The Domino Effect is a familiar expression in American Culture, which is used to describe how a series of events plays out through chain reactions. While most of us are familiar with this concept in our personal lives, in sports, and even our careers, most of us never make the connection between how bad economic policies have led to our nation’s failed foreign policy, and national security vulnerability. This is exactly what has happened, however, as our national inability to control government spending has led the Fed to fire-up the printing presses to buy the Treasury’s debt bonds, which has led to international turmoil. The devaluation of the dollar that has taken place since the Federal Reserve starting making new money to buy federal debt has squeezed the American middle class in a way that no other economic policy has in over fifty years. The result of this devaluation in the name of lowering the US Government’s borrowing costs (since printing money drives-down interest rates in the short-term) is higher prices for American consumers for everything from corn flakes to clothes.
These higher costs of living brought-on by the devaluation of the dollar don’t just affect American consumers; they have ripple effects all over the world. This is because while the US represents only 6% of the world’s population, it counts for 33% of the world’s economic output. The result: when the American economy catches a cold, the rest of the world gets pneumonia. Following the financial crisis of 2008, and the Obama Administration’s policy of ratcheting-up government spending in the name of stimulating the private sector, the US Federal Reserve Bank printed trillions of new dollars to help underwrite the massive surge in public spending. The result has sparked inflation in the commodities markets, which upended a delicate international economic balance. When American consumers started being squeezed by higher prices due to devalued dollars, poorer countries in the Middle East and elsewhere started feeling the pain as well. This has led 13 European countries to change ruling political parties since 2008, and has led to uprisings and upheavals in the Middle East which have become known as the “Arab Spring.”
The so-called Arab Spring has now descended into the winter of the civilized world’s discontent, with the rise of Islamic militarism in countries that previously possessed some degree of stability. The most devastating expression of this rising chaos is the emergence of the Islamic State, known as ISIS. Their barbarism knows no bounds, as they spread like a cancer across Syria and Iraq, killing Christians and ethnic minorities in a Nazi-style fashion. As the world economy remains uncertain, this style of militant activity will continue to surge, preying on vulnerable societies led by weak governments presiding over weak economies. America’s money printing problem has destabilized stable regimes, while propping-up dictators and autocrats like Vladimir Putin in Russia. The entire Russian economy is driven by oil and gas production and exports. As such, the Russian economy and, by extension, military strength is predicated on the price per barrel of oil remaining above $100.00 per barrel. The devaluation of the dollar, and the inflation it has produced, has ensured $100.00 per barrel oil for the foreseeable future – which means it will continue to finance Russian aggression against the NATO bloc.
For America to regain its economic vitality, thriving middle class, and leadership position in the world, it must regain sound money. Congress should act immediately to end the Federal Reserve’s free-reign over monetary policy. It should end the dual mandate that the Federal Reserve mess with the money supply to lower unemployment while maintaining price stability. The Federal Reserve should have one mission and mandate: stabilizing the value of the US Dollar to truly stimulate economic growth and provide price predictability to working families. This would have the effect of also stabilizing the world economy, thus taking much of the wind out of the sails of Vladmir Putin, while calming the turmoil in the Middle East enough for our military options to fully neutralize threats posed by groups like ISIS.
If bad monetary policy helped fuel our foreign policy failures, stable monetary policy, coupled with American resolve, could go a long ways toward restoring our prosperity at home, standing in the world, and national security posture.
