Fixed fortifications are a monument to the stupidity of men," said General George Patton. The same belief is true for the commitment to the Hong Kong dollar's peg to the US dollar. Hong Kong's current monetary system is the root cause of many of the social and economic problems plaguing the city. The Hong Kong Monetary Authority is caught in its own intellectual cul-de-sac: that the peg must be maintained at all costs from the viewpoint of a stable Hong Kong dollar. That is a gross mistake. The problem is that they are failing to see the peg's problem is the US dollar, which has become a debased currency. It is dragging down more than Hong Kong's monetary policy - it threatens its society and economy. Yet it is defended by bureaucrats with a fervour and sense of mission displayed by worshippers of Stonehenge. The US Federal Reserve's decision to not increase interest rates is unsurprising because a rise of 25 basis points does not matter very much in the scheme of greater horrors that awaits everyone. From a longer-term view, record-setting volatility and a global market crash are the real threats. If the US economy experiences another downturn - very well possible since the reason quantitative easing has lasted so long is that the recovery has been weak and unsatisfying - what will be frightening will be the economic outcome because central banks will have a diminished ability to ease monetary policy. And the cure is worse than the malady. Raising interest rates by even a small amount could be hazardous. A quarter percentage point rise in rates is equivalent to US$45 billion in additional interest payments for the US government. And if the idea of normal rates is about 6 per cent, the national debt payments would balloon to a dizzying US$1 trillion. Despite persistent warnings from Fed and HKMA officials that quantitative easing is ending, it is conceivable that interest rates will never become normal again in our generation. And even if low interest rates do not last indefinitely, they have endured long enough to do damage in the US and Hong Kong for decades. Quantitative easing, as part of an activist Fed policy, has proven to be ineffective. It has pushed global financial markets and Hong Kong's property sector to an edge where a controlled retreat is unlikely. HKMA chief executive Norman Chan Tak-lam recently said: "In terms of Hong Kong's property market, the disconnect between the purchasing power of our citizens and the high valuation has become very serious for quite some time." The recent devaluation of the yuan, the failure of quantitative easing and Hong Kong's determination to maintain its peg are only a part of the problem. It is evident the city's economy has become ossified and has lost its competitiveness with the mainland and the world. Prices are too high. Cartels squeeze out competition. The city no longer manufactures anything and its dominance by landlords keeps rents at stratospheric levels. A recent decline in tourism numbers has Hong Kong government officials worried. Even with 45 million mainland visitors a year, it is evident the city's landlords and retail businesses have become overdependent on them. The business establishment refuses to engage in structural reform. The government does not have the ability or the will to restructure the city's economy in a meaningful way. So the smartest move for the government and the HKMA is not to leave the peg, but to sharply devalue it. Think of how a 20 per cent devaluation would improve Hong Kong's competitiveness, and how it would reduce costs such as rents for foreign investors. A deep enough cut to the peg might even be able to revive the manufacturing sector, making Hong Kong competitive against Shenzhen. Such a desperate, yet astute move would be politically difficult, if not impossible to lead, in today's environment. But the alternative is more social unrest, rising unemployment and growing disparity of wealth. Historically, currency pegs were always meant to fall, it is just a matter of when. Rather than becoming a victim of history, Hong Kong's policymakers need to see that this is the only way out for the city's permanently slowing economy. The HKMA holds US$340 billion in foreign reserves and a 400 billion yuan (HK$486 billion) swap line with the People's Bank of China to defend against speculators. Hong Kong people would benefit more from a surprise devaluation rather than a wasteful and hopeless defence of the peg.