Thursday, November 12, 2009

The Inevitable Collapse of the Dollar

by Len Hart, The Existentialist Cowboy

Americans live beyond their means, Asia finances it and China props up the buck so that the US can buy Chinese made stuff at Wal-Mart. Eventually the Asians/Europeans will stop financing the USA, China will pull the plug on the buck and the bubble will burst.

The CIA's World Fact Book lists the US at the very bottom of a list with the world's largest negative Current Account Balance. China, which pegs the Yuan to the dollar, is at the top with the world's largest positive Current Account Balance.

If the GOP had been correct, US exports should have risen! The 'balance of trade deficit' i.e, the NEGATIVE Current Account Balance would have been reduced! If the GOP had been correct, the US could have paid off huge amounts of national debt run up in incompetent and dishonest GOP regimes. The US might have survived decades of conservative budgets which forced the US to borrow from other countries. But --not surprisingly --things have not worked out as the GOP would have you believe.

Many economists, myself included, believe that China’s asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China’s insistence on keeping the yuan/dollar rate fixed, even when the dollar declines, may be doing even more harm now.

Although there has been a lot of doomsaying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere. But China has been keeping its currency pegged to the dollar — which means that a country with a huge trade surplus and a rapidly recovering economy, a country whose currency should be rising in value, is in effect engineering a large devaluation instead. --Palin vs Krugman On The Dollar -- Who Is Right?
It was hoped that by taking the dollar off the gold standard, US products would enjoy greater sales abroad. But like 'trickle down theory', it just has not worked out as planned. The CIA's World Fact Book proves it.
The enormous scale of foreign borrowing and money creation necessary to finance Washington’s wars are sending the dollar to historic lows. The dollar has even experienced large declines relative to currencies of third world countries such as Botswana and Brazil. The decline in the dollar’s value reduces the purchasing power of Americans’ already declining incomes.

Despite the lowest level of housing starts in 64 years, the US housing market is flooded with unsold homes, and financial institutions have a huge and rising inventory of foreclosed homes not yet on the market.

Industrial production has collapsed to the level of 1999, wiping out a decade of growth in industrial output.

--Paul Craig Roberts, The US as Failed State
If the US is a 'failed state', it is because it has been impoverished by at least two trends: 1) the transfer of US wealth upward to just one percent of the US population which now owns more than 95 percent of the rest of the nation combined; 2) the decline of the U.S. dollar, a trend begun when Richard Nixon eschewed the Bretton-Woods agreement.

Reducing the chances that we will weather this crisis are US wars of aggression which benefit only the defense contractors. Wars, in fact, reduce the GDP, destroy jobs, reduce productivity, and increase the trade deficit! If wars are so 'bad' for the economy, then how are they sold so easily? Why are they 'sold' at all? The quick response: they are sold with focus group tested bullshit!

There's a 'living' in killing, we are told! It's a lie -- snake oil for idiots and rank and file GOP. That wars are good for the economy is just a bald-faced lie cooked up by the defense lobby for whom killing IS a living but only for the shrinking one percent who benefit: the Military/Industrial complex.
Fact is war is most often disastrous for the economy.
In fact, most models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment. In this way, military spending is comparable in most models to any other form of government spending, such as spending on public goods or improving the environment.
This paper shows the projections of the impact of an increase in annual military spending equal to 1 percent of GDP (approximately the actual increase in spending compared with the pre-war budget) of the Global Insight macroeconomic model (see Appendix). The Global Insight model was selected for this analysis because it is a commonly used and widely respected model.1 Other models will show somewhat different projections, but it is unlikely that the direction of the long-term impact on any of the key variables will be different. In fact, because of the structure of the Global Insights model, it likely understates the negative impact of military spending relative to other models.
--The Economic Impact of the Iraq War and Higher Military Spending;
At the link (a PDF file) look for Table 1 which shows the key differences in projections, at five year intervals, between the baseline model and the simulation assuming higher levels of defense spending.
The decline in GDP projected for the twentieth year in the high military spending scenario is $42.1 billion. This corresponds to a projected loss of 668,100 jobs. Inflation is projected to be 0.7 percentage points higher in the high military spending scenario, with the interest rate on the 10-year Treasury note 1.1 percentage points higher than in the baseline scenario. The higher interest rate is associated with a reduction in industrial production of 1.8 percent compared with the baseline scenario. Car and truck sales are projected to be 731,400 in the high military spending scenario compared to the baseline scenario. Residential investment is projected to be 3.5 percent lower, which corresponds to 38,500 fewer housing starts and a reduction of 286,500 in the number of existing homes sold.
--The Economic Impact of the Iraq War and Higher Military Spending>
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6 comments:

rkelly said...

What was clear to me, when Chinese nationals were coming to America in large numbers with (1) jobs already in place and in high positions (2) incomes at no less than $5,000/mo. and (3) SOCIAL SECURITY NUMBERS with NO INCOME TAX PAID FOR FIVE YEARS.

That globalism was an agenda and we the people were not included in the bounty. It began during the Clinton deregulation years, and when Bush reached office, the Mexicans, Chinese, Russians and other "immigrants" came in droves with the ability to purchase homes in the US and ready made businesses or as I said, lucrative high paying secure professional jobs/positions.

Now, I had never seen one "borrower" with this type of set-up who was/is American ...

.... well, other than the CONGRESS who also appear to be quite well set when it comes to living high on the hog, just like China has been doing to the US in spite of it appearing to own so much of our "dollar debt."

I did not underwrite one loan for those who were not US citizens, regardless of their "credentials" provided by our US GOVT.

It was and is the most unbelievable unfair advantage over hard working Americans who believed they were living for real change in the idea of free market capitalism.

China, it is reported, has one of the SUPER COMPUTERS and but of course it is SWITZERLAND with the other one. Where all the money is supposedly printed. See Ellen Brown and her writings at webofdebt.com.

The SWISS were once upon a time the cross which could be trusted, in battle and not.

NOT SO FAST NOW SWISS WATCH, be wary of time tellers now and all their fancy ideas about how to be such a fine refined class of folks ...

.... in a word, not.

The Swiss and the Chinese are reported to be quite the partnership AND, the truth be known the Chinese are hovering just waiting to expand to America since their own country is landlocked in essence and far too many boys (this is the gender that came to the US, MALES) for the dumb females die and males live for years idea - causing a serious imbalance in their men to women ratio.

This is China's greatest coming to meet a previous leadership idea in the modern day: gender repression.

Now, the males are coming into the big or little T (testosterone) and the country is is BIG trouble because there are not enough women for their men.

The Chinese men who came to America quickly found very powerful women: doctors of medicine, Chinese and western, for just one example.

America's "governing" have been very foul managers of people.

This is where the US has its most critical disease - the understanding of being human.

Too many very ignorant families took control of the great experiment of our Constitutional Republic and turned it into a Biblical barbarism for those wannabes of antiquity (queens it appears mostly from all the butt buddies now longing to only play golf) supreme monarch idiots.

China is not dumping the dollar, China and Paulson, et al. all agreed on how to do this new world order using the play book of it is this country, no it is that one, no it is ...

.... even Iran has played into the book of who gets the most people dead in this time of cleanse the planet with what it is the so-called richest of humans have done since the beginning of time:

mass murder dressed up as war.

These people, all of them, from China to Russia to Iran and then right here at home, especially in the USA -- are mass murdering criminally insane and there is no way they can be found innocent when the number of humans dead during each of their new world shuffles happens to be a holocaust and therefore, genocide or call it what it really is: cannibalism.

aka Biloxi Marx

rkelly said...

I'm baaaaack. Looking for your video - Diana Damrau, to share with a friend.

Then, thought about it a minute or two:

It is all governments. China is not propping up the US $. Did you read the recent G20, meet-up near Scotland?

Cute writings about it - how the US and China are "putting in the fairway" - lots of references to golf and appro since the meet-up of all the global leaders of the countries which are supposedly the more developed.

Colonialism. The governments do not want the billions on earth to know that we are slaves and it is a continuous shuffling of countries to see which bigger fish can swallow the smaller. It is always the same in the deep blue sea.

Anyway, I just read where 2016, is the date there is to be a cataclysmic awakening.

Who can predict dates, but there is definitely a stirring in the collective unconsciousness and the governments are all involved in the mass depopulation agenda to ascertain we billions do not throw them off.

Out Out DAMN SPOT ...

.... into the deep blue sea where they belong, while we inhabit the earth and allow the big fish to eat the predatory humans who call themselves elite.

aka Biloxi Marx

Anonymous said...

Very nice Len, to see you've picked up on this Dutch documentary "The Day The Dollar Falls" (November 2005!) wich opened quite some eyes and minds here in The Netherlands about 'the American Dream'(for wich you have to be a-sleep to beleave in, George Carlin). You have forwarned many a time in the past about this inevitable fate of the U.S. currency as wel as the fate of the U.S. economy and its societal structures, comparing it rather adequate with 'The Fall of the Roman Empire'. And by now, overseeing the gastly and well documented intrinsics of the U.S. Emperial Policies since the second World-War, it might, I think, be best for the World at large and on behest of the U.S. population's sanity in particular, that the U.S. Empire, with its very sick, not to say sociopath, 'New World Order' neo-conniving propagandist GOPPERS will expire like the Roman Empire.

My great worry however, is that the above mentioned, greatly manipulated by the Zionist Israel-Lobby Neo-Conservatives, are aiming to complete their terror-mission with a World-Devastating big-bang in the Middle-East, specifically in Iran.

Jacob, The Netherlands.

David B. Dancy said...

Spot on Len. What is most interesting is the heart of all a currencies. The real value of America. China has obviously outmanuevered us in every possible way for the last twenty years. They have had their own version of Manifest Destiny. Buying our debt has created the most interesting staredown since the missile crisis. The gold standard os long gone.
What is really holding the dollar up. Everyone knows the Wall Street bailout was just printing more money(cash). At the end of the day it comes down to cornfields wheat and Oceans of Beef. Which produces ample amounts of B.S.

Unknown said...

rkelly said...

What was clear to me, when Chinese nationals were coming to America in large numbers with (1) jobs already in place and in high positions (2) incomes at no less than $5,000/mo. and (3) SOCIAL SECURITY NUMBERS with NO INCOME TAX PAID FOR FIVE YEARS.

This SCAM put a lot of hard-working, honest Americans out of a job. Again --the salaries paid these 'scabs' did NOT improve the U.S.

It had two PERNICIOUS EFFECTS:

1) It LOWERED I.T. wages paid to U.S. citizens who had a U.S. cost of living to consider. They had NOT been over paid, though salaries were, for awhile, good.

2) It added to the total amt of wealth EXPORTED to China by the US corporations who hired the SCABS.

rkelly said...

I'm baaaaack. Looking for your video - Diana Damrau, to share with a friend.

There are two versions of it on my YouTube Channel. The Widescreen version is the best. And --if I say so myself, the audio quality on these is superb. I re-engineered the audio myself.

Jacob sez...

You have forwarned many a time in the past about this inevitable fate of the U.S. currency as wel as the fate of the U.S. economy and its societal structures, comparing it rather adequate with 'The Fall of the Roman Empire'.

Before I dared try Gibbons or the classical authors --Tacitus, Suetonious et al --I was struck, as a child, by a great work by Hendrik Wilhelm van Loon. His history of Rome had been intended for 'kids' my age but van Loon's account is still among my favorites. His description of the legions going off to war, returning to find their farms had been seized by 'noblemen' made an indelible impression on me.

Later --the auction of empire by the Praetorian Guard, an auction that is institutionalized and ongoing on DC's K-Street.

David B. Dancy said...

What is really holding the dollar up. Everyone knows the Wall Street bailout was just printing more money(cash). At the end of the day it comes down to cornfields wheat and Oceans of Beef. Which produces ample amounts of B.S

You are right on target, David. The who bailout was a HEIST. The banksters skimmed off OBSCENE bonuses for the in-house crooks. Has ANY of that money 'trickled down' to folk ???? FUCK NO!

We all bent over and got the govt screw job and we were stupid if we expected anything else.

Again --a ruling elite of just ONE PERCENT of the population must be laughing their asses off at all us even as we write. And that includes the poohahs in China who SUCKERED Bush Sr and the rest of the STUPID GOP.

Anonymous said...

It's been so easy for more than century for the people who profit from this dysfunctional economic system to fool those who are working to impoverish themselves and enrich the rich while also wrapping themselves in the flag as they treat veterans and soldiers with contempt and disdain.

I keep hoping for a light to go on in the heads of the masses here, for some collective eureka moment, but all we get is a bullshit commercial using a "eureka moment" to sell natural gas.

We're toast.