Written by Richard Butrick   

Indeed, why hasn’t the huge increase in the national debt coupled with feckless government spending (from Solyndra to cash for clunkers and other quixotic [1] stimulus packages) caused the collapse of the dollar and the resulting consequences of market collapse, inflation and unemployment? Why haven‘t the dire predictions of the Monetarists come to pass?

A country’s currency will collapse if there is nothing of value behind the currency - nothing of value that the country has that other countries want. After WW2 the US was the only manufacturing powerhouse in the world. The US dollar was backed by its manufacturing prowess. Holding dollars meant you could buy manufactured goods from washing machines to automobiles. Then towards the end of the 20th century the US became the IT powerhouse of the world. The dollar was backed by IBM and Microsoft and the huge boom in IT generally. By the turn of the century the US was no longer the manufacturing powerhouse of the world and losing its status of monopoly on IT software and hardware - though the Apple “dollar” helped the US dollar keep some of its clout. Throughout the whole period agricultural exports also added strength to the dollar as did US powerhouse financial institutions like Goldman Sachs and Morgan Stanley. By the turn of the century the US advantage in these areas was minimal at best. The US dollar was not backed by anything the world could not get elsewhere. Moreover, the need to import oil meant all forms of manufacturing and agriculture operated at a disadvantage. The dollar was losing its clout and there was talk of replacing [2] the dollar as the international medium of exchange. It also meant the huge deficit spending of the US would no longer be supported by other nations. The Obama red solution (red ink, red tape, red politics) to the US economic problems was bound to cause a collapse of the dollar, the stock market and result in stagflation coupled with high unemployment.

Why hasn’t it happened?

In a word - fracking. The US has gone from the manufacturing dollar to the IT dollar to the fracking dollar. The US is now an energy powerhouse [3]. That means cheaper energy [4] at home and relative advantage [5] in all forms of production of goods.

As Richard Rahn of the Cato Institute, in a compelling presentation shows, it is the fracking dollar that has saved the Obama administration from Monetarist predictions [6].

Without fracking of oil and gas deposits, there would have been no economic growth in the U.S. over the past five years. …

Unconventional oil and gas producers, including suppliers of equipment and materials, and energy-related chemical production already support about 2.5 million new jobs, which is equal to about 1.8 percent of the work force. By 2025, an estimated additional 3.9 million jobs will have been created. On average, these new jobs pay more than jobs in other industries. …

Disposable income per household has already improved by about $1,500 this year, as direct costs for natural gas have been reduced to heat homes and water, plus the indirect benefits of lower prices of many consumer items from manufacturers because of their reduced energy-input costs. This improvement in household disposable income will continue to grow and by 2025, it is estimated that household incomes will be more than $3,500 higher owing to unconventional oil and gas production.

This has happened in spite of the spend-your-way-to-prosperity Keynesian policies of the Obama administration and not because of their spendthrift policies. US currency is now backed by black gold – call it the Fracking Dollar.

[1] http://townhall.com/tipsheet/guybenson/2012/02/17/grim_milestone_the_third_anniversary_of_obamas_failed_stimulus
[2] http://articles.latimes.com/2013/oct/14/business/la-fi-shutdown-china-20131015
[3] http://oilpro.com/post/2944/marcellus-shale-and-others-making-us-energy-powerhouse
[4] http://cbcapitalresearch.com/2014/07/27/how-fracking-saved-the-u-s-economy/
[5] http://www.energyandcapital.com/articles/how-fracking-is-saving-the-economy/3810
[6] http://www.cato.org/publications/commentary/how-fracking-has-saved-obama