Economy: How close are we to 'Sudden Disorderly Adjustment'?

[Dover]

How close are we to 'Sudden Disorderly Adjustment'?


Margaret Legum

This article was published in the Business Report on Tuesday, 23 May.

http://www.businessreport.co.za/index.php?fSectionId=553&fArticleId=3263480


What are we to make of the growing chorus of fears about the possible collapse of the dollar? Is it a case of crying wolf again?

Those fears link four elements: Iran’s stated intention soon to open its own electronic International Oil Bourse; its resolve to sell oil there in euros, not dollars; the expectation that the price of oil will rise to over $100 a barrel, triggering world recession; and the demand for gold, rather than dollars, as a store of value.

Since the US is deep in debt, nationally and internationally, the dollar’s value depends entirely on the fact that it is a reserve currency for other nations. We all have to keep reserves in dollars for two reasons. First, by an agreement made in the 1940’s, the oil producing countries of OPEC agreed to sell oil only in dollars. That meant everyone had to hold dollars if they wanted to buy oil, resulting in two-thirds of all central bank reserves being in dollars.

That in turn means that the Americans have the privilege of producing the international currency. Creating money is nice work if you can get it. It is the equivalent of having a mint in your backyard. You can buy what you want with the new money, without having to supply the equivalent value of goods. America has been financing its annual deficit with the rest of the world – it borrows over $2 trillion a day - by simply making new money and spending it into circulation.

They will not be able to do that if we no longer have to buy our oil in dollars. Its value would fall as nations switch to other currencies to buy oil or to gold as a reliable store of value. The creation of dollars would not be available as a mechanism to cover the huge international debt. If that process began, there could be the kind of flight from the currency that has wrecked the economy of many nations within the past decade.

cont'd >

http://www.sane.org.za/docs/views/

[bhikkhu]

1. I prefer the term IMC - Inevitable Malthusian Collapse

...as treating the underlying causes and effects. How close is anyone's guess, and there is no shortage of guesses. This year, next year, the year after...in effect, all decisions are in the hands of the creditors of the US treasury, who reside chiefly in Asia.

[Franknable]

2. This all assumes that the U.S. Gov't can't or wouldn't do anything to

ameliorate the situation, and I can't imagine that happening. We have too many smart people in and outside of the national government, and they are not about to sit by idly if the kind of crisis the author speaks of were to become a reality.

[Richard Steele]

3. Yeah, it'd be like doing nothing while a hurricane destroys a major city.

[sendero]

4. LOL..

... you hold on to that thought. Meanwhile, I'll put my faith in my own planning and action rather than rely on a government that's proven for 6 years that it cannot find it's own ass with both hands.

[AnneD]

6. I have the feeling that those who are blindsided...

will be the one that trusted the government. Years ago I DID believe, but since this admin. and especially since Katrina, I have no faith in our institutions. I trust my instincts to judge folks and I plan as best I can, but the gov. has a long way to go before I'd ever trust them again-if ever.

[ManhattanBrendan]

7. crisis as vultures' feast

I think it's fair to wonder how much incentive there is for the banks, the Fed included, to stop the kind of crisis described. Competition among the rich could lend itself to desperate acts of economic warfare.

Those in the know on a coming crash end up being the ones who foreclose on those left out. Recessions don't blast wealth into oblivion so much as they redistribute it. Indebting people and indeed the nation could be step one in a multi-step game that leaves debtors destitute and vultures with tastey new assets at real cheap.

Additionally, the neoconservative economic formula is quite explicit on undoing FDR big government. For a big group of people, recession is just the leverage needed to "drown the baby in the bath water" -- or shrink certain discretionary lines in the federal budget. Crisis allows for extraordinary solutions, which could include undoing Social Security, or whatever vision hides behind the rhetoric of compassionate conservatism.

"Conspiracy theory" is a pejorative. Coordinated efforts by team players to win the game is common sense. Question is, who's playing on what team? Seems to me, in my humble understanding of this, that the board of governors on the Fed are showmen to obfuscate the identity of a team that has a very different definition of America than any of us have.

Behind the curtain shareholders wrestle it out to determine the "business cycle" or better yet, when to crash the pyramid scheme.

But who really knows? Our economy is managed in secret.

[upi402]

8. LOL

that's a good one!

(i assume you're kidding around given what has transpired here)

[atfqn]

9. oops

wrong thread - my apologies.

[Warpy]

5. The system is unsustainable

We've squandered our capital and have nothing to keep us going but mounting debt. At some point, the limit on that credit card will be reached, and we will finally be forced as a nation to make the choices that should have been made half a century ago.

You can't export the paychecks and import the bills for long. Eventually those bills are going to come due.

[screembloodymurder]

10. Two trillion a day?

Simply put, I don't need to read the rest of the story to know the author has the facts wrong.