Below is our translation of an article from RIA Novosti about a worrisome economic pathology that the US has been diagnosed with. Commentary and bracketed notes are by Vince Dhimos.
Any country that discovers a large amount of a natural resource within its borders is susceptible to the “Dutch disease,” an economically pathological dependence on the export of that resource that makes diversification of the economy difficult because suddenly no one is interested in investing in manufacturing or any other activity that is more complicated than just extracting something from the ground that is just there for the taking. A mixture of a curse and a blessing. In the past, Russia was seen with symptoms of this ailment, until it began to seriously diversify as a result of US sanctions — the best thing that could have happened to it. As a result of the sanctions threat, Russia now is almost completely food independent. In fact, shockingly, the country that once was obliged to import wheat now is, according to Bloomberg, the biggest wheat exporter in the world. To say nothing of its booming arms exports and exports of nuclear power plants, both areas in which it poses a serious challenge to the US. And that is just the beginning.
And sadly for the US, there is no other country capable of slapping it with sanctions and hence back to its senses.
"The United States certainly has rich vein of a highly valued commodity.
America creates about a quarter of global GDP, but well over half of the currency reserves of the world's central banks is socked away in dollars — $6.6tn of $11.4tn. The dollar is by far the dominant currency for international credit. Dollars are so important as an invoice currency for global trade that shifts in the value of the dollar are an effective predictor for international trade volumes. So many currencies are either explicitly pegged to the dollar, or tied to it through trade, that 50-60 per cent of global GDP swings with the dollar, making it part of a "dollar zone."<...> The Netherlands struck natural gas, the United States struck dollars. It found a gusher.. <...> Basically, around 1980 the United States discovered that it was the Saudi Arabia of money.
British experts found "Dutch disease" in the USA
The reporters of the Financial Times, a respectable financial publication, conducted an interesting experiment and discovered a disease in the USA, the outbreak of which usually occurs in third world countries, especially in Africa and South America. The result was amazing, and the diagnosis is disappointing: America is sick, and the disease is acute and chronic. Despite the fact that this disease is usually found in poor countries, it was first described in Holland and is therefore called the "Dutch disease." This economic disease is known for the fact that in the case of missing or improper treatment it leads to a national catastrophe, which is accompanied by the degradation of state institutions, an increase in social inequality and an obvious decline in industrial production. Financial Times journalists advise the United States to be treated for the "Dutch disease" right now, because its negative effects are already visible even with the naked eye.
It is believed that underdeveloped countries suffer from the Dutch disease when they suddenly find some major reserves of important raw materials or mineral resources: usually oil, diamonds, gas, gold or copper, although there are also quite exotic variants of the disease associated with agroclimatic resources, such as climate and soils which are ideal for growing coffee or cocoa.
In the case of Holland, the ailment was associated with the discovery of one of the largest natural gas fields [the largest in Europe, 10th largest in the world].
The essence of the phenomenon is the negative impact on the country's economy of available resources. Paradoxically, for most countries with significant natural resources, the possibility of their export becomes a serious economic problem: all sectors of the economy, except for the extraction and sale of natural resources, begin to die off, because investing in them is not very profitable compared to investments in the development of the mining sector. Moreover, the influx of cheap imports (which is paid for through the export of extracted resources) leads to de-industrialization, which can be enhanced by exporting jobs to other countries. Almost always, the money received from the export of resources is concentrated in the hands of a narrow circle of politicians and businessmen, which intensifies the stratification of society, especially in an environment where politicians and business people lack even minimal motivation in terms of maintaining the standard of living and education of those citizens who do not participate in the extraction of resources for export. Attempts to spend the money on social programs often lead to citizens getting used to living on subsidies, and the slightest change in the price level of the exported resource leads to economic shock and deep social upheavals.
At first glance it may seem that the United States cannot be considered an example of a country with “Dutch disease,” but this is only at first glance. Let us give the floor to British experts:
“The United States has certainly found a rich vein of valuable goods. America creates about a quarter of global GDP, but more than half of the world's central banks' foreign exchange reserves go to dollars - 6.6 trillion dollars out of 11.4 trillion dollars. The dollar is undoubtedly the dominant currency for international credits. It is so important as a currency of settlement for world trade that the change in its value serves as an effective predictor of trade volumes. So many currencies are either clearly tied to the dollar, or tied to it through trade, that 50-60 percent of world GDP fluctuates depending on it and becomes part of the “dollar zone.” <...> Just as the Netherlands found natural gas, the United States found dollars. They found a a gusher. <...> Basically, around 1980, they discovered that the United States is the Saudi Arabia of money."
It should be pointed out that Financial Times journalists are not alone in their assessments. Just a few days ago, the New York Times published an article which directly states that "the key export commodity of the United States is dollars" and even mentions that the collapse of the USSR became a tremendous stimulus for the demand for the American currency. The American edition proudly shows, based on the example of a $100 bill, how profitable dollar exports are: “Exporting money is much more profitable than exporting petroleum products. The federal government needs to spend about 14 cents to make a $100 bill, and a few cents to send this banknote abroad.”
It may seem that the US has found a kind of "financial perpetual motion machine" that works as long as the whole world (often under the threat of sanctions, military interventions and "colour revolutions") uses the dollar in trade and lending. However, the “Dutch disease” (which the Americans are not even about to recognize, let alone treat it), causes obvious damage to the US economy: the US is turning into a printer country that does not make sense, and it only makes sense to print dollars. The most vivid example: even in such a sensitive and strategically important area as the military industry, America depends on Chinese (and other foreign) suppliers, with US Department of Defence experts openly writing in their reports on the risks facing the national military industrial complex. We have already written about this: “The essence of the problem in the retelling of Reuters’s columnist Andy Home, who received the September report of the US Department of Defence on the key supply situation for the army, boils down to one important figure. More than 300 (!) key items needed for the normal functioning of the US Armed Forces and the defence industry, are at risk: American manufacturers are either on the verge of bankruptcy or have already been replaced by suppliers from China or other countries because of the de-industrialization of the national economy and export industries in the countries of Southeast Asia. "
Deindustrialization is not the only symptom of "Dutch disease" in the United States, pointed out by the authors of the Financial Times. There is still growing inequality, insufficient investment in education, political corruption in the distribution of income from "dollar exports" and problems in the pension system. British journalists are quite seriously begging the United States to begin a painful course of treatment of their economy and to draw, for example, from the Norwegian experience, because the situation is very serious. However, if we read their diagnosis through the prism of Russian interests, then everything is turned on its head: the stubborn unwillingness of Americans to take bitter economic pills is good news. If the American economy continues to be completely dependent on "exporting dollars,” then the joint efforts of China, the European Union, Russia, Iran, Venezuela and all other countries that are striving for a gradual de-dollarization of world trade will bring the global hegemonic economy to a severe crisis. In Washington, they understand this in principle, but they still hope that sanctions, aircraft carriers and the threat of "colour revolutions" will be enough to protect the "dollar zone." However, it is already clear that its end is only a matter of time.
This assessment could be attributed to “patriotic propaganda,” but there is a nuance: even the head of the Bank of England, Mark Carney, believes that the current status of the dollar as the main world currency is not eternal: “I think that eventually we will have reserve currencies other than the US dollar,” he said at a recent press conference. The forecast of the main British banker is very positive for everyone who is tired of Washington’s claims to eternal world hegemony.