In a new op-ed Joseph Stiglitz argues that due to the national debt (projected to be $9.05 trillion over the next 10 years), America should get on the we need a new reserve currency beyond the dollar bus. Kind of a if you can't beat 'em, join 'em message. (see China and the Dollar for details on the Chinese game of chicken while pushing for a new reserve currency).

Our budget deficit, as well as the Federal Reserve's ballooning lending programs and other financial obligations, will accelerate a process already well underway -- a changing role for the U.S. dollar in the global economy.

The domino effect is straightforward: Higher deficits spark market concerns over future inflation; concerns of inflation contribute to a weaker dollar; and both come together to undermine the greenback's role as a reliable store of value around the world. Right now, with so much unused capacity in the American economy and so much unemployment -- likely to persist for at least another year or two -- the more pressing worry is deflation (a general decrease in prices), not inflation. But as the economy eventually recovers, the possibility of inflation will loom, and with forward-looking markets, worries about the future often play out in the present. Anxieties about future inflation can lead to a weaker dollar today.

I would also like to note a Stiglitz validation statement to what we on EP have been talking about with deficit spending and how U.S. taxpayer funds are helping offshore outsource jobs and fueling political cronyism.

What really matters is not the size of the deficit but how we're spending our money. If we expand our debt in order to make high-return, productive investments, the economy can become stronger than if we slash expenditures.

Stiglitz also notes how inflation would reduce in real terms, the value of the debt, which from the above, we know China is very worried about. But here is what he says about it affecting U.S. job growth:

The current system is not only bad for the world, it is bad for the United States, too. In effect, as other countries hold more dollar reserves, we are exporting T-bills rather than automobiles, and exporting T-bills doesn't create jobs. We used to offset this drag on the economy by running a fiscal deficit.

Stiglitz also mentions poor countries putting aside money to prop up the U.S. debt as immoral. Considering China is slated to be the world's largest economy and new global economic superpower, plus if anyone bothered to get out more and just look around (or look down at the homeless person you're stepping over to enter your front door), you can see entire sections of the United States looking identical to 3rd world regions of poverty. So, honestly I just don't feel so guilty on that score!

Being the world's reserve currency has enormous economic advantages. Better purchasing power, lower interest rates, less transaction rates and trading in the currency of choice for commodities (can you say oil?).

I question the implications of this idea, unless one wishes to celebrate the great economic decline of the United States into 3rd world status. Without major policy changes internal to the U.S., namely moving back to a production economy first, I'm not convinced such a move would help the U.S. at all.