My Take | The end of the dollar-based US empire will be a self-inflicted blow
- The recurrent fights over America’s debt ceiling – which determines the US government’s ability to honour its debt, raise money and pay its bills – is about the most decadent sign of political decay and decline there is. Effectively, the US is threatening to financially sanction itself
In Game of Thrones, HBO’s smash hit series spanning almost the past decade, there was a common saying: “A Lannister always pays his debts.” The line was so important and epitomised House Lannister that it even warranted its own sombre musical theme in the series.
Since this dominant house was famous or infamous for its cunning and ruthlessness, the Lannisters did not honour their debts out of honesty and goodness. They understood that their reputation – what we might call creditworthiness – was the foundation of their power and dominance: they could borrow cheaply, whenever and as much as they wanted, to do whatever they liked.
The American government has been in a similar situation since the end of World War II; this has been called the “exorbitant privilege”. So why some US politicians would now want to threaten that special status, is indeed puzzling to outsiders. They are undermining their dollar supremacy, which ultimately underpins the United States’ global hegemony. They may again prove right a well-known observation by historian Arnold Toynbee, according to whom great states and civilisations do not die by murder but by suicide.
The most obvious self-inflicted injury in the US today is the ritual debate in Washington over the so-called debt ceiling. There ought to be no debate about the absolute commitment of the US government to honour its debts, but now they do, thanks to the Republicans. Many people brush it off, dismissing it as “just Washington politicians playing politics”. But imagine how the storyline of Game of Thrones might develop if a few Lannisters, say, Tyrion, who for a while was a drunk and a womaniser, and Joffrey, a sadistic narcissist, periodically threatened not to pay up.
OK, that’s the explanation for the 10-year-old me. I ask this same question about US sovereign debt, usually called US treasuries, of an engineering friend with an MBA from INSEAD. He offers a more technical explanation by sending me this equation: