Paul Kennedy’s Schizophrenic Editorial About The Dollar’s Future

I was immensely annoyed to read today’s Professor Paul Kennedy’s editorial in the NYT.  He wrote a great book about the decline and fall of empires and then proceeds to ignore his own research to pen a ridiculous article about how the US dollar will sail on and on for some time because….well, because it should.  And yet, at the end of his own article, he talks about how he doesn’t want to be paid in dollars only, JUST IN CASE.  He wants other currencies if the dollar is destroyed by the Chinese.


Op-Ed Contributor – The Dollar’s Fate – —an editorial by Paul Kennedy

Kennedy was born in Wallsend, Tyne And Wear, and attended St. Cuthbert’s Grammar School in Newcastle upon Tyne. Subsequently, he graduated with first class honours in history fromNewcastle University and obtained his doctorate from St. Antony’s College, Oxford. He was a member of the History Department at the University of East Anglia between 1970 and 1983. He is aFellow of the Royal Historical Society, a former Visiting Fellow of the Institute for Advanced Study in Princeton, New Jersey, United States and of the Alexander von Humboldt Foundation inGermany. In 2007-8, Kennedy was the Phillipe Roman Professor of History and International Affairs at the London School of Economics.


He is the J. Richardson Dilworth professor of British history at Yale University in New Haven, Connecticut, United States. He is also the Director of International Security Studies and along withJohn Lewis Gaddis and Charles Hill, teaches the Studies in Grand Strategy course there.


His most famous book, The Rise and Fall of the Great Powers, has been translated into 23 languages and assesses the interaction between economics and strategy over the past five centuries. The book was incredibly well received by fellow historians, with A.J.P. Taylor labelling it “An encyclopaedia in itself” and Sir Michael Howard crediting it as “a deeply humane book in the very best sense of the word”.[1][2]




A generous interpretation of all of this talk is that it actually is rather better for the world to have its monetary exchanges based upon some international “spread” of currencies rather than upon a single one that, if it toppled due to domestic mismanagement, could bring ruin to many innocent players. Had not the great economist John Maynard Keynes proposed this with the creation of the “bancor” in 1944, to head off a dollar-denominated world that would in the end meet its fate of carrying too much on its shoulders?


As the British Empire floundered and then sank, there was general anxiety concerning how the US would run things. The US was the world’s biggest industrial power as well as the major creditor nation on earth. And it still had the gold standard. The Brits desperately needed to have an easy credit/no gold system. The war spending had to continue for the foreseeable future. Britain needed US credit and for this credit to not be restricted by gold reserves.

. This would have been good for the international community and, actually, good for America. Why should the Weary Titan have to stagger under the too-vast weight of its single-currency burden? But Washington vetoed Keynes’ scheme. It’s nice to feel you are Top Dog. Besides, if you possess the world’s leading foreign currency, you can run enormous trade and current-account deficits without being punished for it.


What ails Professor Kennedy? I used to respect him. He has garnered tremendous awards and lavished with praise due to his hard-hitting book about the decline and fall of great empires. Here we are, in the midst of such a fall, he he has fallen off his own pedestal. His editorial is lying, first of all. The US did NOT think being the main currency in the world was a wonderful opportunity to run everything in the red. Far, far from it!


First of all, the US taxed the public at a very harsh rate to pay off the WWI and WWII debts. This kept our credit ratings up. The gold standard was used as a harsh restriction on the creation of world credit and the Federal Reserve as well as other people involved in running the US, worried about inflation. This was thrown away, not all at once but slowly, step by step. And Professor Keynes was cheering this on. He and others of his ilk groused that gold was a straightjacket preventing proper government wealth creation via easy, cheap credit.


Incidentally, the US trade deficit didn’t begin in ernest until after Nixon cut the gold standard entirely. Before then, the US was worried if the deficit was just one or two billion dollars. After the great severance, the deficit basically expanded exponentially and is now a very grave danger to the very survival of the US as an economic force.

. The nastier interpretation of this move toward ending the dollar’s preeminence is, let there be no doubt, an anti-American one. It seems to be in the nature of things that the leading power in world affairs is always resented by countries further down the totem pole, even when that hegemon is fairly successful at distributing what economists term “public goods.”…


Professor Kennedy is a Brit. This means, he can’t see clearly why the Chinese plan to teach him and all the invaders of China, a sharp, harsh lesson. The Chinese public fairly seethes with suppressed rage which sometimes focuses on the communist leadership but also is very intent on redressing past wrongs committed by foreigners. Especially, Britain, of course. The ‘hegemon’ has NEVER ‘fairly successfully…distributed….public goods’ to the Chinese. The hegemon has had one goal: to break up China and keep it broken apart and then, exploit the Chinese as labor and creative force.


The US and UK are one of the major sellers of cheap debts. Both wish to suck down Chinese goods while telling China how to live, do politics and behave in the world. The US and UK merrily invade one country after another, butchering people left and right, at will. While demanding the Chinese not even patrol their own streets to prevent ethnic battles. The US and UK are in the middle of brutalizing barely armed peasants in the poorest countries on earth, while ordering China to stand aside and let peasants riot and burn cities run by China.


The Chinese control their resentment but are not ignoring this double standard. They are hyper aware of it and will hammer us with it, in the future.

. ….So why not, then, push for a more equitable “basket of currencies” to grease the world’s commercial exchanges or, as a variant of that, try to arrange trade through the medium of the I.M.F.’s special drawing rights? .

It turns out that there all sorts of reasons why those SDRs cannot at present function as a common currency — that is, as something you would price a Toyota car in, or as a wad of bills you could withdraw from a cash machine. Their function is intergovernmental by nature and not at all like, say, Barclay’s foreign-currency departments. .

Maybe Professor Kennedy is going senile.  I can’t imagine why he can’t figure out what he is saying to himself.  The entire nature of using gold as the basis for export currency resolution was to prevent a country from debasing their currency so they could buy stuff, ‘on the cheap’ by handing out money that was fading in value faster than it could be spent!  Namely, governments can destroy their own currency, if they wish.  But they won’t be allowed to use it for trade because NO ONE WiLL ACCEPT IT!  Duh.


So, why do countries accept US dollars?  Easy: they know they can turn around and use this money to suck out all US industries.  Because the US has to constantly drop the price of goods so we have no inflation because we owe more and more money. But the more we owe money, the more we have to import goods from cheaper labor venues so we can prevent inflation and this is a vicious cycle which Asia exploits to the hilt.  Asia knows that the more the US and UK go into debt, the more we have to import to keep prices from reflecting the inflation money printing is causing!  And Asia wins!


When the US and UK cease taking on debt, this system collapses.  So our Asian rivals have real strategic interests in keeping this cycle going until they finally own all US as well as their own industrial systems.  Then, we are the slaves of the creditor nations that kept the US dollar on artificial respiration.


This was well explained recently by the financial writer Swaminathan S. Anklesaria Aiyar of the Cato Institute, in Washington (see It should be noted that Aiyar is not like certain nationalist American commentators on this topic who seem to regard a reduction in the dollar’s world role as something like a threat to one’s masculinity. .

In fact, Aiyar cold-bloodedly argues that the dollar’s relative fall will much more likely come as a result of the continued growth of China’s G.D.P. and the future arrival of the yuan as a fully convertible currency — and not as a recourse by the governments of the world to some artificial I.M.F. instrument like the special drawing rights. With the yuan joining the euro, the yen and the dollar as the four biggest foreign currencies by far, there will be even less pressure and logic for substitution of the traditional means of money exchange.


I am just astonished.  HAHAHA.  Good gods!  I keep saying, people can’t see in mirrors for some reason.  And here is proof.  The substitution of the yuan as the currency that resolves world trade deals will happen very suddenly.  Just like the US replaced the British pound.  That is, the old system runs SIMULTANEOUS with the new regime for a limited time.  When the old regime is forced to go bankrupt (the UK had to apply to the IMF to be rescued after less than 20 years of struggle after WWII) the new one rules triumphant.  This is why Nixon could cut the golden Gordian knot right at the same time the Brits gave up entirely on being a solvent empire.


That is, there was no gold-based major currency to retreat to when the old Empire collapsed for good.  The US is limping along with a tattered dollar tottering on the edge of extinction only because the Chinese are methodological people.  That is, the 50 Year Plan is still operative and going quite well, despite the global collapse.


This banking/trade collapse showed clearly that the Japanese method of only relying on exports is a total failure since it is aimed mostly at the dying US empire.  And the Chinese method, which imitates a lot of the Japanese system, is superior because the government of China is making China, not the US, grow stronger and spreading the wealth to the populace, not cutting wages like in the US, UK or Japan.  China displayed its power by not shrinking into negative territory during a global depression.  And taking off faster than competitors.  The US hopes for a 1-3% growth rate while China is betting on running a 9-15% growth rate!  The US and UK are rapidly deindustrializing while China is building industries like crazy.


Not only that, look at this news:


The Next Global Economy: US Postal service stop using dollar for its international transactions

The U.S. Postal Service is valuing its international transactions no longer in the U.S. dollar but in the accepted “currency” of the International Monetary Fund, Special Drawing Rights (SDRs). China, Russia, Brazil and India are calling for a new world currency due to our rising debt and falling dollar. Russian President Dmitry Medvedev pulled the newly minted gold Euro-dollar (valued at $3,900) from his pocket at the G-8 summit in July declaring it the future world currency.


So, the SDRs that Kennedy mocks are being used by the US Postal Service?   Benjamin Franklin must be spinning in his grave!  He was very intent on designing a good US currency and a good postal service!  The gold Euro-dollar will be surpassed by a gold yuan that will not be for domestic circulation but for resolving trade issues.  Now, back to Kennedy’s NYT editorial:


Op-Ed Contributor – The Dollar’s Fate –

Overall, though, these academic papers make some basic sense. We live in a world right now where one single country, possessing only about 5 percent of the earth’s population, has roughly 20 percent of its G.D.P., spends almost 50 percent of its total defense expenditures, and freely prints bills that account for 65-70 percent of global foreign-currency reserves. .

And these reserves are time bombs.  That is, we no longer control our own currency.  The Japanese carry trade created immense seas of US dollars via moving lending from Japan to offshore British colonies and then into the US banking system.  This money is like damming the Yangtze River: if the dam breaks, this red ink money will flood world markets and the US will drown like a rat.


If one believes in the economists’ theory of “convergence” — that is, the coming closer together of the product and income of companies, regions and countries — then the conclusion is clear: As China, India, South Korea, Brazil, Mexico and Indonesia all “catch up,” the American share of things will relatively shrink. Sooner or later — and this debate really is about “sooner” or “later,” not about “if” — we are going to witness another major shift in the global balances of power. .

Even in the shorter term, I guess I would be looking a little more keenly at the current distribution of my portfolios, just to ensure that when I had to come to “render my accounts,” I would not look awfully out of date. And, as an international author, I am happy to take my fees and royalties in many currencies, just to be on the safe side.


After this mishmash mess of an editorial, the professor decides he wants to hold ‘many currencies’ so he won’t be destroyed when the entire thing collapses?  HAHAHA.  Some vote of confidence!  I will note, he doesn’t say he will buy gold.  If I were him, I would.  But I have almost no money to invest in anything right now, so I can only wish.  The global shift in power has already happened.  The US is a deep in debt nation that owes tremendous sums to rival trade powers who have many reasons to hate the US.  We can’t presume they want to make us happy.  They have no reason to presume this.


Mish’s Global Economic Trend Analysis: Barney Frank Says Ron Paul’s Audit The Fed Bill Will Pass In October is good news, by the way.  I pray this bill passes intact and really does pry open the doors of the private Federal Reserve.  This is the first step in turning this private banking consortium into a public entity responsible to our leaders, not a free agent to do as it pleases.  Too many things in the US that should be public, are private and the other way around.  Private banks should hold US mortgages, not a government agency which holds over 80% of these things, just for example.


Private banks should lend money to car buyers, not the US Treasury!  Etc.  And the Pentagon should not pay privateers to run wars, either.  This is a public matter, not a private one.  And above all, Congress should run for office on public money, not private money. This is to keep out corruption and bribery.

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Filed under .money matters, Free Trade

20 responses to “Paul Kennedy’s Schizophrenic Editorial About The Dollar’s Future

  1. w.c.

    1) Had not the great economist John Maynard Keynes proposed this with the creation of the “bancor” in 1944,

    a) henry hazlitt the failure of the new economics //

    if a one wishes to observe a point by point rebuttal of Keynes general theory this is a must read .

    “it is the most devesting attack of one intellectual of other that i have seen anywhere, and it will give you a new and healthy contempt for any one who points to keynes as an economist, or as any one worthwhile to say any thing about economics

    pp 180 thomas woods .. Meltdown ,

    also see Reismans point by point critque of keynes .. capitalism

  2. w.c.

    will note, he doesn’t say he will buy gold. If I were him, I would. But I have almost no money to invest,

    yes. or silver,

  3. nah

    if i get paid in anything other than dollars i quit

    ICP says ‘fuck the world’

  4. nah

    Cerberus clients overwhelmingly want out: report
    how can you not look at these morons and say… I love companies… but you guys are all tied up in some seriously ‘hinkey’ accounting… why would i ‘given a choice’ keep my capitol in what appears to be rigged capitol markets… if x can make money let them

  5. nah

    emsnews is the best… just so you know 😉

  6. if

    Forget properties or shares. Here’s how to make real money:

    From the Bristol Evening Post:

    “Outside Bristol Zoo is the car park, with spaces for 150 cars and 8 coaches. It has been manned 6 days a week for 23 years by the same charming and very polite car park attendant with the ticket machine. The charges are £1. per car and £5. per coach.

    “On Monday 1 June, he did not turn up for work. Bristol Zoo management phoned Bristol City Council to ask them to send a replacement parking attendant.

    “The Council said, ‘That car park is your responsibility.’ The Zoo said, ‘The attendant was employed by the City Council…wasn’t he?’ The Council said, ‘What attendant?’

    “Gone missing from his home is a man who has been taking daily the car park fees amounting to about £400. per day for the last 23 years…!

    “Total sum just short £2.9 million.”

  7. criticalcontrarian

    nah: “emsnews is the best…”

    I second that. This 🙂

    @Elaine: bottomline, all dollars printed after 9/11 “cannot” be backed by gold. Not enough reserves to cover. Problem is close to 90% of this waste paper is in the hands of foreign governments (talk about Ponzi). In my view this means it will not be a drastic drop but a calibrated one. Everything you are watching go on is a Reality Business TV in drama mode to keep the mindless drones in Lalaland. Prepare for the worst, have a Plan B, C & D, and hope for the best. This is a time for extreme creative and entrepreneurial thinking.

  8. criticalcontrarian

    @if: that parking attendant guy is one wickedly warped entrepreneur, way ahead of the government curve. I don’t know whether to salute or not… He screwed the government good.

  9. flipspiceland

    Actually, most people are schizoid about the dollar.

    I know I am. Can’t decide for sure which way to play it short term, long term, or way out.

    He echoes what those who are not in the know are sensing about it. Sure would like to be a fly in Jinbao’s wall.

  10. CK

    £2.9 million, NET.
    Wherever you have retired to Mr Parking Lot Attendant Man, I salute you. Self-employed for all this time and nary a blot on your escutcheon, a true seer of the obvious. A Robin Hood for a modern urban setting. It is to be hoped that there are others who have found their own unique niches inside the belly of the beast.

  11. emsnews

    During the critical phase transitioning from Mao to Madame Mao to the present leadership, my family has been very deeply involved.

    That is, I know personally, the interior thinking of the Chinese communist leadership. When they were not leaders, that is, before they had much if any power, when they were itching to take over from the Maoists.

    They decided, very, very early on to keep the facade of Maoism going because it provided continuity. It is basically a state religion. They feel a certain unease due to the lack of an ’emperor’ such as Japan has. I’m sure they wish they had royals like England or Japan, tucked away for ceremonial purposes and to be used as a shield to keep the citizens as subjects, not real citizens with inherent civil rights.

  12. RS

    I think Krugman and Kennedy are both correct in their assessment, while our Elaine got it all wrong by believing the rules of economics 101 are still applicable.

    Every analysis of the Dollar and the indebtness of the US must take into account the fact that the US defense budget is larger than the defense budget of the rest of the world. If that fact is ignored, the present economic condition of the world can not be understood.

    1) Most of the US Treasury debt is held abroad.

    2) It is neither possible nor desirable to pay back all that debt.

    3) Foreigners hold our debt not because they are economically stupid. No, they are forced to hold our debt by our implicit threat to bomb them.

    4) Krugman and Kennedy know that, but for reasons of political convenience, can not say that in public. Elaine on the other hand, could say it in public, but unfortunately, she does not know it.

    5) The US runs trade deficits around 6% for many years, yet the Dollar still maintains its value. That is possible only if either the rest of the world is incredibly stupid, or there is some other non-economic force overriding the rules of economics 101. That force is the size of our military might.

    6) If the hundreds of billions of Dollars would be diverted from the defence budget into our manufacturing sector of the economy, US exports would start booming and the Dollar would gain in value even if the US military were not existent.

    7) If the defence budget is maintained, the only way to prevent a collapse due to runaway debt is to devalue the Dollar.

    8) The least painful way to devalue the Dollar is to sell lots of debt to foreign creditors and buy lots of cheap foreign goods. That is the position of Krugman and Kennedy.

    9) The most expensive way to solve the debt crisis is to induce a debt deflation via rising interest rates. The result would be massive foreclosures and bankruptcies, unemployment and social misery. A repeat of the great depression of the 1930’s. Do we really want that?


    ELAINE: HAHAHA. Do you know that 90% of our ‘defense budget’ is spent trying to hold down and control a billion angry Muslims itching to destroy us? And on top of this, a billion Chinese, too? And that the Chinese have rockets, missiles and nuclear bombs and ditto, Russia? And it doesn’t cost very much to launch these? And WWIII will be very fast and end with the entire US sans any cities at all? Now, what is this business about us spending a fortune in military again?

    Indeed, we just wasted a trillion dollars fighting street battles with barely armed Iraqis and the poorest peasants on earth in Afghanistan. And we still haven’t won!!!! And this is called ‘bleeding to death financially,’ not ‘great military power’. All China has to do is encourage us to continue bleeding to death. This is why they allow us to hassle oil-producers in Iran. We are digging our economic grave.

    As for trade deficits of 6% being OK: HAHAHAHA. Wow! Um, the dollar is ‘strong’ because Asia and Europe need to keep it strong so they can continue to flood us with exports! Duh. I do hope you read me more in the future. I talk about this matter a tremendous amount since there is no end to the confusion about free trade and how it works. Lord knows, Asians don’t want us to figure out the obvious. We might change course and this is the last thing they want.

    Choosing to fix our defense budget by importing lots of goods and deindustrializing the US is suicidal. We already have the ‘foreclosures, bankruptcies, unemployment and social misery’ that you say, we are avoiding by moving all our jobs offshore.

  13. jim dandy

    Elaine, the idea that we are buying China’s goods seems absurd. Did I miss something or are not the multionational the bulk of China industrialization? We are buying the same products, but produced wth cheaper and more efficient hands. Of course there is a nascent indigenous group of locals that live off of the big fish, but the bulk of $$ or whatever are still controlled by the same groups.

    And what possible threat is the $2 trillion of reserves?? if the USG “pays” them off with FRN’s, at least the interest stops. How is there any net difference…how does it possibly matter. People will still use USD’s because the US is the best place to live.

    I read a statistic that China is buying up huge numbers of residential homes…something like 7-9% if all CA sales were to syndicates funded by asian $$

  14. emsnews

    Hi, Jim! Welcome to the viper pit of my comment section!

    OK: Who owns these ‘multinational corporations’? Some of the stocks are held by US citizens. But NOT ALL. Indeed, LESS AND LESS. Workers get a cut in the profits in a corporation so if jobs move out of your own country and into another country, all the profits that flow to the workers flow out of your country and into the country with the workers.

    Workers at home have no jobs while workers in other countries do have jobs. All the goods bought, via debt, by the country losing jobs, flows towards countries with the jobs that are making the stuff which is being sold.

    The investors in these corporations get to share the profits, too. And get their cut. Increasingly, over time, the workers who get profits also end up buying stocks while the ones losing jobs don’t buy stocks so eventually, over the flow of time, the workers with the jobs end up also being the owners, to some degree, of the corporations that relocated in their own lands.

    See how it works? Very insidiously.

  15. w.c.


    Economics should be the study of the means to achieve proportional contributivity..

    the divison of labor , profit and wages already does that.

    WE HAVE A ECONOMICS MODEL .. ALREADY .. but nobody will notice as they prefer socialism and the exploitation of the workers ,

    all this made up economic modeling ,, like warmed over mush,,

    i bet ten bucks blue you have no understanding of reismans capitalsim .. of mises, and the austrian model

    yet persist in following a siren call .. Odysseus was curious as to what the Sirens sounded like,..

    they sound like keynesian music and the dreadful attempt to duplicate failure.

    open the ears to the sound of the austrain model,, never really tried in full.. yet even half assed it brought higher wages, higher standards of living and a glimps of mans higher longings ,

    until the state and business morphed in to a false capitalism .. the industrial military complex.

    the fed, and its host of pARISITES sucking the life out of the living ,

  16. emsnews

    The ‘Austrian model’ has some historic problems, to put it mildly. Adhering to any ideology is foolish. All have good points and very bad points. Picking and choosing which is which is the hard work.

  17. w.c.

    name the problems .lol. lets get to the bottom of the problem .. where do you see the fallacys,,

    its one thing to ssay it does another to point it out.. start from the wage principle ,,

    slow one pont at a time we will look closer.

    in the fog, the mog, lets see of the reaons are a dog.

  18. emsnews

    Perpetual depressions are no fun, for one.

  19. w.c.

    ems news

    37 milligrams paxil before bed

  20. openly hidden

    blues said: “….This could well take a century to accomplish. Meanwhile, our most unfortunate population has been conditioned to perceive physical labor as menial and base, as “clean handed” service work has come to betoken elevated status. The primary massage has been “go to school so you can work with your brain instead of your back.”
    absolutely correct. so who lays the golden eggs for everyone to parasitically live off of in the future? someone has to make an honest living. or not…. farm machinery now comes satellite operated humans not even needed soon like fighter planes and robots do the actual manufacturing. i predict everyone gets a government job in the future….or maybe even more tittytainment is the only answer for the unnecessary 80% of the population.

    debt slaves? or tax serfs? the only choices?

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