As the Dollar Falls Off the Cliff ...
- As the Dollar Falls Off the Cliff ...
By PAUL CRAIG ROBERTS
Economic news remains focused on banks and housing, while the threat mounts to the US dollar from massive federal budget deficits in fiscal years 2009 and 2010.
Earlier this year the dollar's exchange value rose against currencies, such as the euro. UK pound, and Swiss franc, against which the dollar had been steadily falling. The dollar's rise made US policymakers complacent, even though the rise was due to flight from over-leveraged financial instruments and falling stock markets into "safe" Treasuries. Since April, however, the dollar has steadily declined as investors and foreign central banks realize that the massive federal budget deficits are likely to be monetized.
What happens to the dollar will be the key driver of what lies ahead. The likely scenario could be nasty.
America's trading partners do not have large enough trade surpluses to finance a federal budget deficit swollen to $2 trillion by gratuitous wars, recession, bailouts, and stimulus programs. Moreover, concern over the dollar's future is causing America's foreign creditors to seek alternatives to US debt in which to hold their foreign reserves.
According to a recent report in the online edition of Pravda, Russia's central bank now holds a larger proportion of its reserves in euros than in US dollars. On May 18 the Financial Times reported that China and Brazil are considering bypassing the dollar and conducting their mutual trade in their own currencies. Other reports say that China has increased its gold reserves by 75 per cent in recent years.
China's premier, Wen Jiabao, has publicly expressed his concern about the future of the dollar. Arrogant, hubris-filled American officials and their yes-men economists discount Chinese warnings, arguing that the Chinese have no choice but to support the dollar by purchasing
Washington's red ink. Otherwise, they say, China stands to lose the
value of its large dollar portfolio.
China sees it differently. It is obvious to Chinese officials that neither China nor the entire world has enough spare money to purchase $4 trillion of US Treasuries over the next two years. According to the London Telegraph on May 27, Dallas Federal Reserve Bank president
Richard Fisher was repeatedly grilled by senior officials of the
Chinese government during his recent visit about whether the Federal
Reserve was going to finance the US budget deficit by printing money.
According to Fisher, "I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States."
US Treasury Secretary Timothy Geithner has gone to China to calm the
fears. However, even before he arrived, a Chinese central bank
spokesman gave Geithner the message that the US should not assume China will continue to finance Washington's extravagant budgets. The
governor of China's central bank is calling for the abandonment of the
dollar as reserve currency, using the International Monetary Fund's
Special Drawing Rights in its place.
President Lyndon Johnson's "guns and butter" policy during the 1960s forced president Richard Nixon to eliminate the gold backing that the dollar had as world reserve currency, putting foreign central banks on the same fiat money standard as the US economy. In its first four months, the Obama administration has outdone president Johnson. Instead of ending war, Obama has expanded America's war of aggression in Afghanistan and spread it into Pakistan. War, bailouts, and stimulus plans have pushed the government's annual operating budget 50 per cent into the red.
Washington's financial irresponsibility has brought pressure on the dollar and the US bond market. Federal Reserve Chairman Bernanke thought he could push down interest rates on Treasuries by purchasing $300 billion of them. However, the result was to cause a sharp drop in Treasury prices and a rise in interest rates.
As monetization of federal debt goes forward, US interest rates will
continue to rise, worsening the problems in the real estate sector.
The dollar will continue to lose value, making it harder for the US to
finance its budget and trade deficits. Domestic inflation will raise
its ugly head despite high unemployment. The incompetents who manage US economic policy have created a perfect storm. The Obama-Federal Reserve-Wall Street plan for the US to spend its way out of its problems is coming unglued. The reckless spending is pushing the dollar down and interest rates up.
Every sector of the US economy is in trouble. Former US manufacturing firms have been turned into marketing companies trying to sell their foreign-made goods to domestic consumers who have seen their jobs be moved offshore. Much of what is left of US manufacturing--the auto industry--is in bankruptcy. More decline awaits housing and commercial real estate. The dollar is sliding, and interest rates are rising, despite the Federal Reserve's attempts to hold interest rates down.
When the Reagan administration cured stagflation, the result was a secular bull-market in US Treasuries that lasted 28 years. That bull market is over. Americans' living standards are headed down. The American standard of living has been destroyed by wars, by offshoring of jobs, by financial deregulation, by trillion dollar handouts to financial gangsters who have, so far, destroyed half of Americans' retirement savings, and by the monetization of debt.
The next shoe to drop will be the dollar's loss of the reserve currency role. Then the US, an import-dependent country, will no longer be able to pay for its imports. Shortages will worsen price inflation and disrupt deliveries.
Life for most Americans will become truly stressful.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@...
The Takedown of the U.S.
American capitalism gone with a whimper
It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.
True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists.
Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters.
First, the population was dumbed down through a politicized and substandard education system based on pop culture, rather then the classics. Americans know more about their favorite TV dramas then the drama in DC that directly affects their lives. They care more for their "right" to choke down a McDonalds burger or a BurgerKing burger than for their constitutional rights. Then they turn around and lecture us about our rights and about our "democracy". Pride blind the foolish.
Then their faith in God was destroyed, until their churches, all tens of thousands of different "branches and denominations" were for the most part little more then Sunday circuses and their televangelists and top protestant mega preachers were more then happy to sell out their souls and flocks to be on the "winning" side of one pseudo Marxist politician or another. Their flocks may complain, but when explained that they would be on the "winning" side, their flocks were ever so quick to reject Christ in hopes for earthly power. Even our Holy Orthodox churches are scandalously liberalized in America.
The final collapse has come with the election of Barack Obama. His speed in the past three months has been truly impressive. His spending and money printing has been a record setting, not just in America's short history but in the world. If this keeps up for more then another year, and there is no sign that it will not, America at best will resemble the Wiemar Republic and at worst Zimbabwe.
These past two weeks have been the most breath taking of all. First came the announcement of a planned redesign of the American Byzantine tax system, by the very thieves who used it to bankroll their thefts, loses and swindles of hundreds of billions of dollars. These make our Russian oligarchs look little more then ordinary street thugs, in comparison. Yes, the Americans have beat our own thieves in the shear volumes. Should we congratulate them?
These men, of course, are not an elected panel but made up of appointees picked from the very financial oligarchs and their henchmen who are now gorging themselves on trillions of American dollars, in one bailout after another. They are also usurping the rights, duties and powers of the American congress (parliament). Again, congress has put up little more then a whimper to their masters.
Then came Barack Obama's command that GM's (General Motor) president step down from leadership of his company. That is correct, dear reader, in the land of "pure" free markets, the American president now has the power, the self given power, to fire CEOs and we can assume other employees of private companies, at will. Come hither, go dither, the centurion commands his minions.
So it should be no surprise, that the American president has followed this up with a "bold" move of declaring that he and another group of unelected, chosen stooges will now redesign the entire automotive industry and will even be the guarantee of automobile policies. I am sure that if given the chance, they would happily try and redesign it for the whole of the world, too. Prime Minister Putin, less then two months ago, warned Obama and UK's Blair, not to follow the path to Marxism, it only leads to disaster. Apparently, even though we suffered 70 years of this Western sponsored horror show, we know nothing, as foolish, drunken Russians, so let our "wise" Anglo-Saxon fools find out the folly of their own pride.
Again, the American public has taken this with barely a whimper...but a "freeman" whimper.
So, should it be any surprise to discover that the Democratically controlled Congress of America is working on passing a new regulation that would give the American Treasury department the power to set "fair" maximum salaries, evaluate performance and control how private companies give out pay raises and bonuses? Senator Barney Franks, a social pervert basking in his homosexuality (of course, amongst the modern, enlightened American societal norm, as well as that of the general West, homosexuality is not only not a looked down upon life choice, but is often praised as a virtue) and his Marxist enlightenment, has led this effort. He stresses that this only affects companies that receive government monies, but it is retroactive and taken to a logical extreme, this would include any company or industry that has ever received a tax break or incentive.
The Russian owners of American companies and industries should look thoughtfully at this and the option of closing their facilities down and fleeing the land of the Red as fast as possible. In other words, divest while there is still value left.
The proud American will go down into his slavery with out a fight, beating his chest and proclaiming to the world, how free he really is. The world will only snicker.
The article has been reprinted with the kind permission from the author and originally appears on his blog, Mat Rodina
FEDS GRANT EMINENT DOMAIN AS COLLATERAL TO CHINA FOR U.S. DEBTS!
Beijing, China -- The United States of America has tendered to China
a written agreement which grants to the People's Republic of China,
an option to exercise Eminent Domain within the USA, as collateral
for China's continued purchase of US Treasury Notes and existing
US Currency reserves!
On February 11, Bloomberg Business News reported that China was
seeking "guarantees" for its US Government debt (Story Here), and
it now appears they got it. Well placed senior sources at the
US Embassy in Beijing CONFIRM the formal written agreement was
delivered by Secretary of State Hillary Clinton during her recent
trip to China.
This means that in the event the US Government defaults on its
financial obligations to China, the Communist Government of China
would be permitted to physically take -- inside the USA -- land,
buildings, factories, perhaps even entire cities - to satisfy the
financial obligations of the US government.
Put simply, the feds have actually mortgaged the physical land
and property of all citizens and businesses in the United States.
They have given to a foreign power, their Constitutional power to
"take" all of our property, as actual collatera
l for continued
Chinese funding of US deficit spending and the continued carrying
of US national debt.
This is an unimaginable betrayal of every man, woman and child
in the USA. An outrage worthy of violent overthrow.
Eminent Domain is the power of government to TAKE private property
for public use without the consent of the property owner. Under our
Constitution, the government can only "take" when providing
"just compensation" for what they've taken.
Who decides what constitutes "just compensation?" The government!
in past "takings" homeowners who felt the government was not
paying them enough for property have filed lawsuits. In absolutely
every such case, the value placed upon the property by the
government was upheld by the courts.
Our federal government has now granted to China, this power to
"take" our homes and businesses in the event the US Gov't
defaults on its debts.
Let's play this out as a worst case scenario. . . . . .
The US Gov't goes belly-up and China comes in and says, "they owed
us $700 Billion in Treasury Notes and another $2 Trillion in actual
cash money which is now worthless. We are taking the entire state
of Hawaii and the entire state of California in lieu of this bad debt. "
With the stroke of a Chinese chop stick, Hawaii and California --
all the land and buildings in those states -- are now owned by China.
The "taking" would be a "valid public use" because it was "taken"
in payment of the public debt!!!!
China could then turn around and declare the value of all that
land to be worth. . . . . I dunno, ten cents on a dollar?
If you own a $200,000 hou
se in either state, you get a Chinese
check for $20,000.
Needless to say, the property owners would go ballistic and
demand "just compensation" for what was taken. Who gets to decide
what is "just?" China!
Don't think you got a fair price for what they took? No problem,
sue China. You'll lose.
People who live in those states and own their land outright, might
be able to negotiate with China to "rent" back what used to be their
own property, as long as they continue to pay all their taxes
(to China) ; but the land and buildings would belong to China!
This is what our own Government has just done to us and it is the
single most vile act of betrayal in the history of human existence.
State Governments Knew This Was Coming
In early February nine U.S. States began the process of re-asserting
their Sovereignty pursuant to the Ninth and Tenth Amendments to the
US Constitution; declaring null and void any actions by Congress that
violated the Constitution.
At the time, I wrote about those state efforts (Here) and wondered
why so many states were taking-up such an arcane issue in such a
seemingly urgent fashion. I guess now, we know why.
The states were obviously privy to what the feds were planning to
do with granting Eminent Domain to China. The states took action to
make certain the feds couldn't give away cities or the states
This situation is going to get VERY ugly, VERY fast as one sovereign
power (the feds) tries to literally give away the land of other
sovereign powers, (the states). This is the type of thing that starts
Our present federal government makes the treachery and betrayal of
Benedict Arnold look like child's play.
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