at risk of suffering systemic crisis. In the United State's case, this can be seen as an over relianceon 'exorbitant privilege
'.However, incumbency in financial and economic markets has not lost all value and theUS dollar retains much of its clout today; the currency still maintains a high degree of value withregards to its counterparts in terms of risk and yield(Bremmer, 2010; Cohen & Delong, 2010)andthe Federal Reserve Bank & the Treasury department can still apply traditional methods of monetary and fiscal policy (Halper, 2010; Eichengreen, 2011)-albeit with a lesser degree of effectiveness than prior to the crisis. In the Post-Lehman global economy, the economicregulatory bodies of the United States cannot repeat the same kind of 'stop-gap' measures they performed I order to mitigate the crisis post-Lehman; to do this would be to tempt mass-migration by investors worldwide away from the dollar; Barry Eichengreen sums this fairly well,
The Fed [could] again step into the breach [in the event of another systemwide shock], buying up bonds to support the market and prevent treasury yields from spiking. But in contrast to the previous scenario [the first time, circa 2009], in this case the Treasury will at the same time beflooding the market with additional debt. The Fed will be compelled to buy this debt, too, if private demand has evaporated. Investors will see this as a process without end. They will see theFed’s bond purchases and the cash that it is pumping into the economy as auguring inflation,which will mean further dollar weakness, and worse. The decline in the currency will feed onitself. In the face of these problems, there really could be mass migration away from the dollar.(Eichengreen, Exorbitant Privilege, pg 162-163)
So to overly discount the near-collapse
of the United States is to risk ignorance of the truecondition behind the global economy today. In turn, those seeking to understand the true natureof the US dollar and its role in finance and economics today will gain significant clarity andinsight through analysis of the particularly intriguing - often anomalistic (Laporte & Ansell,
Although 'exorbitant privilege' as a term has been salient in economics and finance for some time and thus has a number of connotations, here it is taken as Barry Eichengreen's intuition into financial and economic incumbency advantages. Giventhat the current economic system(circa Bretton Woods) was created with the dollar as an international currency of choice,the dollar then certainly enjoys a degree of this 'incumbent advantage'. Consequently, the use of the dollar across the globehas resulted in a number of economic, political, and financial irregularities; One of these is the dollar's role in a significantamount of international trade(Bremmer, 2010; Cohen & Delong, 2010). Another is the role as the dominant reserve currency,essentially functioning as a 'lowest-risk' currency asset(Kawai & Prasad et al, 2011).
Its not so much 'failure' as an abrupt paradigm shift that has resulted in the 'West' or 'Advanced Economies' outputing ZEROreal GDP growth between 2007 and 2011; “At the beginning of 2012, the total REAL GDP of the rich economies will be nohigher than it was at the end of 2007.” -Economist: The World in 2012