If the dollar is no longer the preeminent reserve currency, then countries will dump much of their dollar holdings, pushing down its value in currency markets.
A lower valued dollar will cause exports to soar and imports to plummet, creating millions of new manufacturing jobs. Millions more jobs would be created in other sectors due to the multiplier effect. This could well bring us back to full employment — a goal we may not otherwise achieve until the next decade.
Does this mean that all good people should be cheering for a debt default? Not quite. First, the financial market fallout will not be pretty. It’s hard to say exactly what would happen because it is uncharted territory. It would be best not to explore this terrain.
However the other reason is that there are no guarantees about the dollar losing its status as the reserve currency. Remember, we’re hearing this from people who couldn’t even see an $8 trillion housing bubble, their knowledge of the economy is not especially reliable. It is entirely possible that we go through the financial crisis associated with a debt default and the dollar still ends up being the world’s preeminent reserve currency. In that case we get the pain but no gain.
So we are probably best off if there is no default. But we should remember; if the dollar loses its status as a reserve currency as a result of default, that’s a good thing.
Silver lining?
Susie: That sitemeter pop up is still all over your site. I am no longer finding it elsewhere.
The flip side of the loss of the petrodollar is that oil at $100/bbl might be $200/bbl, $300/bbl, or why not $1,000/bbl? Our country is not set up to survive gasoline that costs $8/gallon, or $12, or $40. We would starve.
Jay – maybe employers would finally let people telework and we’d get serious about alternate energy sources. I’ve always thought we need to pay what oil really costs us. The flip side of cheap gas is a dead planet.