The Buck Stops Here
Imagine the future as top experts do: a world where the dollar is scorned, America needs foreign aid, oil is $150 a barrel, and big drug companies no longer save lives.
We are going to go through one of the most trying financial times in U.S. history, including the Great Depression ...
Death of the Dollar
Monday, October 08, 2007
America Losing the Economic War Against Terror
According to bin Laden's math, each $1 al Qaeda has spent on strikes has cost the United States $1 million in economic fallout and military spending, including emergency funding for Iraq and Afghanistan.
The U.S. must now import $5 billion in foreign capital a day merely to finance the current accounts deficit. In the face of this, according to the London Financial Times, there is forecast a sharp sell-off of the dollar coming "within weeks," and a full-blown dollar crisis: a combination of dollar selling by the foreign-exchange markets, coupled with a forced abandonment of the policy, up to now, of central banks' increasing their dollar holdings.
The fact is that, up until a few months back, financial experts estimated that the United States needed to bring in approximately $2-2.5 billion a day to keep U.S. accounts in balance. That figure has doubled!
The reasons are not hard to find ...
They start with the U.S. trade deficit, which reached new highs. Imports of food products hit a record, resulting in a deficit for the third straight year; while imports of foreign autos, industrial supplies, and consumer goods all set records, according to the Commerce Department.
As all rational people know, the U.S. physical economy is shutting down. Federal Reserve Chairman Alan Greenspan had said he expected the gap to fall, in large part due to the cheap dollar's effect on the pricing of exports.
It didn't happen. Then there's the extraordinary debt load which the U.S. economy is carrying, which includes the Federal government deficit, the corporate bond bubble, and the real estate bubble. These are unsustainable.
The corporate debt crisis is shown in its starkest form by the fact that General Motors, once the nation's premier manufacturing firm, now has its bonds rated at near-junk levels. Also contributing to the growing gap is the decline in purchases of U.S. assets by some of the leading holders of dollars internationally, specifically the Chinese.
Net inflows of capital into U.S. assets fell from $89 billion in November, to $61 billion in December. While that is still enough to finance the current account deficit, the direction is negative. Treasury securities purchases were only $8.3 billion in December, a 16-month low, with only $7 billion net from Asia.
This is from Japan, while other Asian central banks are now sitting on the sidelines. The value of U.S. dollar so far has been kept artificially high by Japan, China and oil-exporting countries.
These countries by buying US debts have kept interests rates relatively low in the United States and allowed Americans to keep spending even as their debts mount. But there is only so much risk these lenders (Asian and oil-exporting countries) are willing to take.
Any serious devaluation of the Dollar will considerably reduce the value of their national reserves (mostly kept in dollars) and the value of their debt holdings (certificates, bonds, etc.).
*Bush's policy takes the USA to financial collapse
*Dollar Crisis Evokes Panic Among World Financial Elite
*Will There Be A Dollar Crisis?
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