THE TIDE IS TURNING
generation – at the most – of losing its top spot. Strategists from investment bank Goldman Sachs earlier this year warned that nosebleed levels of borrowing by the Fed were triggering “debasement fears” about the dollar – which could bring about inflation and the end of the dollar’s dominant position. In October, the Financial Times warned that the U.S. has “squandered its exorbitant privilege” as a reserve currency. What happens when the rest of the world gets tired of the U.S. dollar? The value of it will drop. Again, that’s not happening tomorrow... There’s nothing that’s about to replace it. But markets have a way of figuring things out... creating solutions where one doesn’t exist. And the time of coming up with a solution to the U.S. dollar might be sooner than anyone thinks. ‘Hard Power’ Isn’t Made for Endurance On the global stage, the United States has become a bully. And that matters for your portfolio... in a way you might not think. Under Trump’s “America first” approach to dealing with the rest of the world, the U.S. has ignored or abandoned long-held security and multilateral arrangements and commitments – such as pulling away from allies in Europe and from NATO, leaving the critical Treaty on Open Skies for arms control, and suspending funding to the World Health Organization in the midst of a global pandemic. The government also weaponized trade deals and adopted a transactional (instead of
partnership-oriented) approach to economic relations with both allies (like European countries) and adversaries (such as China). And it’s used the dollar payments system for political purposes to punish countries and individuals – including Iran, Venezuela, and people and institutions in China and Russia – by denying them access. In other words, in recent years, the U.S. has relied on so-called “hard power” – military might and economic heft – to get its way. And it’s been destroying its huge reserves of “soft power” – powers of persuasion and influence to win hearts and minds by demonstrating leadership and values – along the way. A bully might get his way today, but he doesn’t inspire loyalty. It’s the charismatic and smart soft-power-savvy kid who everyone likes, who manages to win others to his side for the long haul because he’s a leader of people. The trick to an enduring power is to have a broad and deep reserve of the “soft power” of influence – and to be able to back it up with hard power when necessary. But with Donald Trump, it’s been hard power all the way. And if your only geopolitical tool is the hammer of hard power, everything looks like a nail... even if hard power alone might do more damage than good. It’s been a sharp turnaround from the post- war era of Kumbaya-join-hands of American hegemony. The so-called liberal international order championed democracy, trade, and
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November 2020
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