Mr. Chairman, I thank you for holding this hearing on the state of the international financial system. The Treasury Secretary has neglected to appear to testify on this topic for several years, so I hope the committee will treat this topic with the importance it deserves during this Congress. It is especially important because of the work the G20 has undertaken on global currency reform since 2008. What role US representatives have played in these negotiations is unknown to Congress, nor do we know what global currency reform initiatives are being discussed. I fear that the G20 negotiations will result in a fait accompli that will be forced upon the American people with no opportunity for input or debate.
Ever since the closing of the gold window by President Nixon in 1971, the unbacked US dollar has served as the world’s reserve currency. No longer constrained by being required to exchange dollars for gold, the US government has been able to fund its fiscal profligacy with trillions of dollars of new money created out of thin air. The only constraint on government spending is the willingness of investors to continue to purchase the Treasury debt issued to fund the government’s massive fiscal deficits.
The federal government’s fiscal profligacy has caused the national debt to skyrocket to well over $15 trillion. Even with nearly a trillion dollars of daylight under the current debt ceiling, it is highly likely that the federal government will reach this limit before the November elections. Foreign nations, especially our major creditors such as China, are watching keenly to see if Congress is serious about getting spending under control. Foreign creditors hold $5 trillion of Treasury debt, debt which is becoming increasingly devalued as the federal government runs trillion-dollar deficits and the Federal Reserve continues its trillion-dollar quantitative easing programs. Another increase in the debt ceiling would signal that Congress is not serious about reining in spending and would foreshadow a further decrease in the value of the dollar.