Time for us to bring our A game

THE EDITOR: The IMF states that 61.99 per cent of global exchange reserves were held in dollars as of the first quarter of 2020. Most businesses across nations use the dollar in international transactions, followed by the euro and the Japanese yen; about 40 per cent of the world’s debt is issued in US dollars.

The ten-year Treasury notes have an interest rate of about 0.63 per cent, and the Fed already has announced that it will hold rates low until 2022. The real rate of return thus turns out to be still lower – in fact, negative after accounting for inflation.

On August 5, Russia and China announced they would enter into a financial alliance to reduce their dollar dependence. In Q1 2020, the dollar’s share in these countries’ trade declined to below 50 per cent for the first time. The euro and their national currencies’ share climbed to 30 per cent and 24 per cent, respectively.

Corporate bankruptcies are rising and many retail and oil and gas companies already have shut down. Since March, the US has had 22 weeks of unemployment claims over one million for a total of 57.3 million. There is no end in sight.

The US national debt is rising, but the impact of the stimulus is not showing on the ground. People are not benefiting as they should be. If good money continues to chase bad money (for example, junk bonds and the avoidable ETFs), it's not going to help the economy in any way. It will make people chase risky assets. We already are witnessing Main Street suffering at the cost of Wall Street.

The US national debt is US$26.7 trillion or 136.6 per cent of GDP. The US is currently barrowing 60 cents out of every dollar that it spends, while its main rival China’s national debt is US$5.5 trillion or 48.5 per cent of GDP.

In total, the Chinese state and its subsidiaries have lent about US$1.5 trillion in direct loans and trade credits to more than 150 countries around the globe. This has turned China into the world’s largest official creditor – surpassing traditional, official lenders such as the World Bank, the IMF, or all OECD creditor governments combined.

The present global economic order cannot continue as is. Kristalina Georgieva, IMF managing director, states, "This is the moment to decide that history will look back on this as the Great Reset, not the Great Reversal. And I want to say – loud and clear – the best memorial we can build to those who have lost their lives in the pandemic is to build a world that is greener, smarter and fairer."

The US is the Caribbean’s number one trading partner, source of remittances and of tourism. We depend on the US for our economic growth and the hit to the US economy could last for a decade, according to the Congressional Budget Office.

I write to encourage our political directorate to prepare for an economic reality similar to the great depression with a modern twist of the technological and economic divide. As Mark Twain said, “History doesn't repeat itself but it often rhymes,”

The Smoot-Hawley Tariff Act, passed in June 1930 to protect US industries with tariff increases, caused other countries to respond to the US tariffs by putting up their own restrictions on international trade, which just made it harder for the US to pull itself out of its depression.

A similar quagmire is occurring with the US-China trade war, US-EU trade war and US-India trade war. This covid19 crisis also has characteristics of the bubonic plague which precipitated the renaissance – a drastic shift in how the world works. Time for us to bring our A game.

BRIAN E PLUMMER

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