As we await the outcome of the U.S. election, the world economy drifts listlessly, paralyzed by the shock of COVID-19 and geopolitical and political uncertainty. As Gita Gopinath, the chief economist of the International Monetary Fund, has warned, we are in a liquidity trap—a situation of chronic low interest rates and depressed demand. Former U.S. Treasury Secretary Larry Summers has spoken of a black hole of monetary policy.

The way out is to raise aggregate demand. Since the private sector is in shock, government taxation and spending are key. That is what gives the U.S. election its capital economic importance. No other government, not even the Chinese, can match America’s fiscal clout.

The nightmare scenario is that America’s election makes things worse. A disputed election followed by a constitutional crisis would compound the craving for security, which would further increase the demand for liquidity, driving the dollar higher. This is the perverse logic of the world’s reliance on the U.S. currency as the de facto global currency. A crisis increases the demand for dollars, even if the crisis originates in the United States.

Read the full article at Foreign Policy.