Are you ready for a new DEY?
DEY is an acronym for the recently proposed world reserve currency that primarily includes the Dollar, Euro and Yen (DEY). China has been the most recent proponent of the idea but both present US Treasury Secretary, Timothy Geithner, who said that the US is "open" to the idea and previous Fed Chairman, Paul Volker have said that a global economy needs a global currency.
If your gut reaction is that this is not good for the US, your gut is right. Since abandoning the gold standard in 1971, the US dollar became the "reserve currency" of the world and as a result, the huge US trade and budget deficits that would normally be highly inflationary are absorbed globally by the purchase of US dollar denominated equity and debt securities. However, with a new "DEY", the US would not be able to adjust its domestic monetary policy (i.e. pump a trillion dollars into the economy) to remedy a specific economic situation or promote a specific social or political agenda.
It's not coincidence that talk about a new monetary standard to replace the dollar is in the news. In 1971, President Nixon and his economic advisers, trying to pay for the deficit spending of President Johnson (and Kennedy's) expansion into Vietnam, bumbled and stumbled and ended up devaluing the dollar. This took the US off the Gold Standard for international currency which had been the agreement among nations since the early 19th century and confirmed by the Bretton Woods Accord of 1944. Now in 2009, the economic bumbling of Washington is causing great concerns internationally as the US is moving intentionally towards devaluing the dollar and actually encouraging the resulting high inflation to reduce the $11 trillion debt . It's only natural that those holding dollars as a reserve currency will want to look for an alternative.
While many may fear the political and social agenda of the present administration and congress, the economic repercussions of having to balance both sides of the economic ledger would create even greater economic, social and political upheaval in the United States.
