Recent fluctuations in Treasury markets have illustrated a significant paradox: a core aspect of American financial power is now constraining the state, highlighting its dependence on capital. Since the 2008 financial crisis, U.S. economic policy has operated under the assumption that global markets for government debt were stable, which allowed for prolonged deficits to finance extensive tax cuts and escalating military spending. However, this assumption is increasingly in doubt.
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Concerns over rising inflation and uncertainties regarding the Federal Reserve's actions to address it have driven up borrowing costs for the U.S. government. Last week, the ten-year Treasury rate surpassed 5 percent, reaching its highest level since 2007. While former President Donald Trump pushed for lower interest rates, the Fed felt compelled to increase them, signaling potential further hikes. This situation challenges the notion of a diminishing independence of the central bank, as the Fed's need to enact monetary austerity is rooted in the structural demands of capitalism.
Trump's attempts to exert control over the Fed have diminished in effectiveness amidst these constraints. Furthermore, reactions to these changes may ignite discussions about the decline of the U.S. dollar's dominance, especially with concerns over Iran's willingness to sell oil in renminbi. Such events have prompted speculation about the decline of the 'petrodollar' system, often associated with de-dollarization efforts from countries like those in the BRICS.
However, it is a misconception that the U.S. empire's strength relies solely on the pricing of commodities in dollars, as the dollar's prominence is tied to its central role in the global credit system and the overall strength of the U.S. economy. Sustained demand for dollars is supported by substantial private investments in the United States, despite a gradual decline in the dollar's share of global reserves. The dollar's role in credit markets ensures that many entities are linked to dollar-denominated obligations, indicating that debt is as crucial—if not more so—than fossil energy in driving global capitalism.