Is Speaker Johnson About To Destroy the US Dollar?

Posted by freedomforall 3 months ago to Economics
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"Almost 10 years ago, I sat in a secure conference room at the Pentagon and explained to a group of U.S. national security officials from the military, CIA, Treasury and other agencies that the overuse of the U.S. dollar in financial warfare would eventually drive countries away from using dollars in international transactions for fear that they could become the next target of U.S. displeasure.

I said to the military and intelligence community, “I don’t think other countries can destroy the dollar, but we can do it ourselves. We are our own worst enemy.”

We, of course, meaning the United States. We’re destroying the dollar with the sanctions (and through other misguided policies). The U.S. is doing more to destroy the dollar than our enemies.

Some took note, some ignored the warning and one Treasury official slammed the table and said, “The dollar has been the global reserve currency, it is the global reserve currency now and it always will be the global reserve currency!”

Well, a lot has changed over the past 10 years — and especially over the past (roughly) two years.

The More Things Change…
But still many government officials and senior intelligence community members are stuck in this type of thinking.

Earlier this year, I taught a seminar at the U.S. Army War College on financial warfare.

I explained that U.S. financial sanctions would not have a material impact on Russia, that Russia would not change its behavior in Ukraine based on the sanctions and that the U.S. would suffer more from its own sanctions than Russia because adversaries and neutral countries would create alternative payment platforms that did not use dollars.

I naturally encountered skepticism from the class (that’s OK; the purpose of a seminar is to engender competing views).

But events of the past year have proved my forecast in every respect.
Johnson has committed a blunder so egregious that it could rock the global financial system and cause a financial panic.

Unfortunately, Johnson’s lack of experience in international monetary affairs has left him blind to the dangers.

Right now, the U.S. holds about $300 billion of Russian assets that were frozen after the Ukraine war broke out in February 2022. Most of those assets came from the Central Bank of Russia and consist of U.S. Treasury securities.

Technically, those assets have not been converted to U.S. ownership; they have merely been frozen and still belong to Russia even though Russia cannot use them. Now Johnson wants to convert those assets to U.S. ownership and use the proceeds to pay for the war in Ukraine.

Johnson said, “It would be pure poetry to fund the Ukrainian war effort with Russian assets.” It would be pure stupidity is more like it.

Such an action would amount to a default on U.S. government debt since the securities were legally owned by Russia."

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