Misplaced enthusiasm

The first Gilded Age in the United States occurred in the late 19th century.

Then that nation was beginning to ascend as the world’s foremost power, supplanting Britain. Wealth was displayed flamboyantly, and extravagant lifestyle became relatively common.

Now one could argue the United States is experiencing a repeat of that epoch, but with less substantive recourses to sustain it.

Nowadays there are individuals accumulating huge fortunes and placing funds in the U.S. as a safe haven. In the dark days of the previous decade, there was a pervasive wish to have dollars.

The Federal Reserve Board (FRB)  offered to exchange other nation’s currencies with the U.S. counterpart.

 Why did the FRB agree to that? It was concerned that a problem overseas could eventually affect the U.S., but in addition, it wished to sustain the privilege of being the reserve currency of the world. That would enable the U.S. to pursue policies in its own interest.

One would have assumed the financial crisis at that time would have eroded the strength of the dollar. Banks were over-extended and many industries were in a depressed state.

Then, bolstered by the actions of the U.S. monetary polices and the infusion of billions of dollars into the economy, there was a surge of confidence, and massive inflows of foreign capital followed.

Throughout the world people flocked to the United States, many with ill-gotten gains, such as the oligarchs in Russia and illicit activities in Latin America, converting their wealth to U.S. dollars.

Foreigners sought the stability of the nation. It was the world’s biggest economy and its sophistication was reflected in the depth of its financial markets. Lavish real estate was purchased, in part as money laundering of illegally acquired wealth.

Mansions sprung up in Vancouver and Toronto, and high-end retailers flourished. As more sought and held U.S. dollars, a reinforcing circle followed. A second Gilded Age appeared on the fringes of the economy.

Initially funds were placed in U.S. Treasuries, but later in the stock market and in questionable ventures. Misconceptions have been ongoing.

However, all but forgotten is that the U.S. government is dysfunctional. It has not a balanced federal budget, except for a few years, in nearly a century, engendering a national debt of $17 trillion. Its foreign trade has been in a deficit since the end of the Second World War, and the government is incapable of curbing entitlements that are bankrupting the nation. The lifestyles of the wealthy are without any real substance; the strength of the U.S. currency is based on misplaced enthusiasm.

In times of crisis the U.S. dollar will remain paramount, but its longer term outlook is in jeopardy. Fortunately, Canada is in a much better position.


Bruce Whitestone