|Wim F. Duisenberg (1935-2005) was the first president of the ECB (1998-2003)|
copyright David van Dijk
The temporary effect of the way in which both dollar crises were resolved was a restoration of confidence in the US dollar, even though the US debt would rise even further as a result. The solution to the 1971 US debt crisis created a 'dollar-overhang' – too many dollars circulating outside the United States. The 1979 solution produced the reverse – too many dollars going to the United States, largely invested in US Treasury bills.
Will there be another US debt crisis because of the rapidly growing US government debt? In this regard, Dutch central banker Duisenberg said, 'The situation we find ourselves in now, will, in the long run, become unbearable both for the United States and for the world.'
Triffin found that more European central bankers were thinking like Duisenberg: 'Not so long ago I spoke to one of them and he agreed that it is absurd and untenable that the United States sucks in hundreds of billions of dollars from the rest of the world.' The former Bundesbank president, Emminger, who had dismissed at the beginning of the 1960s, Triffin's reform plans was now on Triffin's side. In his “The Dollar’s Borrowed Strength,” Emminger writes:
'The present payments imbalance (the wealthiest country in the world borrowing abroad on an unprecedented scale) and exchange rate distortions (the high dollar) are not sustainable forever. However, nobody can predict when the inevitable turnaround will come .... Nor is it as yet foreseeable whether it will be forced upon the United States from abroad – e.g. by a decline of confidence on the part of foreign investors – or whether the United States will itself be lowering its need for foreign funds – e.g. by cutting its budget deficit [author's emphasis].'
When the next US debt crisis emerges, the interesting question will be what response is chosen. The two preceding crises demonstrated the paradoxical power of the United States; the largest debtor of the world made its creditors – the rest of the world – see a stake in keeping it going and helping it incur an ever higher debt.
[excerpts from "The International Monetary Crunch: Crisis or Scandal?", Alternatives, July 1987.]