The dollar's full-system meltdown
By Mike Whitney
Journal Contributing Writer
Nov 1, 2006, 00:34
The U.S. dollar is
kaput. Confidence in the currency is eroding by the day.
A report in The
Sydney Morning Herald stated, �Australia�s Treasurer Peter Costello has called
on East Asia�s central bankers to �telegraph� their intentions to diversify out
of American investments and ensure an �orderly adjustment.� . . . Central banks
in China, Japan, Taiwan, South Korea, and Hong Kong have channeled immense
foreign reserves into American government bonds, helping to prop up the US
dollar and hold down interest rates,� said Costello, but �the strategy has
strategy has changed. The world has come to its senses and is moving away from
the green slip of paper that is currently mired in $8.3 trillion of debt.
The central banks
now want to reduce their USD reserves while trying to do as little damage to
their own economies as possible. That�ll be difficult. If a sell-off ensues, it
will start a stampede for the exits.
There�s little hope
of an �orderly adjustment� as Costello opines; that�s just false optimism. When
the greenback begins listing; things will turn helter-skelter quickly.
In September, we
saw early signs that the dollar was in trouble. The trade deficit registered at
$70 billion but the Net Foreign Security Purchases (NFSP) came in at a paltry
$33 billion. That means that our main trading partners are no longer buying
back our debt, which puts downward pressure on the greenback. The Fed had two
choices; either raise interest rates substantially or let the currency fall.
Given the tenuous condition of the housing bubble and the proximity of the
midterm elections, the Fed did neither.
A month later, in
October, the trade deficit hit $69.9 billion but, without warning, a miracle
occurred. The Net Foreign Security Purchases skyrocketed to a �historic high�
of $116.8 billion; covering both months� shortfalls almost to the penny.
Not likely. Either
the skittish central banks decided to �stock up� on their dollar-denominated
investments or the Federal Reserve (and their banking-buddies) is buying back
its own debt to float us through the elections.
This is exactly the
kind of hanky-panky that people expected when Greenspan stopped publishing the
M-3 last March, keeping the rest of us in the dark about what was really going
on with the money supply.
Are we supposed to
believe that the skeptical central banks suddenly doubled up on their T-Bills
while they�re (publicly) moaning about the dollar�s weakness and threatening to
That�s a stretch.
According to the
Wall Street Journal, the Chinese Central-bank governor, Zhou Xiaochuan, stated
unequivocally, �We think we�ve got enough.� The Chinese presently have nearly
$1 trillion in USD and US Treasuries.
The United States
runs a $200 billion per year trade deficit with China. If they�ve �got enough,�
we�re dead ducks. After all, it doesn�t take a sell-off to kill the dollar,
just unwillingness on the part of the main players to stop purchasing at the
Of course, everyone
in Washington already knew that doomsday was approaching. That�s the way the
system was designed from the very beginning. It�s all part of the madcap scheme
to �starve the beast� and transfer the nation�s wealth to a handful of western
plutocrats. That�s explains why the Fed and the White House whirred along like
two spokes on the same wheel; every policy calculated to thrust the country
headlong toward disaster.
never created a funding mechanism for the $400 million tax cuts or for the 35
percent expansion of the federal government. Defense spending increased by
leaps and bounds as did the �no-bid� contracts for friends of the Bush clan. At
the same time, interest rates were lowered to rock-bottom to put as much money
as possible into the hands of people who couldn�t meet the traditional criteria
for a mortgage. And, if gluttonous waste, reckless overspending and �Mickey
Mouse� loans were not enough; the Fed capped it off by doubling the money
supply in seven years; a surefire prescription for hyper-inflation.
So, which one of
these policies was not deliberate?
crisis that we now face was created by design. It is intended to destroy the
labor movement, crush the middle class, quash Medicare, Medicaid and Social
Security, reduce our foreign debt by 50 or 60 percent, force a restructuring of
America�s debt, privatize all public assets and resources, and create a new
regime of austerity measures which will divert more wealth to the banking and
The avatars of
neoliberalism invariably use crooked politicians to spawn enormous
�unsustainable� debt so that the nations� riches can be transferred to ruling
elites. It works the same everywhere. It�s a form of corporate colonization,
only this time the victim is the good old USA.
�The Phase of Impact�
Richard Daughty in his prescient article, �The Phase of Impact,� the Federal
Reserve and the Treasury Department have already manned the battle stations.
Here�s an excerpt:
�Mr. Paulson, the
Secretary of the Treasury, is, by virtue of his ascension to the throne, now
the head of the shadowy President�s Working Group of Financial Markets (which
was created by Presidential Order 12631) and he is insisting that they meet
more often, namely every 6 weeks.
Working Group thing was originally set up as a fallback, ad-hoc, if-then
defense to deal with possible economic emergencies, but now they are routinely
meeting every six weeks. He has even ordered Jim Wilkinson, his chief of staff,
to �oversee the creation of a Treasury Command Center to track markets
worldwide and serve as an operations base in a crisis.'" (Wall Street
Journal) Worldwide!! The American government is moving to take control of the
worldwide economy as the result of an anticipated crisis? Yikes!�
Daughty goes on to
say: �So a lot of the hubbub is obviously being caused by some approaching
upheaval, perhaps reflected in something sent to me by Phil S., which is the
Global Europe Anticipation Bulletin No. 8 which reminded us that last May they
predicted that the economy would have a �phase of acceleration� that would
begin in June, and it �would be spread out over a period of a maximum of 6
months,� which it subsequently did. They said then, and are saying again now,
that a �phase of impact will begin in November 2006,� and that this impact
phase would be the �explosive phase of the crisis.�
of impact� that is due to begin momentarily is, they explain, �a period when a
series of brutal crises starts affecting by contamination the total system.
This explosive phase of the crisis, which will last 6 months to one year, will
affect directly and very strongly financial players and markets, the owners of
investment schemes with fixed incomes in dollars, pension funds and the
strategic relations between the United States on the one side, and Europe and
Asia on the other.� (Richard Daughty; �The Phase of Impact� Kitco.com)
course, are rarely reliable and Daughty�s scenario may be a bit too apocalyptic
for many. But if we accept the premise that the tax cuts, the expansion of the
federal government, the doubling of the money supply, and the $10 trillion that
was sluiced into the housing bubble were not merely �honest mistakes� made by
�supply-side� enthusiasts; then we must assume that this is all part of a loony
plan to demolish the economic foundation blocks of the current system and
remake society from the ground up.
plan appears to involve the activation of the police state.
In the last few
weeks, the Bush administration has signed into law the Military Commissions Act
of 2006, which allows the president to arrest and torture whomever he chooses
without charging him with a crime. Also, unbeknownst to most Americans, Bush
signed into law a provision which, according to Senator Patrick Leahy, will
allow the president to unilaterally declare martial law. By changing The
Insurrection Act, Bush has essentially overturned the Posse Comitatus Act which
bars the president from deploying troops with the United States. The John
Warner Defense Authorization Act of 2007 (as it is called) also allows Bush to
take control of the National Guard, which has always been under the purview of
the state governors. Bush now has absolute power over all armed troops within
the country, a state of affairs which the constitution purposely tried to
prevent. The administration�s dream of militarizing the country under the sole
authority of the executive has now been achieved, although the public still has
no idea that a coup has taken place.
the falling dollar means that America�s debt will be reduced proportionate to
the percentage-loss of the dollar in relation to other currencies. This is a
great deal for the U.S. First the Fed prints fiat money to buy valuable
resources and manufactured goods and then it nabs a discount by depreciating
its currency. It�s a �win-win� situation for Washington, although it will
undoubtedly cheat unwitting foreign creditors out of their hard-earned
profits. It�s doubtful that their interests will weigh very heavily on the
moneylenders at the US Treasury or the Federal Reserve.
The dollar faces a
second crisis at home which is bound to play out throughout 2007. The $10
trillion housing bubble is quickly losing air, causing a precipitous drop in
GDP. The housing industry is seeing its steepest decline in 30 years and home
equity is beginning to shrivel. Housing has been the one bright spot in an
otherwise bleak economic landscape. With the housing market slowing down and
prices decreasing, the $600 billion of consumer spending, which was extracted
in 2005 from home equity, will quickly evaporate, triggering an overall
slowdown in the economy. (Consumer spending is 70 percent of GDP)
By the Fed�s own
calculations; �The total amount of residential housing wealth in the US just
about doubled between 1999 and 2006 up from $10.4 trillion to $20.4 trillion.
(�Times Online�) If these figures are accurate, than we can assume that much of
America�s �perceived� growth has been nothing more than the expansion of debt.
In fact, that seems to be the case. Wages have been stagnant since the 1970s, 3
million manufacturing jobs have been outsourced, savings have shrunk to below
0%, and personal debt is soaring. We have become an �asset-based� society and
when the principle asset begins to loose its value, we are in deep trouble. As
housing prices continue to decline through 2007 we can expect a full-blown
recession. If energy prices rear their ugly head again, (were they lowered for
the elections?) it will just be that much worse.
So, how will
recession affect the dollar?
Capital has no
loyalties. It follows the markets. When America�s bustling consumer market
stalls, we�ll undergo capital flight just like everywhere else. The 3 million
lost manufacturing jobs, the 200,000 lost high-paying high-tech jobs, the tax
incentives for major corporations doing business outside the country; all
signal that corporate America has already loaded the boats and is headed for
more promising markets in Asia and Europe. A sluggish consumer market could
further weaken the dollar and force Americans to begin saving again but, (and
here�s the surprising part) the decision makers at the Federal Reserve and the
Treasury Department don�t really care if the face-value of the greenback goes
What really matters
is that the dollar retains its position as the world�s reserve currency. That
allows the Federal Reserve to continue to print the money, set the interest
rates, and control the global economic system. The dollar presently accounts
for 66 percent of foreign currency reserves in central banks across the globe,
an increase of nearly 10 percent in one decade alone. The dollar has become the
international currency, a de facto monopoly. This is the goal of the
globalists and the American ruling elite who dream of one system, the
dollar-system; with them running it.
So, how will this
cadre of plutocrats coerce the other nations to continue to use the dollar
while it plummets from its perch?
As long as oil is
denominated in dollars, the central banks will be forced to stockpile American
scrip regardless of its value. It�s no different than holding a gun to
someone�s head. They will use our debt-plagued greenbacks or their cars and
trucks will sputter, their tractors and factories will wheeze, and their
economies will grind to a halt. It�s just that simple.
maintain its superpower status unless it continues to control the global
economic system. That means the linkage between the dollar and oil must be
preserved. The Bush troupe sees this as an existential issue upon which the
future of America�s ruling class depends. By 2020, 60 percent of the world�s
oil will come from the Middle East. Bush will do everything in his power to
control the resources of the Caspian Basin, thereby expanding US
dollar-hegemony and paving the way for a new American century.
Mike Whitney lives in Washington state. He can be reached at: email@example.com.
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