretton Woods system.

Under the Reagan Administration the major driver for the Federal budget was defense. For Reagan any retreat from the established growth target would send the wrong signal to the Soviet Union. Even in his second term, defense spending averaged $390 billion (in fiscal year 2000 dollars), compared with the Carter average of $264 bil­lion. This level was exceeded only by the Korean War budgets of the 1952-3 fiscal year and the Vietnam War budget of the 1968-1969 fiscal year. Moreover, this big increase in defense expenditure coincided with the biggest tax cuts in the US history (Morgan 2009: 89). Between the Carter Administration and the first term of the Reagan Administration, average spending increased from 21.2 percent to 22.9 percent, while tax revenue decreased from 18.8 percent to 17.9 percent. This resulted in 2.6 percent GDP equivalent Federal debts (Morgan 2009: 86). Reagan argued that “the deficits we

face are not rooted in defense spending . . . [or] in tax cuts____________ The fact is, our deficits

come from the uncontrolled growth of the budget for domestic spending” (Morgan 2009: 76). He made great efforts to cut social spending, reducing the total social spend­ing against GDP from 13.7 percent to 12 percent during his two terms. Due to the resist­ance of the Congress, however, the effects of these efforts were not as strong as he would have liked. The adoption of Reaganomics by the US government in the 1980s led to mounting Federal debts.

Under the Bush Administration the funding of foreign military operations in Iraq and Afghanistan through emergency appreciation became a regular practice. It has been estimated that between fiscal years 2002 and 2005, supplementary spending averaged $120 billion a year, in contrast to only $14 billion between fiscal years 1975 and 2001 (Morgan 2009: 211). “Reversing ‘tax and spend’ liberalism had been a Republican goal since the New Deal. In the Bush era, a GOP president and Congress cooperated to deliver the first half of this mission but found partisan cause to expand domestic spend­ing at the very moment that they also reversed post-Cold War defense retrenchment” (Morgan 2009: 231). What distinguished Bush from Reagan was his self-identity as a “compassionate conservative” on issues related to social spending, despite the fact that Bush shared Reagan’s free-market ethos, low-taxes doctrine, and belief in less govern­ment involvement in the economy, and that many of his social programs, such as the No

330 BAI GAO

Child Left Behind Act, prescription drug entitlement, and the failed Social Security reform still aimed to enhance individual choice or facilitate individual capacity to con­tract with private sector institutions (Morgan 2009: 211). The pursuit of policy autonomy in multiple policy domains substantially increased budget deficits and payment deficits and resulted in skyrocketing Federal debts.

Although the Obama Administration did reduce the scale of US military involve­ment in Iraq, it substantially increased the number of ground troops in Afghanistan. As a result, total war expenditures of the US government in the 2010 and 2011 fiscal years remained at $171 billion, slightly higher than the 2007 fiscal-year level and sec­ond only to 2008’s figure of $185 billion, the peak level since September 11, 2001 (CBO 2010: 3). Meanwhile, Obama adopted the American Recovery and Reinvestment Act of 2009. According to an estimate by the Congressional Budget Office (CBO), this package would lead to a total of $787 billion budget deficits for the US government in 2009-19 (CBO 2009). In addition, the Obama Administration extended the tax cuts launched by the Bush Administration for two more years. The $858 billion package signed in 2010 prevented taxes from rising on January 1, 2011, for virtually every American household. Of course, this $858 billion not only represents tax cuts; it also guarantees unemployed workers in hard-hit states up to 99 weeks of jobless benefits until the end of 2011, and it created major new incentives for business and consumer spending in 2011, including a 2 percentage point reduction in the Social Security pay­roll tax that would allow workers to keep as much as $2,136 (Montgomery, Murray, and Branigin ).

Political economy of deregulation AND FINANCIAL INNOVATION

The seigniorage problem and the benign neglect problem contributed to two develop­ments that played crucial roles in the global financial crisis: the development of inter­national financial markets that helped the formation of the global glut of liquidity, and the development of mortgage-backed securities that directly triggered the subprime loan crisis in the United States. One of these international financial markets was the Eurodollar market, which refers to European markets where various dollar-based assets are traded outside of the United States. Its competition with the New York finan­cial market became the driving force behind the deregulation efforts; the need of pri­vate corporations and private banks to manage their exchange rate risks led to the inventions of various financial instruments. One of these instruments, mortgage- backed securities (MBSs), was developed as a response of the Johnson Administration to the seigniorage problem in the 1960s. Its growth was greatly accelerated by the benign neglect problem in the 1970s and eventually led to the outbreak of the subprime loan crisis in 2007.

The oversupply of liquidity by the United States in the 1950s was a direct factor in the rise of Eurodollar markets. US spending on overseas military bases, US military and development aid to its allies, and its permission to allow its allies to export to the US market while keeping their domestic markets closed to US products led to the accumulation of dollars in Western Europe (Gavin 2006; Helleiner 1994). The dollar glut resulted in two separate developments: one was the rapid expansion of the Eurodollar market, and the other was the conversion of dollars into gold by European central banks.

Since central banks in European countries needed to find a market for these dollars to make profits, Eurodollar markets emerged and quickly became a favorable way to absorb the dollar glut. Since a substantial amount of dollars owned by European governments became deposits in Eurodollar markets, this served to reduce the pressure on the con­version of gold. Without the Eurodollar market, the US government would have been forced to close the gold window much earlier (Kawamoto 1993: 182).

Nevertheless, the rise of Eurodollar markets created competition pressures for the US banking industry. Throughout the 1950s, New York was virtually the only open capital market for foreign securities, sustained by the dollar’s key currency status and New York’s status as the center of the international financial market. The economy of scale enabled American financial institutions to compete with low interest rates and diversi­fied products to lend money (Einzig 1972: 36). After the Eurodollar market came into being, it became a supplementary market or an escape channel for American banks, which began to face increasing government restrictions on the outflows of capital from the United States in the 1960s (Helleiner 1994).

The collapse of the Bretton Woods system and the first oil crisis in the early 1970s started a new era in which the expansion of offshore finance fully blossomed and cre­ated strong dynamics for deregulation. “Even the ability of central banks to regulate the supply of money and credit was undermined by commercial banks’ borrowing and lending offshore. This process accelerated after the shock of 1973-74. Within ten years, national authorities were forced to scrap long-established interest rate ceilings, lending limits, portfolio restrictions, reserve and liquidity requirements, and other regulatory paraphernalia . . . the only instrument of monetary policy available to them was buying and selling securities to influence short-term interest rates” (Eatwell and Taylor 2000: 37-8).

The pressure for deregulation also came from private corporations and private banks. After advanced industrialized countries shifted to the floating exchange rate system, there emerged an overwhelming need to hedge against the huge costs that fluctuating exchange rates imposed on private corporations. In order to reduce such risks, those corporations that traded in foreign markets were forced to diversify their portfolios, changing the mix of currencies and financial assets, both at present and in the future, in line with the constantly changing perception of foreign exchange risks. They demanded the creation of new financial instruments that required the removal of regulatory barriers. At the same time, private banks regarded the fluctuation of exchange rates as a great opportunity to make profits. They too demanded deregulation in order to obtain more freedom to maneuver in the market. Both of these political currents, together with other domestic factors, led to the spread of deregulation (Eatwell and Taylor 2000: 2-3).

The need to manage various risks associated with the floating exchange rates led to the development of new financial instruments. Commercial papers are a good example. In the 1970s the government still maintained interest rate ceilings on bank deposits, and the market rates in the context of inflation had risen substantially above the bank rates. Under these circumstances, the money-market mutual fund was developed in 1974, offering better rates for investors than bank deposits, and thus developing rapidly from this point on. Money-market mutual funds later became the number one investors in commercial papers, and commercial papers became the number one holdings of money- market mutual funds (IMF Institute). Because of this, individual consumers no longer kept their cash in their bank savings account, and corporations began to get funding by issuing commercial papers. Both trends served to weaken the banking industry and forced banks into either more service-oriented products, or more risky lending (Mizruchi 2010).

Mortgage-backed securities developed as a result of the US government’s response to the challenge created by the seigniorage problem. In the 1960s the Johnson Administration expanded US involvement in the Vietnam War and also launched the Great Society program. Nevertheless, it was reluctant to increase taxes. Since many Great Society programs such as Medicaid, Medicare, and others had already created substantial budget deficits and the savings and loan industry was not able to finance the ambitious goals for housing established by the government, the Johnson Administration reorganized the Federal National Mortgage Association (Fannie Mae) as a quasi-private organization, created the Federal Home Loan Mortgage Corporation (Freddie Mac) to compete with Fannie Mae, and relied on the Government National Mortgage Association (Ginnie Mae) to issue those mortgages against the risks of default. At the same time, the Federal government did not want to ultimately hold the mortgages by itself since this could seriously constrain the amount of mortgages it could originate. As an alternative, it decided to use its own capital to fund the mortgages and then sell these mortgages to investors as bonds (Quinn, cited in Fligstein and Goldstein 2010).

Since benign neglect became the US policy toward its current account imbalance, the government prefers financing over adjusting because adjusting involves either a reduc­tion of public spending or the increase of taxation, while financing brings few adverse effects, at least in the short term. As the social safety net weakens and inequality contin­ues to increase, voters in the United States have become increasingly impatient. Under such circumstances,

politicians love to have banks expand housing credit, for credit achieves many goals at the same time. It pushes up house prices, making households feel wealthier, and allows them to finance more consumption. It creates more profits and jobs in the

financial sector as well as in real estate brokerage and housing construction__________ Easy

credit has large, positive immediate, and widely distributed benefits, whereas the costs all lie in the future. (Rajan 2010: 31)

THE INTERNATIONAL MONETARY REGIME 333

The declining job-creating capacity of the US manufacturing industry

The high unemployment rate in the aftermath of the 2008 global financial crisis revealed a major problem, created by the seigniorage problem in the US economy, which had been hidden for decades: the negative impact of the dollar’s key currency status and the United States’ role as the major supplier of liquidity on the American manufacturing industry. This provides a new context for the old debate on the US man­ufacturing industry. When the economic well-being of the United States as a whole becomes the issue, the focus is on whether the manufacturing industry can create jobs instead of whether multinational corporations can make more profits by shifting their production overseas.

Analyzing the US manufacturing industry from the angle of job-creation capacity, the impact of the international monetary regime via domestic political economy imme­diately emerges. The seigniorage problem since the 1950s provided dynamics for both the financialization of the economy and the globalization of production: the two driving forces behind the decline of the US manufacturing industry. The causal mechanism in this process is the enduring outflows of capital in the form of foreign direct investment (FDI) from the United States since the 1950s.

Most analyses of the process of financialization usually start with the 1970s. However, the very principle that has driven financialization, efficiency in resource allocation, began to affect US corporations as early as the 1950s. As a result of the diversification of American industry by the end of World War II, the institutionalization of multidivi­sional structure in US corporations, and the changes in the government antitrust policy that discouraged intra-industry mergers but left the door open for diversified mergers in different industries, the financial conception of control emerged as a significant trend among American corporations. The central offices of large corporations began to treat their product lines and subdivisions as a portfolio and use the financial criteria to evalu­ate their performances. When products or subdivisions did not meet expectations, they would be divested and new ones purchased (Fligstein 1990: 229).

The adoption of the efficiency principle in resource allocation soon led to outflows of FDIs from the United States. The US economy experienced a recession in 1957. This reduced domestic investment opportunities. In late 1958 Western European countries began to return to currency conversions. This took away a major barrier that had pre­vented American corporations from investing in Western Europe, and it became easy for them to send back profits from the host countries. At the time, European coun­tries still maintained high levels of tariffs against American exports. Thus, building factories there to serve local markets was considered an effective way to get around protectionism (Block 1977). Meanwhile, the strategic concern of US multinational corporations over rising European and Japanese competitiveness became the driving force for the outflows of FDI because American corporations attempted to beat their

potential competitors in their home markets before they became too strong (Vernon 1971).

By the late 1950s the oversupply of liquidity through payment deficits associated with US overseas military bases had created the dollar glut. Between the late 1950s and the early 1970s, many people believed that the dollar had been overvalued and the payment deficits of the United States would sooner or later lead to a major depreciation of the dol­lar. This became the driving force behind the outflows of capital for two reasons. First, the overvalued dollars gave US corporations more purchasing power in overseas mar­kets and made their acquisitions in foreign countries cheaper. Second, the enduring prospect of the dollar’s depreciation made international investments in countries whose currencies were expected to appreciate more attractive, and domestic investments in the United States more costly.

As discussed earlier, the dollar experienced two rapid depreciations in the 1970s; each of them induced an oil crisis as OPEC countries tried to prevent losses from their exports of oil. These radical changes further pushed capital out of the United States. The decreas­ing value of the dollar made corporate assets held domestically worth less, while those held internationally were worth more, especially in countries whose currencies were appreciating. At the same time, the drastically increased energy costs became a heavy burden on domestic production. This hyperinflation created a hostile environment for the US manufacturing industry’s domestic production.

Since the beginning of the 1980s, the policy environment in the United States favored the finance industry but disfavored the manufacturing industry. Paul Volcker’s radical treatment of inflation with a high interest rate and Donald Regan’s strong dollar policy created great pressures on the US manufacturing industry from two fronts. The high interest rates substantially increased the burden on domestic capital and reduced the incentives of US corporations in investments. Meanwhile, the high interest rates attracted massive inflows of foreign capital to the US market. That increased the demand for the dollar and appreciated its value. The strong dollar did temporarily reduce the outflows of capital. Nevertheless, the rising value of the dollar weakened the competi­tiveness of exports from the US manufacturing industry in international markets. That led to the rapid deterioration of the current account. After the Plaza Accord in 1985, the current account deficits did come down; however, the prospect of the depreciating value of the dollar further pushed US corporations to invest overseas (Daniel Gros, cited in Schwartz 2009: 129). In the 1980s the theory of value chain production based on the principle of efficiency in resource allocation became a dominant corporate strategy in the United States. Its application inevitably led to the widely spread practice of outsourc­ing, further intensifying outflows of capital.

The practice of investing overseas for higher profitability became widely institution­alized in the US manufacturing industry. In the heyday of managerial capitalism, corpo­rate ownership in the United States was dispersed to broaden the base of shareholders. Financially independent corporations run by professional managers evolved into social institutions, and provided increased wages and social policies around equal employ­ment opportunities, safe products, and environmental protection (Davis 2009: 63).

A group of progressive corporate elites was able to provide collective solutions to eco­nomic and social problems (Mizruchi 2010). Nevertheless, as the financial conception of control began to take hold, American corporations were under constant pressure to sustain their profitability, because the structure of US financial markets directly links corporations’ access to capital and ability to prevent takeover to their current profitabil­ity (Hall and Soskice 2001). At the same time, increasing financial investments by nonfi- nancial corporations crowded out real investment by directing capital from the manufacturing industry to financial investments; these financial investments could also decrease the funds available for investment capital (Orhangazi 2008).

Concluding remarks

The postwar international monetary regimes that relied on the dollar as the key cur­rency and the United States as the major supplier of liquidity have exerted profound impacts on the American political economy. These impacts are reflected in two major legacies. One is described well by Leslie Gelb:

Most nations today beat their foreign policy drums largely to economic rhythms, but less so the United States. Most nations define their interests largely in economic terms and deal mostly in economic power, but less so the United States. Most nations have adjusted their national security strategies to focus on economic security, but less so the United States. Washington still principally thinks of its security in tradi­tional military terms and responds to threats with military means. (Gelb 2010)

The other can be stated as the following: most nations that have accumulated significant amounts of savings, excluding those that depend on exporting natural resources, build their economies on the manufacturing industry, but less so the United States. This coun­try tends to see all economic issues in financial terms, deal with all economic problems with financial means, and regard credit creation as its one-fits-all solution.

After the 2008 global financial crisis, however, the results of practicing seigniorage and benign neglect began to directly threaten the dollar’s key currency status. According to forecasts by the CBO, by 2020 the cumulated debts of the United States could reach $9.5 trillion, equivalent to 90 percent of the country’s total GDP. Given that the aging population will drive a sharp increase in health-care costs and Federal interest expenses will rise exponentially, the official debt could hit 110 percent of GDP by 2025 and 180 percent by 2035 (Altman and Haass 2010). This has profound implications for the US economy.

If international financial markets begin to punish the United States for overspending, the dollar will collapse, resulting in severe damage to the US economy. Many countries have begun to sign bilateral agreements to use their own currencies to settle their bilat­eral trade. This will significantly reduce the dollar’s use and, consequently, its interna­tional demand. The Jasmine Revolution that started in Tunisia and Egypt in 2011 has added some new uncertainties for the United States, given that the critical role played by the dollar to oil price is the foundation of the dollar standard.

As the prospects of future international monetary regimes have changed, signs of US domestic departures from its past legacies have appeared. Cutting government spend­ing has become a major policy agenda in American politics. The strong political opposi­tion to government spending led by the Tea Party movement resulted in major losses for the Democrats in the 2010 mid-term election. As the 2012 presidential election approaches, both Republicans and Democrats have used the 2012 budget as a major test­ing battle. Opposing President Obama’s cut-and-invest approach, Representative Ryan Paul of Wisconsin unveiled his party’s plan in April 2011, which aimed to reduce the budget deficit by $5.8 trillion over the next decade. President Obama countered with his own plan of cutting the deficit by $4 trillion over the next 12 years, relying partly on tax increases and partly on spending cuts. Each party has begun to take the position of pro­tecting its top priority, no longer trying to pursue multiple policy objectives simultane­ously. Among the three main policy domains that used to demonstrate strong US preference for policy autonomy, Republicans now emphasize tax cuts while Democrats try to protect social spending, especially Medicare and Medicaid. Neither party treats national defense as its first priority, and both have agreed to cut $1 trillion in defense spending in the next decade.

In other domains, however, the prospects remain unclear. Whether the United States can develop new ways to promote economic growth without overdependence on credit creation, and whether the country can rebuild or redevelop the manufacturing industry for the purpose of job creation will be major issues faced by the United States in the years ahead. One thing is clear, however: we have entered a new era in which the formation of the future international monetary regime and US domestic political economy will mutu­ally shape each other.

結論

戰後國際貨幣制度仰賴美元作為關鍵貨幣以及在美國的政治經濟發展下美國成為流動性的重要供應者應用產生極大的影響。
美國傾向用金融形式看所有經濟的議題，因為在海外政策、定義利率、經濟力量和權力、安全策略上的得天獨厚的條件，處理所有經濟問題，使用金融工具，以及將金融創新視為一套規格適用所有解決問題。
然而債務達9.5兆，佔美國GDP的90%，人口老化造成的醫療照護費用的急遽成長，2035年官方的債務將達GDP的180%，對美國經濟造成深遠的影響。

如果國際金融市場開始懲罰美國的過度消費，美元將會衰退，造成美國經濟嚴重的影響，許多國家開始簽署雙邊協議，使用自己的貨幣處理雙方的貿易，將大量地降低美元的使用和它的國際需求。
 2011年北非的茉莉花革命，更增添了美元本位制的基礎下石油的價格，造成美國關鍵角色的不確定性。
在國內，削減政府的花費成為各政黨的政策主要目標，以美國優先的政策自主權、共和黨強調減稅保障社會開支特別是醫療和照護補助、兩黨都同意在未來十年削減一兆防禦的花費。
美國是否能夠發展新的方式不需過分依賴信用的創造來提升經濟成長，重新建立發展製造工業創造工作機會，是未來幾年美國主要的議題。

我們進入一個新的紀元，面對未來國際貨幣制度的形成和美國國內政治經濟的相互形成。