it seems as though everyone wants to take a poke at the dollar.
Recently, it was the Brazilian supermodel who demanded euros for
her jaunts on the catwalk instead of USD. The week before that,
hip-hop impresario, Jay-Z, released a video dissin' the dollar
and praising the euro as the baddest Dude in the 'hood'.
the greenback has become trendy. It's a favorite pastime of politicians,
too. At the November OPEC meeting in Riyadh, Iran's president
Mahmoud Ahmadinejad asked the assembled finance ministers to "study
the feasibility of selling oil in another currency." Ahmadinejad
disparaged the dollar as "a worthless piece of paper".
fiery Venezuelan President, Hugo Chavez, followed Ahmadinejad's
lead predicting that the demise of the dollar would mean the "end
of the Empire."
may be on to something. The dollar is America's Achilles heel;
if the dollar tanks, so does the empire. That means the taxpayer
will have to foot the bill for Bush's bloody interventions in
Iraq and Afghanistan, rather than the Chinese. That also means
that the US will have to export something of greater value than
Daisy Cutters and gulags. That could be a tall order, now that
Bush has boarded up the factories, hollowed out the industrial
base, and outsourced three million manufacturing jobs. We'll have
to scrape the rust off the machinery and get back into the widget-making
business like we were before the Free Trade fiasco.
banks across the globe are trying to figure out how to ditch their
dollar reserves without triggering a stampede for the exits. No
one wants to see that. But, then, nobody wants to be stuck with
vaults full of Uncle Sam's green confetti either. So, the question
arises: What is the best way to divest oneself of US$5.6 trillion
(total USD held overseas) before the Lusitania capsizes?
Venezuela, Iran, Russia and Norway have already opted to ignore
the destabilizing effects of "conversion" from dollars and are
in some stage of divestiture. Others will follow. The UAE, Bahrain,
Qatar, Oman and Saudi Arabia are considering switching from the
dollar-peg to a basket of currencies so they can hedge against
the inflation that's battering their economies. It's only a matter
of time before the Petrodollar System - which links the dollar
to petroleum sales and creates a de facto "international currency"
- unravels completely, precipitating the final collapse of Breton
banks across the globe are trying to figure out how to ditch
their dollar reserves without triggering a stampede for
the exits. No one wants to see that. But, then, nobody wants
to be stuck with vaults full of Uncle Sam's green confetti
either. So, the question arises: What is the best way to
divest oneself of US$5.6 trillion (total USD held overseas)
before the Lusitania capsizes?
of America's impending currency disaster is no longer relegated
to the Internet blathershere. Mainstream journalists have joined
the chorus and are sending up their own red flags. The UK Telegraph's
economics's editor, Liam Halligan, made this grim observation
in his recent article, "Bet Your Bottom Dollar Tensions Will Follow":
importance of 'dollar divestment' cannot be overstated. At the
very least it means the greenback has much further to fall - plunging
the US into recession. But it begs a bigger, more alarming, question.
How will Washington react to the end of the US hegemony?"
dollar was savaged by the monetary policies of the Federal Reserve.
The Fed's policies were designed to coincide with Bush's Middle
East Crusade. They were supposed to work like two wheels on the
same axle. The administration believed that, by 2007, the military
would need only 30,000 or so troops to maintain security in Iraq.
That would give Bush's legions the chance to turn east and push
on to the next target-state, Iran. If things went according to
plan - and no one thought the high-tech US war machine could be
stopped - the US would control two-thirds of the world's oil.
This would allow America to keep writing bad checks on green paper
for the next century.
then, of course, the plan hit a snag. The Iraqi resistance mushroomed,
the US got bogged down in an "unwinnable" war, and the once-mighty
dollar shriveled into nothingness.
Now we're at a turning point and our leaders are in a state of
denial. Bush is still playing Teddy Roosevelt, while Treasury
Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke
are just plain shell-shocked. They probably know the game is over.
As the dollar continues to wither; the frustration is beginning
to mount in Europe. Liam Halligan sums it up like this:
has finally had enough of America's 'benign neglect' dollar policy.
As a large economic area, with a floating exchange rate, the eurozone
suffers most. Over the past seven years, the single currency has
risen by a shocking 82 per cent against the greenback. That's
hammered eurozone exports - provoking serious trade disputes between
the EU and US, the world's two biggest trading blocks. No wonder
French President Nicolas Sarkozy describes America's drooping
dollar as 'a precursor to economic war'. (UK Telegraph, "Bet Your
Bottom Dollar tensions Will Follow.")
is leading the charge for "intervention"; the buzzword for shoring
the greenback through exchange controls and buying up billions
of dollars. But it's a risky business; especially when net capital
inflows - which are the monthly purchases of US-backed securities
and Treasuries - have gone negative for the last two months. That
means the US isn't attracting enough foreign investment to finance
its trade deficit. So the dollar will have to fall to compensate.
than two-thirds of all sovereign foreign exchange holdings
are denominated in dollars. When those dollars are converted
back into foreign currencies and start recycling into the
US; we're in deep trouble. Inflation will soar.
how much loot is Sarkozy willing to put up to keep the dollar
from slumping further - $100 billion, $500 billion, $1,000 billion?
And where's the bottom?
fact is, the greenback took a "header" down the stairwell and
by the time it picks itself up, it could be eye to eye with the
peso. Who knows? Maybe it's time we all learned Spanish?
than two-thirds of all sovereign foreign exchange holdings are
denominated in dollars. When those dollars are converted back
into foreign currencies and start recycling into the US; we're
in deep trouble. Inflation will soar. Surely, the Fed must have
known this day would come when they were pumping trillions of
dollars into subprime mortgages and complex debt-instruments which
served no earthly purpose except to fatten the bottom line for
rapacious bankers and hedge-fund managers.
The Fed also knew that the nation's wealth was not being "efficiently
deployed" for capital improvements on factories, technology or
industry. Oh, no. That would have ensured that America would remain
competitive in the global marketplace into the new century. Instead,
the money was shoveled into the bottomless sinkhole of stucco
homes with composition roofing and toxic credit default swaps.
stock market lost another 237 points on November 26; the third
200-plus slide in a week. Now all three indexes are down more
than 10 per cent since their record high on October 9. Treasury
yields are plunging as investors flee the stock market looking
for safety. That means the Fed will have to slash rates again
at its December 11 meeting to provide more low interest crack
for the investor class.
Traders see an 82 per cent chance that Bernanke will cut the Fed
Fund's rate by another quarter point to 4.25 per cent. All that
is likely to do is put the dollar into free fall and send food,
oil and gold prices to the moon. It won't pay off the overdue
mortgage payments and it won't remove the billions of dollars
of debt from the banks' balance sheets. It's pointless. The US
is headed for a "hard landing" and it's dragging the rest of the
world along with it.
Economics professor, Lawrence Summers, offered this sobering warning
November 26 in an article in the Financial Times, "Wake up to
the dangers of a deepening crisis":
months ago it was reasonable to expect that the subprime credit
crisis would be a financially significant event but not one that
would threaten the overall pattern of economic growth. This is
still a possible outcome but no longer the preponderant probability.
Even if necessary changes in policy are implemented, the odds
now favor a US recession that slows growth significantly on a
global basis. Without stronger policy responses than have been
observed to date, moreover, there is the risk that the adverse
impacts will be felt for the rest of this decade and beyond. Several
streams of data indicate how much more serious the situation is
than was clear a few months ago."
is not the smartest guy on the block. If he was he wouldn't have
said men are smarter than women and he'd still be president of
Harvard. But he's a capable economist and he can sniff disaster
as it comes stampeding round the corner.
Mike Whitney is a well respected freelance writer living in Washington
state, interested in politics and economics from a libertarian
perspective. He can be reached at [email protected].
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