THE BUSH
BATTERED DOLLAR
by Michael Hammerschlag
To someone who'd spent time in Russia in the early 90's, watching the steady strengthening of the Ruble against the
Dollar was like seeing water flow uphill. It's hard to explain how expensive it
is in Euroworld; they use a Euro, now $1.56, like a 50 cent piece, and round to
the nearest 10 Eurocents, throwing away 7 US cents on every second transaction.
One can't get tea and a banana for less than $9, about the minimum to sit down
it any cafe. The Euro has been a decidedly mixed blessing: predictably prices
in expensive countries didn't drop to Greek or Portuguese levels; they went up
to 50% above the most expensive country. From
Everything is 3-8 times the
The proximate cause for the
current
Congress, seeing America's
problems only in isolation, thinks Americans don't have enough money, rather
than stupidly spend every penny (including ones they don't have), so have
fabricated an election year giveaway tax credit, but that fuels the deficit
that is the root of the problem. It's a
"Tinker Bell market" , says
The world only bought our treasury bonds because the dollar was stable and strong. With Bush’s conversion of our greatest surplus into our greatest deficit, those days are gone. In Bush's first year, the dollar was 1.19 Euros, now it is only 0.63 €, a 47% drop in the trillions of dollars of the American Dream that our foreign creditors and investors hold: long term bonds, stocks, real estate. All they have to do to provoke a worldwide economic crisis is just start buying Eurobonds rather than ours (forget selling ours). That’s started, with the Chinese threatening to dump ours in response to our pressure to revalue their Yuan, the South Korea talking of diversifying their holdings, Iran switching its trade in oil from dollars to Euros (and Putin threatening to), and the Japanese warning of “enormous capital flight” from the dollar. Once the image of American financial invincibility is breached, flight from our bonds could become a flood.
To keep countries buying (funding our habit), bond
interest rates will have to be jacked way up- causing interest rates to rise
across the board (instead they've been cut, depressing the dollar more), and causing an avalanche of bankruptcies by firms and people
bloated by cheap credit. If you think the mortgage crisis is bad, you ain’t seen nothing yet. Out of
survival, the world is shifting away from dollars, and the ultimate result
could be a global economic collapse, because
7 months ago I urged my friends and acquaintances to sell all their holdings and buy gold (then $740/oz) because a catagory 6 financial hurricane was coming. Well, it's here.
ADDEN.: Paul Krugman 9-7-8 NYT "last month write-downs by banks and
other financial institutions passed the $500
billion mark - and the hits keep coming....
the effort to contain the financial crisis
seems to be failing. Asset prices are still
falling, losses are still mounting, and the
unemployment rate has just hit a five-year
high"
10-10-08 The question was how much of this
worthless paper is out there- if it was small
enough to contain with all the assets of
world governments- the answer is apparently
NO, the NYT says there is $62 Trillion of credit default swaps- most tied to expectations of continuous
housing rises, and now quite worthless. This
means this disaster will continue and all
efforts to control it are bound to fail.
It means bread lines and starvation and hundreds
of millions of homeless around the world.
NYT 10-10 But neither the individual corporate bailouts
nor the Fed’s enormous emergency lending
programs — including up to $900 billion through
its Term Auction Facility for banks — have
succeeded in jump-starting the credit markets.[comment: that's another trillion so they've
already thrown $2 trillion at this]
“The core problem is that the smart people
are realizing that the banking system is
broken,” said Carl B. Weinberg, chief economist
at High Frequency Economics. “Nobody knows who is holding the tainted assets,
how much they have and how it affects their
balance sheets. So nobody is willing to believe
that anybody else isn’t insolvent, until
it’s proven otherwise.”
Michael Hammerschlag's
commentary and articles (HAMMERNEWS.com) have appeared in International
Herald Tribune, Seattle Times,
Providence Journal, Columbia Journalism Review, Honolulu Advertiser, Capital
Times, MediaChannel; and Moscow News, Tribune, Times,
and Guardian. He's toured Europe + Africa for the last 5 months after
living in