The United States is struggling with the paradox of dominance: the exclusive position of the dollar as a planet reserve currency, a structural advantage so lasting that it began to be seen as destiny.
This ‘extreme privilege’ reduces borrowing costs and weakens fiscal discipline, catalysing chronic budget deficits and driving public debt to exponential trajectory. At the same time, the sustained global request for dollars keeps the exchange rate structurally high, weakening exports and deepening current account deficits.
These imbalances are financed, with a disarming ease, by the abroad absorption of American assets that perpetuates the latent but binding leverage over the American economy. In this way they origin a calm but yet deceptive sense of balance.
The deceptive premise acts not as a pendulum, but as a caustic mechanics turning in 1 direction only. Its effect is to hide the cumulative reallocation of production capacity in the US from global trade sectors towards finance and consumption.
This trend shows that the U.S. monetary primacy comes down not so much to a cost-free, salvific profit, as to a sneaky, long-lasting variety of Dutch disease, masked by appearances of exceptional and seemingly indisputable fitness. economical history, briefly studied, emphasizes this strategy in a more clear way.
Dutch illness logic: How narrow success breeds universal failure
"Dutch disease" is simply a counter-intuitive economical pathology in which supposedly successful development, specified as the discovery of immense natural resources, undetectedly undermines the productive foundations of the economy.
In the wake of the Dutch gas boom in the 1960s, this word means a dynamic in which unexpected gross attracts investment and labour to a dynamically developing sector, and by expanding request for national currency it gives real appreciation to the exchange rate which undermines the competitiveness of another trade-related industries.
From a political economical perspective, the concentration of natural material pensions (surplus profits exceeding average marketplace profits resulting from the holding of natural resources alternatively than from diversified production activities) and fiscal dependence on them redirect incentives for their extraction and distribution alternatively than diversification of production.
The allocation of pensions brings immediate and visible political benefits. Diversification, in turn, requires widely dispersed and slow-growing investments that deficiency concentrated electorate, making them more politically risky. This asymmetry of political incentives perpetuates dependence on 1 variable origin of income throughout the economy.
As the state's revenues grew rapidly and the energy sector grew, labour and capital migrated to the rapidly increasing energy and protected sectors of the economy. In their shadow, the productive companies of conventional industries, which erstwhile formed the basis of the export economy, fought to last in the face of a abrupt deterioration in cost competitiveness. Many responded with mass layoffs and then disappeared completely. Long-term investments have been pushed out, even though the main indicators inactive suggested sustainable prosperity.
Supported by gas revenue, the Dutch authorities considered the improvement in the macroeconomic situation of the country as evidence of a sustainable fiscal space. Based on this assessment, they adopted a more expansive fiscal policy which translated into an increase in wages and transfers in the public sector and yet led to an increase in the budget deficit.
In the late 1960s and early 1970s. The 20th century political decision-makers concluded that the gas boom not only increased national wealth, but besides reorganized the economy in a way that weakened its industrial core. The irony of destiny was clear: even strong institutions and the erstwhile extensive, competitive industrial structure did not supply the Netherlands with resilience to the damaging structural side effects of its own success.
This episode became paradigmmatic as it transformed the exogenous shock in the gross of the natural material sector into a canonical case of structural imbalance in organized systems. In fact, it has revealed general dynamics: abrupt profits can weaken alternatively than strengthen societies, economies, institutions or associated structures.
Even well-managed, advanced systems can neglect erstwhile sudden, concentrated profits – financial, technological, geopolitical or another – distort information signals and distort political stimuli. Over time, these discrepancies weaken discipline, foster strategical shortsightedness and divert resources from their most productive applications. In this context, short-term profits push out patient, productivity-enhancing investments, gradually undermining long-term competitiveness. erstwhile favorable conditions cease to apply, basic fragility is revealed.
In fact, Dutch illness is an economical mechanics through which unexpected wealth leads to a wider paradox of abundance, a dilemma of management resulting from abundance. The unexpected profit itself is simply a “good problem”, but it can become destructive erstwhile prosperity mitigates limitations in the full structured system.
This dilemma can be resolved through reasonable strategical and organisational action. In the economical sphere, this entails an active industrial policy (including strategical support for the negotiable industries), supported by prudential fiscal institutions (such as state wealth funds).
A Wandering Disease: A Dutch illness in the World
Dutch disease, despite its name, is not so much a peculiar Dutch anomaly as a persistent global tendency to stumble over abrupt riches. This is simply a recurring historical pattern in which the concentrated success, in a broad spectrum of manifestations, disturbs the systemic balance, as unexpected gains favour the dependent political economy, raising the value of currencies, eliminating production from global markets and weakening incentives for structural modernisation.
The influx of silver from the fresh planet to Spain in the 16th century fueled persistent inflation and excessive imperial expansion, while destroying national production capacities; the Australian gold fever in the 19th century fueled wage and price increases, undermining the emerging production; the expansion of oil in the 20th century transformed Kuwait, Nigeria and Venezuela, exerting force on real exchange rate increases, perpetuating fiscal dependence on natural material pensions and expanding vulnerability to fluctuations in natural material prices.
Or consider Nauru, a tiny island country in the Pacific whose phosphate mining boom in the 20th century yet led to extraordinary wealth per capita in the 1970s and early 1980s, before the depletion of resources and financial inefficiencies did not lead to serious economical instability in 1 generation.
Even well-managed states were not immune: North Sea oil changed industrial incentives in Norway and large Britain in the 1970s and 1990s, exerting force on wage increases and real exchange rates and undermining the competitiveness of the negotiable sectors.
The financial boom in the UK after 1986 contributed to the improvement of a metropolitan variety of Dutch disease, focusing capital and talents in London at the expense of production regions in the Midlands region and in the north. On the another side of the Atlantic, technological wealth in the San Francisco Bay area besides increased costs and drove distant alternate industries.
The more contemporary manifestations of the natural material curse, understood both in a narrow and broad sense, are structurally analogous: the sharp increase in exports of crude oil and base metals raised the Canadian dollar value during the supercycle of natural materials in the early 21st century; the sharp increases in mineral prices fueled mining expansion in Chile and Australia in the 2000s. and at the beginning of the 21st century; an influx of aid after disasters that triggered inflation in any parts of Asia after the 2004 Indian Ocean tsunami; or a single corporate giant, pharmaceutical leader Novo Nordisk, having a disproportionate impact on Danish economical growth in 2010 and 2020.
Over the centuries and continents, this strategy has undergone constant change, but the logic of unintended consequences has remained unchanged: concentrated prosperity, regardless of its source, has repeatedly destabilized the systemic balance, raising costs, narrowing down the production scope and redirecting incentives to manage unexpected gains alternatively of exceeding them.
The structural paradigm of ambivalent abundance offers permanent lessons: erstwhile prosperity narrows down alternatively than widens the economy, today's unexpected profits turn into tomorrow's restriction; erstwhile the dominant origin of income gains disproportionately advanced weight, it displaces the others.
In practice, resource dependency frequently involves limited growth, advanced volatility and progressive organization distribution. If unexpected gains are not utilized to discipline and diversify the economy, what begins as a blessing can culminate in a slow, self-imposed fall.
Dutch transposition disease: dollar primacy and industrial erosion
Although the details differ, the global dominance of the US dollar can be diagnosed as a contemporary manifestation of a Dutch disease, a pathology of poorly managed abundance – stretched on a full scale, yet operating at a slow pace; little spectacular than an unexpected natural boom, but not little significant.
The "exorcated privilege" of the dollar as a planet reserve currency was both a pillar of financial dominance and a origin of structural burdens, strengthening financial dominance while gradually destroying the country's production base, structurally weakening it.
In broad terms, industry's expropriation – a side effect of dollar dominance, resembling a Dutch illness – does not mean the extinction of factories: America has not stopped producing. Rather, it represents a structural change characterised by a weakening of the systemic presence of the manufacturing industry.
In fact, industry's clearness is not about producing little goods, but about producing little of what the economy needs to produce to meet strategical needs in a rapidly changing geo-economic landscape.
In the wider US economy, the manufacturing manufacture lost economical importance, ecosystem density and strategical centrality, despite expanding productivity. In particular, industrial employment has fallen, the share of the sector in the national income has decreased, national supply chains have been fragmented and the transferable capacity has been narrowed. The degradation mechanics is tricky: gradual, structural and cumulative.
As the planet demands US dollars and financial assets, large amounts of abroad capital are constantly coming to the US. This additional request exerts constant upward force on the real exchange rate, raising it above the level consistent with the fundamental assumptions of real economical trade in the absence of a steady request for reserve assets.
The appreciation of the currency in turn weakens the competitiveness of exports and increases the penetration of imports, acting against not only exporters, but besides sectors which are exposed to abroad competition. Over time, this exchange rate attitude gradually weakens key production segments, reducing its systemic and strategical importance.
Looking from a political economical perspective, fiscal freedom created by inexpensive loans and persistent abroad request for U.S. commitments changes the stimulus system. It favours the acquisition and distribution of balance sheet pensions – surplus profits from structural financial advantages and asset revaluations alternatively than investments expanding productivity. Similarly, economical policy tends to support asset prices, whose sustained growth has taken on greater systemic and electoral importance under dollar dominance.
This dynamic does not mean deliberately targeting asset prices, but alternatively hazard asymmetry: with the deepening of financial markets and the expansion of credit, household property becomes increasingly dependent on assets, making asset valuation increasingly an integral part of economical stability.
In specified configuration, penalties for insufficient stabilisation are immediate and concentrated, while costs of excessive accomodation are postponed and dispersed. Support for asset prices brings immediate and visible political benefits; diversification requires widely dispersed, long-term and politically risky adjustments.
Political decision-makers are so faced with strong incentives to avoid prolonged declines in the markets, putting financial stableness beyond long-term industrial rebalancing; so structural reforms are losing importance. In the United States, this inconsistency of stimulus, rooted in the dominance of the dollar, both favoured and perpetuated the erosion of production capacity.
Clinically, the American strain of Dutch illness proved to be highly virulent, causing deep systemic consequences. This assessment is confirmed by empirical data that uncover the extraordinary scale and depth of industrial demolition in America.
[Part 4 of the Global Dollar Series. To be continued. erstwhile column from the series:
Part 1, published on 16 January 2026: Compass Prof. Schlevogt nr 38: Detronization of the Green God – Venezuela and plots of Petrodolar;
Part 2, published on 30 January 2026: Compass Prof. Schlevogt nr 39: Trap of excessive privileges – How the power of the dollar has entangled America;
Part 3, published on 5 February 2026: Compass Prof. Schlevogt No. 40: Global reserve collapse – How dollar governments block trade deficits]