Doomsday for the greenback

[donsu]

http://onlinejournal.com/artman/publish/article_1948.shtml


The American people are in La-la land. If they had any idea of what the Federal Reserve was up to, they’d be out on the streets waving fists and pitchforks. Instead, they go about our business like nothing is wrong.

Are we really that stupid?

What is it that people don’t understand about the trade deficit? It’s not rocket science. The Current Account Deficit is over $800 billion a year. That means that we are spending more than we are making and savaging the dollar in the process. Presently, we need more than $2 billion of foreign investment per day just to keep the wheels from coming off the cart.

-snip-

The trade deficit puts downward pressure on the dollar and acts as a hidden tax. In fact, that’s what it is -- a tax! Every day the deficit grows, more money is stolen from the retirements and life savings of working class Americans. It’s an inflation bombshell obscured by the bland rhetoric of “free markets” and deregulation.

-snip-

The demolition of the dollar isn’t accidental. It’s part of a plan to shift wealth from one class to another and concentrate political power in the hands of a permanent ruling elite. There’s nothing particularly new about this, and George W. Bush and Alan Greenspan, while Federal Reserve chairman, have done nothing to conceal what they are doing. The massive expansion of the federal government, the unfunded tax cuts, the low interest rates and the steep increases in the money supply have all been carried out in full view of the American people. Nothing has been hidden. Neither the administration nor the Fed seem to care whether or not we know that we’re getting screwed -- it’s just our tough luck. What they care about is the $3 trillion in wealth that has been transferred from wage slaves and pensioners to brandy-drooling plutocrats like Greenspan and his n’er-do-well friend, Bush.

-long snip-

The falling dollar also suggests growing political upheaval at home brought on by economic distress. We should welcome this. America needs to remake itself -- to recommit to its original principles of personal freedom, civil liberties and social justice , to reject the demagoguery and warmongering of the Bush regime, to reestablish our belief in habeas corpus, the presumption of innocence and the rule of law. Most important, we need to reclaim our honor.
-snip-
------------------------------------


"Most important, we need to reclaim our honor."

we'll be lucky to reclaim anything much less honor.

[Warpy]

1. China will float the yuan at some point

Right now, it has a fixed exchange rate against the dollar so that China can preserve its chief marketplace, the US. Once the yuan is allowed to float, expect huge inflation. It will happen. Right now, the only question is WHEN.

The falling dollar is why we can't expect any relief at the gas pump unless the GOPs are trying to get elected.

It's no surprise that offshoring most of our industry and some of our office jobs has resulted in a soaring trade deficit. That's what happens when you don't make anything any more and have to rely on other countries to make it for you.

The dogma of free trade without fair trade plus no restrictions on corporations that offshore paychecks and onshore bills combined with an insanely punitive tax structure leaning on labor has completely fouled up this country to the point it will take decades to fix.

The blame doesn't lie solely on the GOP. Wall Street Democrats are just as much to blame for class war and looting this country of industry.

[Kolesar]

2. We still make a lot of products in the US

Our competition is wisely targeting the "high value added" products and chipping away at us, though. How about this gem from the article:

Iraq has proven that the US military can no longer enforce dollar-hegemony through force of arms. New alliances are forming that are reshaping the geopolitical landscape and signal the emergence of a multi-polar world. The decline of the superpower model can be directly attributed to the denominating of vital resources and commodities in foreign currencies. America is simply losing its grip on the sources of energy upon which all industrial economies depend. Iraq is the tipping point for America’s global dominance.

[Wilber_Stool]

3. I probably have no business in this discussion but

NAFTA might not have been a very good idea, but since we lost congress in '94, it has been totally unregulated. With the proper regulations we would never have found ourselves in this position. I never would have imagined that business could be so ruthless in it's quest for profits. Never.

[ms liberty]

4. I agree with you...

There's nothing wrong with regulation, and done right the whole NAFTA might have been a positive experience. Instead it's been a nightmare.

[Hubert Flottz]

5. Then you should have read this several years ago.

I did but I didn't want to believe it then...now I have no other choice.

http://www.voxfux.com/features/rockefeller/index.html

[melody]

6. No American is "stupid" or unaware

I'm so tired of this facile, nasty snipes at Americans. The Americans who write
them want to posture themselves as being "above" other Americans -- they always
show a profound lack of knowledge of the structures of our cultures and the way
we interact. If the Chinese knock the Japanese, we'd rightly see it as bigotry.
For some reason, we don't see it that way when Europeans insult us. This has all
been done with a psychological deftness meant to cloak the mechanisms -- naturally
the average American isn't going to "see" it. They're not meant to.

That said, the average American knows very well how badly they've fared in the last
fifty years. I'll wager the person who wrote the insults does not.

That said, the American economy has been under attack for many, many years. Once
you start looking at the evidence, it is very clear. It's also very clear by whom
and why, but the press doesn't want to admit it. A certain breed of aristocratic
Europeans and Americans who cannot abide the idea of the US being independent and run
by its own people, long ago launched this offensive. George Bush the elder is one of their
primary members.

Are we going down? Yes and it's only partly our own fault. The important thing for us all to
remember is (1) what happened and (2) who did this. In the aftermath, we can put things
back together and create an even stronger, better country -- and then we can go after the
perpetrators.

[yodermon]

7. So can do ordinary folks like me do

to dampen the effect this will have on me. Buy Euros? Other currency? Foreign investments?
Serious question.

[ProfessorGAC]

12. No

Currency is grossly overestimated. The entire world is interactive, economically, and the country of origin of a currency is irrelevant. The currency of choice in the world is, and always has been, an effect rooted in economic dominance or criticality. People didn't just decide to "do dollars". And, the U.S. didn't just get people interested in the pretty green color.

The dominant economic players will always have the currencies of choice, and there is no scientific or evidentiary basis to these doom and gloom scenarios.

The U.S. economy is weak right now, but it's hardly in its death throes. The author of this piece has highly flimsy evidence, and no historical basis on which to make these predictions.
The Professor

[roamer65]

13. Gold and silver tend to maintain value over the long haul.

As the dollar loses value, the central banks of other countries will come under pressure to match the dollar's devaluation. They will do it in an attempt to stay economically competitive. Best thing one can do is to have a diverse portfolio with precious metals included, IMHO.

[ProfessorGAC]

14. No They Don't

The value is still based upon some currency. Now it's the dollar. That's still the dominant currency. There is no historical basis for the belief that gold and silver are significant hedges against currency fluctuations. The are bought with something, right? If you sell it, you get some sort of currency back. The fluctuations are still there. And over the long haul, you will find the value of gold is just about 1:1 proportional to the growth of U.S., GDP for the last 50 years.

And, if you look at the price of silver over that period, it has bounced around over a greater range of dispersion than has any "first world" currency.

Be careful with this belief. It's only true if you're willing to buy and sell consistently, regularly, and at the exact right times.

The only thing gold appears to be as a valid hedge, is a buffer against massive (1929-style) market collapse. It's value would go down, too, but it's buying power would skyrocket as a tangible asset.
The Professor

[gravity]

17. Gold and silver can lose their value in the long run

If you bought gold in the early 80s, you would have still lost money on the investment especially when you factored in inflation.

A diversified portfolio is good, but precious metals are no guarantee.

[Tierra_y_Libertad]

8. Like it's predecessors, America likes to think it's empire is special and infallible.

Empires, throughout history, haven risen and fallen on the belief that they could avoid the inevitable collapse that is dictated by the need of an empire to keep growing or fall.

America's role as superstar is notable only for it's brevity.

[Name removed]

9. Deleted message

Message removed by moderator. Click here to review the message board rules.

[roamer65]

10. All currencies are eventually debased and inflated out of existence.

Yet gold and silver continue on their merry way. ;)

[Gregorian]

11. I have a question. I can't make sense of inflation's effect on housing.

The article says to imagine what rising interest rates would do to an already fragile and stagnant housing market.

One thing I've been trying to discover is the effect on housing prices inflation would have.

It doesn't equate how there can be inflation and yet decreasing housing prices.

Wouldn't inflation mean higher housing prices?

[On the Road]

15. I Think the Reasoning is That

Inflation leads the Fed to raise interest rates. Higher interest rates then mean that houses become less affordable at their current prices. $1,000 a month may buy a $180k house at very low interest rates, but only a $100k house at high rates. So houses go unsold and the price plummets.

[Gregorian]

16. That leads back to my confusion.

Inflation is prices going up. Housing prices going down doesn't fit.

I know how that logic works. It's exactly why I just sold and am sitting here waiting. Rates cannot go down. And when they go up, you're right, prices will fall.

So perhaps inflation will include lower housing prices. I'm certainly anything but an economist. Just a lucky idiot. Haha.

[On the Road]

26. The Housing Market Has Outstripped Inflation

Inflation is broad and long term. If the CPI rises 10% next year, it will probably not go back down.

Real estate, on the other hand, is a specific kind of price which is subject to swings and can go down. It's more stable than a commodity, but just like any other commodity, prices can fluctuate. They can plunge even when there's a general inflation going on.

This happened in the mid 1980s. I bought a house for about $110k in Unversity Park MD. A year later houses on the same block were selling for $180. A year after that houses were back in the $110s and $120s. Part of that, if I remember correctly, was an interest rate effect.

Interest rates in 1980 exceeded 20%, which made houses unafforable and depressed the prices. If that happens again, we'll go through another meltdown.

[Gregorian]

28. Much appreciated.

I had a hunch that was how it might work.

[On the Road]

27. dupe

§

[gravity]

19. The value of houses is falling faster than the effects of inflation.

If the house loses 5% of its real value in a year, but inflation was only 3%, then price on the house would have fallen.

[lonestarnot]

18. Rub it in.

[Hissyspit]

20. Correct me if I'm wrong. More foreign-owned American debt during this administration

built up in U.S. dollars than all the other administrations combined?

[Cessna Invesco Palin]

21. Mike Whitney is NOT an economist.

Nor is he a particularly good "journalist" if that's what you want to call him. This is poorly researched scaremongering, much like all of his other Counterpunch pieces.

[luckyleftyme2]

22. YOUR WRONG

It has already started. the housing market has dropped severly. if you paid 280,000 for your home last year it is now worth 250.000 in the north east. thats a sure sign of economic distress!

[Selatius]

24. The housing crunch was predicted for several years now.

Nobody said such high inflation in the price of housing was sustainable. Naturally, if you have a huge bubble bursting, you necessarily get huge drops in the aftermath.

[Cessna Invesco Palin]

25. I's wrong?

Explain the connection between the problems in the housing market and the value of the dollar. I don't see overinflated home values coupled with a serious problem with subprime mortgages as being a sure sign of the economic end times.

[Selatius]

23. What will hurt the US dollar is continued deficit spending.

People get nervous if you take out progressively bigger debt obligations. They start to wonder if you won't do like Argentina and halt or default on payment of debt obligations after finding out you can't afford to pay it. The US government has always been able to pay off its debt obligations in the past, but past performance is not necessarily indicative of future performance. I'm not saying the US will default on payment of debt obligations, but what I am saying is that it will continue to drag on the value of the US dollar relative to other currencies.

The bigger threat to the US economy is a war with Iran. 6 dollars/gallon for fuel will be a gut punch in the fat belly of America.