By Hans F. Sennholz
In their foreign dealings many American businessmen are enjoying the
present situation. Virtually all their international liabilities are
denominated in U.S. dollars while some 70 percent of their foreign
assets are reckoned in foreign currencies. The value of foreign assets
and liabilities obviously changes with every change in the exchange
rates of the currencies. A fall of the U.S. dollar immediately trims
the value of virtually all American liabilities while it raises the
value of American assets owned abroad; a rise of the dollar effects the
opposite. … The Federal government with rapidly rising debt of more
than $8 trillion is by far the biggest beneficiary.
American officials and their academic friends are quick to reject such
analyses and conclusions. They dismiss all thought of responsibility
for the situation and instead point to an acute savings predisposition
on the part of creditor countries…
…
Many countries, rich and poor, now are supporting the richest country
on earth. This odd situation raises serious questions of consequences
if the creditor countries should suddenly tire of their chore and call
a halt to the burden. What would happen if, for instance, the Asian
central banks should suddenly refuse to add to their dollar holdings or
even reduce them and instead decide to invest their surpluses in euros?
Surely, such a reaction would lead to much international turbulence and
severe economic crisis.