The United States as a Problem

In Latin America, we have historically witnessed a perpetual fight of central banks to defend our currencies in the face of a rising dollar; dramatic devaluations leave history profoundly marked. So never did it occur to us that those very banks would fight desperately to maintain the value of the dollar and to ensure it becomes no more devalued in our markets.

Of course, there were moments, during certain stabilization plans, in which our currencies were revalued excessively in relation to the dollar — moments in which the dollar represented a currency worth importing. There was the era, for example, of “give me two,” when the Argentine public in Miami bought up as much as they could, because the famous Law of Convertibility of 1991 fixed, for a long decade, the equality of the Argentine and United States currencies. At first, it was very useful as a means of combating expected inflation, but after internal costs grew excessively, the equation became unbalanced, resulting in another devaluation. Although what occurred then was a circumstantial phenomenon, specific to Argentina, what we are seeing today is very different and is the result of a more general situation, born of the progressive deterioration of the currency of the U.S. Consequently, Latin American states will be obliged to buy the dollar as a reserve, to ensure that its deterioration does not continue and further impede exports. For examples in point, Brazil’s reserves have surpassed $300 million and Mexico’s, $130 million: true historic records.

The worst part is that the dollar has no prospect of appreciating. Suffice it to say that, despite the problems in Europe, the euro — the threatened and constantly debated euro — continues to be valued 40 percent higher than the dollar, despite beginning its life below this rate. And if we continue to observe North American issues, the conclusion seems even more certain. Since the breakup of Lehman Brothers in 2008, until the time of this writing, the number of dollars in circulation has tripled. This is no exaggeration: The US$845 billion in circulation increased to $2.39 trillion. Could this have been unwarranted? Could it turn out to be harmless? We may not be economists, but drawing from experience, we do not doubt that such quantitative easing will continue to be reflected in the currency’s value.

Since this situation came to pass, scandalous as it was already, the U.S. Congress has offered a decent showcase of our worst eras of Latin American populism. In doing so, it has given the world an unequivocal sense of finding itself on the threshold of catastrophe, due to a lack of parliamentary understanding among the big party delegations. Most people thought it was unthinkable that the legislators had led the situation to the extreme of producing such a drop and that at any moment, authority would appear to increase the debt limit in return for government spending cuts and other conditions.

Yet, the simple fact that all of the daily papers in all five continents were warning of the possibility of bankruptcy formed irreparable damage. This was not just a financial issue; this was about much more than money, because it exposed a political system that fails to act competently when the greatest responsibility is required.

Michael Rostovtzeff, the Russian classical historian of the economy of ancient Rome, was the first to examine the development of the remarkable construction that was the republic and the empire and has already identified the significance of the devaluing of its currency to the fall of the empire. When we witness what is happening in the U.S. today, we cannot forget that distant, so revealing precedent.

The logic of the facts, unfortunately, is ruthless: There is no substitute for fiscal equilibrium, and there is no currency that does not depreciate when its issuance surpasses the offer of goods and services.

Without wanting to affiliate ourselves with apocalyptic theories that announce, with clarion calls, the decadence of the superpower, no one can argue that the path being taken is going well or that anything that happens is unwarranted. Not in the case of the U.S., nor in our own case, because if the U.S. was a problem before because of its power, it is starting to be one because of its weaknesses.