The most obviously unpayable are those of the U.S. Government. This makes these debts “fictitious,” inasmuch as dollar holders are unable to convert their savings into tangible assets, goods or services. Gold convertibility was ended in 1971 in response to the Vietnam War’s drain on the U.S. balance of payments. Yet the dollar has remained the foundation of most central bank reserves even as the U.S. trade deficit deepened as the economy was post-industrialized while overseas military spending has escalated. This military dimension grounds the global financial system in U.S. military hegemony.
This has prompted the BRIC countries (Brazil, Russia, India and China) to seek an alternative payments and debt-settlement system so as not to base their international savings on a system that finances their military encirclement. As it stands the dollar standard provides a free lunch for the U.S. economy (“debt imperialism”), above all for its government to create money without regard for the ability (not to mention the will) to pay.
If the dollar deficit were used to promote peaceful economic development in an atmosphere of global disarmament, the rest of the world would be more willing to see the U.S. Treasury act as global money creator on its electronic computer keyboards. But when this is done for national self-interest that other countries see as being at odds with their own aspirations, the system becomes politically as well as financially unstable. That is the position in which the world economy finds itself today.