Taking Away the U.S.'s Punch Bowl

In Jeopardy: U.S.' "Punch Bowl" Privileges

The job of the Fed is to take away the punchbowl just as the party gets going.

--former Federal Reserve Chairman William McChesney Martin

What if the Fed won't take the punch bowl away? Or can't? Indeed, what if official U.S. policy is to keep replenishing the punch bowl way past the point that all the guests -- not to mention the host -- are inebriated?

What happens then feels a lot of like what's happening now:

--Key U.S. trading partners become increasingly reluctant to accept U.S. dollars for their exports;
--Key U.S. creditors, such as China, Japan, and Germany, telegraph that their willingness to keep buying -- indeed, holding-- U.S. debt is finite;
--As a result of both of the foregoing, the dollar weakens and the cost of servicing the U.S. debt rises; which in turn . . .
--Accelerates a concerted, multi-lateral push to replace the dollar as the world's de facto reserve currency with a basket of world currencies.

It's as though, after more than a half century of relative calm, the world financial system is waking up to the realization that the status quo has a major loophole: it rests on the discipline of U.S. monetary authorities to parcel out credit judiciously.

Like any privilege, if it's misused, it can be revoked.

By whom, and how, is what's now on the table.