In the next few
months, a financial crisis will arise somewhere in the world which will jolt
the American economy and trigger a swift and precipitous decline in the value
of the dollar.
This is not
speculation; it will happen and there is nothing that the Bush administration
can do to stop it.
All of the
traditional supports for the dollar have been removed by a shrinking economy, a
massive $800 billion account deficit, dramatic increases in the money supply,
and the reckless manipulation of interest rates.
Now, the noose is
tightening. Our foreign trading partners can see that we are bobbing in an
ocean of red ink and are refusing to buy back our debt in the form of US
Treasuries. This is a death sentence for the dollar. It means that in a matter
of months the once-mighty greenback will crash through the floor
and free-fall through open space.
Mike Swanson of the
WallStreetWindow explains the
worrisome details related to last month�s trade deficit, �Just a few days ago
the US Treasury reported that the net capital inflows from the rest of the
world into the US fell for a 6th month in a row. Private from abroad fell to
$34.7 billion in August and from $72.9 billion in July. Asian central banks
made up for the shortfall. If they hadn�t the current account deficit would
have exploded. The NY Times quoted Ashraf Laidi, a currency analyst at MG
Financial Group as saying, 'foreign central banks saved the dollar from
disaster. The stability of the bond market is at thee mercy of Asian purchases
of US Treasuries.'�
Swanson poses an
interesting theory, but it can�t be verified since the Fed stopped printing the
M-3 that would provide the relevant facts about the current cash
Jim Willie of GoldenJackass.com, offers an entirely
different theory in his recent article �Spent Dollar Momentum.�
�Behind the scenes are the many illicit London-based firms busily buying US
Treasury Bonds with freshly-printed money from the Dept of the Treasury. Their
tracks are covered by the blackout on the money supply statistic. (M-3) An
isolated US government with a well-oiled printing press as the primary support
device makes for a dangerous currency situation.�
jives nicely with the US Treasury�s figures on the �Foreign Financing of US
Government Debt� (June 2006) Surprisingly, between 2005 and 2006, our friends
in the United Kingdom purchased another $142 billion of USD bringing their
stockpile of dollars to 201.4 billion.
Why would UK
investors suddenly stock up on dollar assets when everyone else in the currency
market is moaning about the greenback�s systemic problems?
Could it be that
banks in the UK are just hiding the paper trail for friends in America who
wanted to forestall a collapse in the dollar until after the election?
Of course there is
another explanation for the irregular activity in cash inflows, (purchase of US
Treasuries) that is, that we�re still living in a
"faith-based" Wonderland where foreign trading partners are only
too happy to buy an endless supply of worthless paper from a well-meaning giant
who is busy spreading democracy to the "great unwashed" in developing
Of course, that is
an utter fiction. The world is backing away from the dollar and dollar-based
assets while the Federal Reserve attempts to conceal the details
until we get through the election-cycle. It's that simple.
There is nothing accidental
about the crisis we'll soon be facing. The officials at the Federal Reserve and
the US Treasury are fully aware of the devastating effects of massive trade
deficits, increasing the money supply, and interest rates. They have set the
country on the path to ruin as part of a broader scheme for remaking the global
system according to well-known precedents. In truth, the plan to modify the
present system has a long history; going back to the 1980s when many of the
same actors in government today were in positions of power in the Reagan
administration. For the last six years they have been patching together their
strategy; producing record deficits, unfunded tax cuts, mammoth government
expansion, and doubling the money supply.
Who can possibly
argue that they did not understand the implications of their actions?
Greenspan know that by lowering interest rates in 2001 to 1.5 percent that
he would sluice trillions of dollars into the real estate market, producing the
largest equity bubble in history? And, if he didn't know, then how is it
that the Fed provides the statistics which actually tell how large
the housing bubble is?
read the charts and graphs his own organization puts out?
And why did Alan Greenspan
support the �no down payment,� �interest-only� loans and adjustable rate
mortgages (ARMs), which allowed �high risk� people to qualify for mortgages
when the Fed knew, according to their own figures, that if interest rates went
up, foreclosures would skyrocket?
Of course he
knew; they all knew. How could they NOT know? They produce the facts and
figures themselves! It�s all part of a madcap scheme to shift wealth to
the top 1 percent and drive a wooden stake into the heart of the middle class.
When Greenspan saw that doomsday was approaching, he got �cold feet� and bailed
out. Now the scholarly Ben Bernanke is left to supervise the economic meltdown
and face the public scorn.
Currently, the U.S.
economy is held together by the slimmest of threads; literally duct-taped
together by massaging all the crucial economic numbers, pumping as much
cheap fiat-currency into the system, and by "increasingly suspicious"
maneuverings in the futures markets. With the elections over, there will be no
reason to conceal the rot at the heart of the system. After all, we are not
facing an unforeseen catastrophe, but a planned demolition intended to increase
the disparity between rich and poor to such an extent that democracy, as we
know it, will no longer be possible.
Nothing is more
repugnant to America�s ruling elite than the notion that every man, however
broke and insignificant, can participate in our system of government.
Reserve's bloody fingerprints are all over our present dilemma. The
privately-owned Fed has never operated in the public interest. By doubling the
money supply in the last seven years and keeping interest rates artificially
low, the Fed has generated a $10 trillion housing bubble while, at the same
time, ignoring a $800 billion trade deficit which is sucking up American assets
and crushing American industry at an unprecedented rate.
expansion of debt has increased the likelihood that an unexpected event, like a
bank failure or a teetering hedge fund, will cause a major disruption in
the markets, sending tremors through the global system. Even if nothing
explosive happens, the faltering real estate market will continue to swoon,
consumer spending will dry up, and the fragile economy will crash to earth. In
fact, this is taking place right now; retail sales are anemic, residential
housing dropped a whopping 17 percent in the last three months, and economic
growth shrunk to a measly 1.6 percent in the third quarter. The only thing
keeping the economy from collapsing entirely is the sudden drop in oil prices that
�conveniently� coincided with the midterm balloting.
This won�t last.
According to industry analyst Matthew Simmons the world production of oil may
have already peaked, setting the stage for a leveling-off period before the
inevitable decline. Simmons has data to show that �world supply of oil has
declined to 83.98 million barrels per day in the second quarter after hitting
84.35 million bpd in the forth quarter of 2005.� Oil production is going
backwards not forwards.
No one believes the
price of oil is going down any time soon. As energy prices rise and the housing
market falls; consumer spending, which added $825 billion from home equity into
last year�s economy, will continue shrivel. Thus, the Fed will have to make the
tough choice of whether to loosen the purse strings and lower interest rates to
keep the economy sputtering along or ratchet up rates to attract more foreign
investment. (Keep in mind that the real estate market is already in retreat,
even though the full force of the Fed�s interest rate increases won�t be felt
for up to six to 12 months after they have been raised. The worst is yet to
believe that Fed Chairman Bernancke will be forced to lower rates sometime in
2007 to try to stimulate the economy and to affect a �soft landing� in the
housing market, but don�t count on it.
I believe the Fed
is more likely to either keep rates the same or raise them to outpace the
anticipated increases in Europe and Asia. The reason for this is simple: it
presently takes nearly $2.5 billion per day to maintain our current account
deficit. To continue to attract foreign capital, US Treasuries must offer a
higher rate of return than their foreign competitors. Now that the economies in
Europe and Asia are growing, their interest rates are going up accordingly (to
slow inflation). That means that the only way that America can continue to
expand its debt, through the exchange of fiat currency for resources and
manufactured goods, is by raising the return on Treasuries. And, that is
probably what Bernanke will do, even though it will skewer the struggling
American worker and the US economy at the same time.
The secret to
running the global economic system is to control the issuance of currency and
thereby be in a position to expand one�s own debt as one sees fit. The Federal
Reserve must preserve its �dollar hegemony� if it wants to maintain the
greenback as the world�s �reserve currency.� To accomplish that, the dollar
must stay one step ahead of its competitors (higher rates) and prove that it is
on solid financial footing. This is impossible now that the US economy is
contracting, so Washington has decided to do the next best thing; corner the
oil market. By controlling Middle East oil, US policy-makers believe that they
can force foreign nations to accept the debt-plagued greenback regardless of
the faltering US economy. It is no different than any other extortion racket.
If the plan succeeds
the dollar will remain the de facto international currency. But it is a difficult
task and the escalating violence in Iraq suggests that the results are far from
�Free Trade� is the
Holy Grail of neoliberalism. It is essentially a public relations scam intended
to disguise the shifting of wealth, jobs and resources from either the middle
class or the public sector to the corporate and banking establishments.�
Despite the zealous cheerleading of Thomas Friedman and his ilk; the basic
facts have been thoroughly examined and are not in dispute. Free trade has been
a dead loss for everyone except the people for whom it was originally designed;
the wealthiest and most powerful men on the planet. It has served them quite
For example, �since
NAFTA went into effect in 1994, the US has lost over $4 trillion to foreigners
through its trade deficit� . . ."During that 11.5 year period , foreign
ownership of US assets skyrocketed an amazing 400 percent from $3 trillion to
over $12 trillion� . . ."Foreign interests now own 46 percent of US
Treasury debt, 26 percent of corporate bonds, and 13 percent of US corporate
equities. Now nearly 100 percent of ongoing borrowings by the government are
funded by foreign interests.� . . ."Foreign interests also control a
majority of US domestic industries such as movies, music, publishing, metal ore
mining, cement production, engine and power plant production, rubber and
plastics and are major owners of US industries such as pharmaceuticals,
chemical manufacturing, industrial machinery manufacturing, motor vehicles, and
electronic equipment and components . . . In addition, the US has lost 3
million manufacturing jobs over the last decade, real wage growth after
inflation has been essentially zero,� and personal debt has never been higher.
(Data from Thomas Heffner EconomyInCrisis.org)
Since 1980, 13,730
major companies have been sold to foreign corporations. We no longer produce what
we need to sustain ourselves.
These facts may
have a mind-numbing affect on the reader, but they make a point that is simple
and unavoidable. The country is being colonized by corporate predators and its
main assets are being sold off to the highest bidder. This rampant carpetbagging
is taking place in full view of the American public that still clings to the
spurious idea that �free trade� is generally beneficial for all. It is not, and
we are about to experience its full-effects as America�s �straw house� economy
topples from its loss of manufacturing-capacity and its staggering account
now own 46 percent of US Treasury debt� over $3 trillion dollars! The Federal
Reserve and its corporate wolves are planning to prolong the hemorrhaging of US
wealth as long as possible, extracting every last farthing from the prostrate
corpse of the waning republic.
Now, we are at the
brink. Energy prices will go higher after the elections, manufacturing will
continue to flag, and the housing Zeppelin is drifting towards the high-tension
wires. To make matters worse, the American consumer; the �engine for global
economic growth,� is drowning in a sea of personal debt.
There�s no place to
go but down.
Every part of this
bleak picture was anticipated by its architects. That�s why they hastily
slapped together the requisite legislation for a modern day police state. After
passing the Military Commissions Act of 2006 (which allows the president the
arrest whomever he chooses without charges) and overturning the Posse Comitatus
Act (the president is now free to deploy the military within America against US
citizens), the Bush administration is as ready as they can be. Apparently, they
feel like they can manage the public shock and outrage with detention camps and
In any event, the
trap has been set and any minor disruption in the hedge funds or derivatives
markets will put the economy into a violent tailspin forcing our "Decider�
president to activate his plans for the new world order.
Battle Stations, Battle Stations
Last week an
article by Ambrose Evans-Pritchard appeared in the UK Telegraph, where he
stated: �[Treasury Secretary] Paulson re-activated the secretive support team
to prevent markets meltdown. Judging by their body language, the US authorities
believe that the roaring bull-market is just a sucker�s rally before the
inevitable storm hits. . . . the plunge protection team is a shadowy body with
powers to support stock-index, currency, and credit futures in a crash.
Otherwise known as the working group on financial markets, it was created by
Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.�
. . . Paulson has set up �a command center at the US Treasury that will track
global markets and serve as an operations base in the next crisis.� (Members
include the heads at Treasury, Federal Reserve and Securities and Exchange
adds: �Mr. Paulson has asked the team to examine �systemic risk posed by hedge
funds and derivatives, and the government�s ability to respond to a financial
crisis . . . We need to be vigilant and make sure we are thinking through all
of the various risks and that we are being very careful here. Do we have enough
liquidity in the system?'��
Evans-Pritchard asks, "[Do] Mr. Paulson and Mr. Cox [SEC] know something
that we do not: whether other hedge funds are in the same sinking boat as
Amaranth Advisors and Vega Management, keel-hauled by bets on natural gas and
bonds? Or whether currency traders with record short positions on the Japanese
Yen and Swiss Franc are about to learn the perils of the Carry Trade, a
high-stakes game of chicken where you bet against fundamentals with high
leverage to make a quick profit. Everybody knows it will blow up if the dollar
goes into free fall.�
So what is Paulson
offers us a clue in a CounterPunch article, �Why a Global Economic
Deluge Looms,� �The entire global financial structure is becoming
uncontrollable in crucial ways its nominal leaders never expected. Instability
is its hallmark . . . Contradictions now wrack the world�s financial system,
and if we are to believe the institutions and personalities who have been in
the forefront of the defense of capitalism, it may well be on the verge of
reduced market transparency have created a plethora of financial instruments that
are relatively untested and extraordinarily volatile. By eliminating the rules
of the game, market savvy investors have raked in the profits but reshaped the
economic landscape in a way that no one can predict what the ultimate outcome
will be. Hedge funds are now loaded with over-leveraged debt instruments that
promise a generous return in an up tempo market, but certain doom in an
economic downturn. Now, that all the arrows are pointed towards recession, the
devastating effects of this new �liberalized� system will be felt throughout
the global economy.
No one knows what
is in store for these high-risk hedge funds which have only been in existence
for a short time and into which Americans have dumped trillions of their
hard-earned savings. As Kolko says, �The credit derivative market was almost
non-existent in 2001, grew fairly slowly until 2004, and went into the
stratosphere, reaching $17.3 trillion by the end of 2005.�
Is it any wonder
why the main players at the Fed, the Treasury and the SEC are feeling a bit
Any shock to the
markets could set off a system-wide catastrophe. Just this week, for example,
Taiwan was bracing for a stock market crash following the surprise indictment
of first-lady Wu Shu-chen. Even relatively small incidents like this on the
other side of the world create the potential for contagion that can spread
rapidly in this new world of globalized markets. The danger is even greater
when those markets are built on foundations of sand.
Hank Paulson was
doubtless selected as Treasury secretary as the best possible
�industry-insider� to oversee the unwinding of America�s humongous account
imbalances and flimsy �deregulated� markets. His job is to ensure that, at the
end of the day, US banking giants, the Federal Reserve, and western elites
still control the global economic system and that the dollar reigns supreme.
Whatever happens to the American middle class in the process is of no
But Paulson faces
an insurmountable task from this point on; fudging the numbers only works for
so long. So far, the greenback has benefited from the manipulation of oil
prices, but that will soon end. (Better �fill �er up� now) The US economy is a
shriveled shadow of its former self; housing and manufacturing are in a
shambles and growth depends entirely on the expansion of debt. As GDP begins to
nosedive, foreign investment will dry up, capital will flee to more promising
markets in Asia and Europe, and the American people will totter into a barren
world of soaring unemployment, hyperinflation, and 1930s type
Bush administration still believes that their plan to remake the world�s
strongest economy into a corporate fiefdom is a prudent way to meet the
exigencies of the new century. Their foolishness defies description.
The country is now
facing a Chernobyl-type meltdown and there�s nothing we can do to stop it. The
foundation blocks for sound economic growth and prosperity have been replaced
by a misguided faith in military adventurism and police state repression. The
results are plain to see.
We are now more
vulnerable to a seismic economic event than anytime since the Great Depression.
The corporatists and the money-enders have absconded with the nation�s wealth;
gutting the manufacturing sector, creating enormous equity bubbles, and
raffling off our vital industries to foreign predators. Their unchecked
avarice has left the country teetering on the verge of ruin. At the same time,
the Bush administration has sown dragon's teeth across the world; leaving the
US with precious few friends who will throw us a lifeline when the
ship starts listing.
Hard times are on
the way; only this time it�ll be detention centers instead of soup kitchens.
Mike Whitney lives in Washington state. He can be reached at: firstname.lastname@example.org.