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Opinion
Trump is single-handedly slaughtering America’s ‘exorbitant privilege’
The US president is systematically destroying faith in the dollar in global financial markets and among governments and central banks
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Desmond Lachman, a senior fellow at the American Enterprise Institute, is a former deputy director of the International Monetary Fund’s Policy Development and Review Department and a former chief emerging-market economic strategist at Salomon Smith Barney.
When he was France’s finance minister in the 1960s, former French president Valéry Giscard d’Estaing famously complained about the “exorbitant privilege” that the dollar’s position as the world’s leading reserve currency conferred on the United States.
This meant, essentially, that the US could borrow at low interest rates, run persistently large trade deficits and print money to finance its budget deficits. He never could have imagined the US would end up letting these advantages slip through its fingers.
Since returning to the White House in January, US President Donald Trump has been systematically destroying faith in the dollar in both global financial markets and among governments and central banks. For starters, Trump has put America’s public finances on an even more unsustainable path than before he took office.
When Trump began his second term, the US budget deficit had already widened to 6.2 per cent of the gross domestic product, with nearly full employment, while the public debt-to-GDP ratio had risen to around 100 per cent. But things are about to get much worse.
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