Sinking Currency, Sinking Country

Discussion in 'Current Events' started by Shogun, Nov 6, 2007.

  1. Shogun
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    Fri Nov 2, 3:00 AM ET

    The euro, worth 83 cents in the early George W. Bush years, is at $1.45.

    The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.

    Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.

    Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?

    Nope. The dollar has plummeted in value, more so in Bush's term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.

    Is it all Bush's fault? Nope.

    The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.

    The prime suspect in the death of the dollar is the massive trade deficits America has run up, some $5 trillion in total since the passage of NAFTA and the creation of the World Trade Organization in 1994.

    In 2006, that U.S. trade deficit hit $764 billion. The current account deficit, which includes the trade deficit, plus the net outflow of interest, dividends, capital gains and foreign aid, hit $857 billion, 6.5 percent of GDP. As some of us have been writing for years, such deficits are unsustainable and must lead to a decline of the dollar.

    A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.

    What does this mean for America and Americans?

    As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War.

    U.S. tourists traveling to the countries whence their ancestors came will find that the money they saved up does not go as far as they thought.

    U.S. soldiers stationed overseas will find the cost of rent, gasoline, food, clothing and dining out takes larger and larger bites out of their paychecks. The people those U.S. soldiers defend will be demanding more and more of their money.

    U.S. diplomats stationed overseas, students and businessmen are already facing tougher times.

    U.S. foreign aid does not go as far as it did. And there is an element of comedy in seeing the United States going to Beijing to borrow dollars, thus putting our children deeper in debt, to send still more foreign aid to African despots who routinely vote the Chinese line at the United Nations.

    The Chinese, whose currency is tied to the dollar, and Japan will continue, as long as they can, to keep their currencies low against the dollar. For the Asians think long term, and their goals are strategic.

    China — growing at 10 percent a year for two decades and now growing at close to 12 percent — is willing to take losses in the value of the dollars it holds to keep the U.S. technology, factories and jobs pouring in, as their exports capture America's markets from U.S. producers.

    The Japanese will take some loss in the value of their dollar hoard to take down Chrysler, Ford and GM, and capture the U.S. auto market as they captured our TV, camera and computer chip markets.

    Asians understand that what is important is not who consumes the apples, but who owns the orchard.

    Other nations that have kept cash reserves in U.S. Treasury bonds and T-bills are watching the value of these assets sink. Not fools, they will begin, as many already have, to divest and diversify, taking in fewer dollars and more euros and yen. As more nations abandon the dollar, its decline will continue.

    The oil-producing and exporting nations, with trade surpluses, like China, have also begun to take the stash of dollars they have and stuff them into sovereign wealth funds, and use these immense and growing funds to buy up real assets in the United States — investment banks and American companies.

    Nor is there any end in sight to the sinking of the dollar. For, as foreigners demand more dollars for the oil and goods they sell us, the trade deficit will not fall. And as the U.S. government prints more and more dollars to cover the budget deficits that stretch out — with the coming retirement of the baby boomers — all the way to the horizon, the value of the dollar will fall. And as Ben Bernanke at the Fed tries to keep interest rates low, to keep the U.S. economy from sputtering out in the credit crunch, the value of the dollar will fall.

    The chickens of free trade are coming home to roost.

    http://news.yahoo.com/s/uc/20071102/cm_uc_crpbux/op_334275;_ylt=AvZgJ1Rdc9CrCFBX44p18HOs0NUE
     
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  2. Toro
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    Pat Buchanan shows his astonishing ignorance of economics once again.

    There is no doubt that a declining dollar is at least partially the fault of Americans, but to say it has nothing to do with what is happening elsewhere in the world is laughable.

    Structural changes in global economies are at least a partial cause of the dollar's decline. For example, growth is accelerating in Europe and Canada has gotten its fiscal house in order. Also, countries which export commodities have had stronger currencies because of the rise China and the lack of investment in the sector for the past three decades.

    It has almost nothing to do with NAFTA or the World Trade Organization. Pitchfork Pat probably doesn't know that the WTO is merely the successor to the GATT while NAFTA has jack to do with the fact that Canada balances its budget and has lots of oil.

    Xenophobic anachronistic mercantilism is dangerous to America. Buchanan is astonishingly ignorant of simple economic precepts and facts that threatens the wealth of the nation.
     
  3. Gunny
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    I think his points are rather simple, and spot on. We've sold ourselves out. Doesn't matter what changes to global economics you wish to deflect the blame, the problem for US starts HERE, with US.

    When we were a self-sufficient nation, it didn't matter a rat's ass WHAT global economic changes happened. It only matters now because we are tied to and/or owned by them.
     
  4. William Joyce
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    It worries me that we are so much in debt to Asian nations. It also concerns me that we don't make anything these days exept lawsuits. If we got into it with China, where would all our stuff come from? It just can't be good to outsource everything, even in an information age.

    The other day I saw a manhole cover that said "Made in India." We can't make a friggin' MANHOLE COVER? A nation that can't make manhole covers ain't in a good way.
     
  5. Toro
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    Spot on? I don't think so. There isn't a serious economist who would agree with this. Autarky is a discredited philosophy that has been tried around the world with disastrous results. Its horrible economics, worthy of a Chavez or a Mugabe.

    You worried about who sold who out? Try the American voter who wants tax cuts at all costs, or the government that is spending a trillion dollars on a quixotic war, or a central bank spurred on by politicians and investors and ultimately voters who want cheap money because they cannot bear to take losses or endure a recession, or consumers who live beyond their means. The bind Americans are in are (primarily) a fault of Americans and Americans alone.
     
  6. Shogun
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    7 Countries Considering Abandoning the US Dollar (and what it means)



    November 6th, 2007

    By Jessica Hupp

    It’s no secret that the dollar is on a downward spiral. Its value is dropping, and the Fed isn’t doing a whole lot to change that. As a result, a number of countries are considering a shift away from the dollar to preserve their assets. These are seven of the countries currently considering a move from the dollar, and how they’ll have an effect on its value and the US economy.

    1. Saudi Arabia: The Telegraph reports that for the first time, Saudi Arabia has refused to cut interest rates along with the US Federal Reserve. This is seen as a signal that a break from the dollar currency peg is imminent. The kingdom is taking “appropriate measures” to protect itself from letting the dollar cause problems for their own economy. They’re concerned about the threat of inflation and don’t want to deal with “recessionary conditions” in the US. Hans Redeker of BNP Paribas believes this creates a “very dangerous situation for the dollar,” as Saudi Arabia alone has management of $800 billion. Experts fear that a break from the dollar in Saudi Arabia could set off a “stampede” from the dollar in the Middle East, a region that manages $3,500 billion.
    2. South Korea: In 2005, Korea announced its intention to shift its investments to currencies of countries other than the US. Although they’re simply making plans to diversify for the future, that doesn’t mean a large dollar drop isn’t in the works. There are whispers that the Bank of Korea is planning on selling $1 billion US bonds in the near future, after a $100 million sale this past August.
    3. China: After already dropping the dollar peg in 2005, China has more trouble up its sleeve. Currently, China is threatening a “nuclear option” of huge dollar liquidation in response to possible trade sanctions intended to force a yuan revaluation. Although China “doesn’t want any undesirable phenomenon in the global financial order,” their large sum of US dollars does serve as a “bargaining chip.” As we’ve noted in the past, China has the power to take the wind out of the dollar.
    4. Venezuela: Venezuela holds little loyalty to the dollar. In fact, they’ve shown overt disapproval, choosing to establish barter deals for oil. These barter deals, established under Hugo Chavez, allow Venezuela to trade oil with 12 Latin American countries and Cuba without using the dollar, shorting the US its usual subsidy. Chavez is not shy about this decision, and has publicly encouraged others to adopt similar arrangements. In 2000, Chavez recommended to OPEC that they “take advantage of high-tech electronic barter and bi-lateral exchanges of its oil with its developing country customers,” or in other words, stop using the dollar, or even the euro, for oil transactions. In September, Chavez instructed Venezuela’s state oil company Petroleos de Venezuela SA to change its dollar investments to euros and other currencies in order to mitigate risk.
    5. Sudan: Sudan is, once again, planning to convert its dollar holdings to the euro and other currencies. Additionally, they’ve recommended to commercial banks, government departments, and private businesses to do the same. In 1997, the Central Bank of Sudan made a similar recommendation in reaction to US sactions from former President Clinton, but the implementation failed. This time around, 31 Sudanese companies have become subject to sanctions, preventing them from doing trade or financial transactions with the US. Officially, the sanctions are reported to have little effect, but there are indications that the economy is suffering due to these restrictions. A decision to move Sudan away from the dollar is intended to allow the country to work around these sanctions as well as any implemented in the future. However, a Khartoum committee recently concluded that proposals for a reduced dependence on the dollar are “not feasible.” Regardless, it is clear that Sudan’s intent is to attempt a break from the dollar in the future.
    6. Iran: Iran is perhaps the most likely candidate for an imminent abandonment of the dollar. Recently, Iran requested that its shipments to Japan be traded for yen instead of dollars. Further, Iran has plans in the works to create an open commodity exchange called the Iran Oil Bourse. This exchange would make it possible to trade oil and gas in non-dollar currencies, the euro in particular. Athough the oil bourse has missed at least three of its announced opening dates, it serves to make clear Iran’s intentions for the dollar. As of October 2007, Iran receives non-dollar currencies for 85% of its oil exports, and has plans to move the remaining 15% to currencies like the United Arab Emirates dirham.
    7. Russia: Iran is not alone in its desire to establish an alternative to trading oil and other commodities in dollars. In 2006, Russian President Vladmir Putin expressed interest in establishing a Russian stock exchange which would allow “oil, gas, and other goods to be paid for in Roubles.” Russia’s intentions are no secret–in the past, they’ve made it clear that they’re wary of holding too many dollar reserves. In 2004, Russian central bank First Deputy Chairmain Alexei Ulyukayev remarked, “Most of our reserves are in dollars, and that’s a cause for concern.” He went on to explain that, after considering the dollar’s rate against the euro, Russia is “discussing the possibility of changing the reserve structure.” Then in 2005, Russia put an end to its dollar peg, opting instead to move towards a euro alignment. They’ve discussed pricing oil in euros, a move that could provide a large shift away from the dollar and towards the euro, as Russia is the world’s second-largest oil exporter.

    What does this all mean?

    Countries are growing weary of losing money on the falling dollar. Many of them want to protect their financial interests, and a number of them want to end the US oversight that comes with using the dollar. Although it’s not clear how many of these countries will actually follow through on an abandonment of the dollar, it is clear that its status as a world currency is in trouble.

    Obviously, an abandonment of the dollar is bad news for the currency. Simply put, as demand lessens, its value drops. Additionally, the revenue generated from the use of the dollar will be sorely missed if it’s lost. The dollar’s status as a cheaply-produced US export is a vital part of our economy. Losing this status could rock the financial lives of both Americans and the worldwide economy.


    http://www.currencytrading.net/2007...g-abandoning-the-us-dollar-and-what-it-means/
     
  7. mattskramer
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  8. Toro
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    It was as clear as day this was going to happen.

    Now, its a lot more murky.
     
  9. Working Man
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  10. Toro
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