Say goodbye to the US dollar as the world’s reserve currency. Writing in the Washington Post, Nobel Prize-winning economist Joseph Stiglitz says America’s massive deficit means a new global reserve system is approaching.

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.

Of course, a new global currency won’t happen right away. It will take global policy makers months – maybe even years – to wean the world off the greenback. But Stiglitz says its coming.

Like it or not, out of the ashes of this debacle a new and more stable global reserve system is likely to emerge, and for the world as a whole, as well as for the United States, this would be a good thing. It would lead to a more stable worldwide financial system and stronger global economic growth. The current system entails developing countries putting aside hundreds of billions of dollars a year – only weakening global demand and contributing to our economic difficulties. Also, there is something a little unseemly about poor countries lending the US trillions of dollars, now at an interest rate of close to zero.

Long time Notes readers shouldn’t be surprised that our addiction to credit has lead to the demise of the dollar. And if you’ve read James Dale Davidson’s “The Plague of the Black Debt,” you’re already yardsticks ahead of your fellow citizens. If you haven’t, we strongly urge you to see what this debt pile means to your investments over the next decade.

The death of the dollar is nothing new – the US currency has been terminally ill since the beginning of the last century. The value of the buck has collapsed 196% since its peak in 1900. That’s a pretty significant drop in a just century. This from Sean Malone at the Ludwig von Mises Institute (a great Austrian School of economics and libertarian resource):

Money supply from 1946-2009 has been increased 5938% to $8,235,900,000,000. In that time, the US has seen 10 recession, constant military action, massive expansion of government power, an explosion of the welfare state and the complete annihilation of the buying power of the US dollar.

Now try to imagine what your life might be like if every dollar you had bought you 20 times as much stuff… This is the cost of inflation.