Currently, the US dollar is considered the “world’s reserve currency”. That is to say the other nations around the world prefer to do trade in terms of US dollars. For example, if Portugal were to buy oil from Brazil, the transaction would likely be priced in US dollars.
Reason being that the US Dollar has proven to be reliable in its value and wide acceptance. This trust in the dollar is backed by the perception of Unites States’ solvency and economic growth.
Over time, as the US continues to incur massive deficits, debt, and trade deficits, there will be a growing perception that the United States is no longer as solvent as it once was, accompanied by a lack of fiscal credibility. As this trend continues, so continues a trend of world nations using other currencies (the Chinese Yuan, Japanese yen, and the Swiss franc, for example) as the preferred reserve currencies.
The consequence of all this? As the US dollar loses its status as the world’s most reliable currency the United States will lose its right to “print money” by issuing more and more Treasury Securities to pay its ever-increasing debt. At this point, drastic cuts in government spending will be forced—not just contemplated.
Debt will have to be reduced—taxes will be increased. Our standard of living will decline along with our liberties. Interest rates on our debt will go up, causing all other interest rates to go up. This is very much analogous to a married couple who has been living beyond their means, maxed out their credit cards, and must pay its creditors through bankruptcy court.
This is not the scenario we should hand over to the following generations.