Iowa City Press Citizen, October 24, 2013

This month Congress closed the Federal Government and took us within 24 hours of national default. Thank God that’s over (for now), and we can all move on to Miley Cyrus.

America does get benefits from the dollar’s status as the world’s reserve currency. The American economy would be about 30% smaller today if not for this special position we’ve enjoyed since “The Greatest Generation” won it for us back in the 1940s.

Senator Ted Cruz and his fellow Tea Partiers seem to have a knee-jerk reaction against that word “benefits,” and think nothing of defaulting on our national debt. They don’t get it that the dollar has the value it has because people believe it has that value. Circular? Yes, it’s all a confidence game. Tea Partiers can read that as “con game,” but paper currency has always had that characteristic. The dollar’s value rests on the world’s confidence that the words “full faith and credit of the United States Government” mean something. Countries, companies, and individuals sometimes spend more than they have. That can be good when they’re investing to increase future productivity or address a life-threatening emergency, but bad when they’re simply enjoying frivolities beyond their means. For 40 years now America has been buying way more from overseas than we sell, and borrowing the difference. Our biggest export, to get all that into balance, is dollars.

Hundred dollar bills are so popular around the globe that of the $1.2 trillion worth of American currency notes in circulation, more than half is floating around in other countries. Foreign countries are also holding about 5.6 trillion dollars of U.S. treasury debt (China and Japan account for $2.4 trillion of that).

Some of the Tea Partiers seem to think it’s ok to just screw them. America can’t do that without also screwing the Americans holding over 10 trillion of that debt, however. What happens if the United States Government defaults? Basically, those with investments, pensions, or even cash on hand will suffer a fall in the value of their assets amidst an economic collapse that will make the world’s 2008 economic contractions look like a picnic. From the day after default onwards, our creditors will demand higher interest before loaning us money. An increase of one percent in the interest rate on our Treasury debt, for example, would require some combination of tax increases and spending cuts totaling 160 billion dollars to cover it. Anyone who thinks the “austerity” required to make those payments is good for an economy should take a look at what’s been happening in Greece whose economy has contracted 25% in the last five years, and has yet to turn around. Default would hit not just America’s creditors, but American workers and everyone else in the country as well.

If Congressional action (or inaction) and overall Government dysfunction lead people to see the stability and value of the dollar as a myth, investors will dump dollars for other assets. Ask the Argentinians what happens when a national currency succumbs to the twin pressures of devaluation and inflation.

I followed the October shutdown and debt ceiling brouhaha with a certain awe at just how monumentally reckless and stupid our politicians can be. The only bright spot over the last month came in the run-up to the government shutdown, when the House of Representatives somehow managed to vote UNANIMOUSLY to save the government’s strategic helium reserve.

“What’s so special about helium?” I wondered. Are our Representatives and their staffers perhaps inhaling it, and that explains my difficulty to understand the dolphin-like snorts and whistles that pass for rational argument in the House?  

On the subject of gas, I recommend our Congressman Loebsack should table a bill to establish a national strategic reserve of nitrous oxide in the Capitol’s basement. Piping laughing gas into chambers during debates would get everyone laughing together at the ridiculous posturing they do, and perhaps a few friendships would form across the aisles. Then Republicans and Democrats could get on with finding a way out of the genuine challenges our nation faces.

Press Citizen Writers’ Group member Alan Brody reports a bumper 2013 harvest on his habanero pepper farm, guaranteed to keep him snorting for another year.