• Monthly
  • $25
  • $50
  • $100
  • $other
  • use PayPal

SPRING FUNDRAISER

Is it time for our Spring fundraiser already? If you enjoy what we offer, and have the means, please consider donating. The sooner we reach our modest goal, the faster we can get back to business as (un)usual. Please, stay safe and we’ll see you down the road.
FacebookTwitterRedditEmail

As the Dollar Falls Off the Cliff …

Economic news remains focused on banks and housing, while the threat mounts to the US dollar from massive federal budget deficits in fiscal years 2009 and 2010.

Earlier this year the dollar’s exchange value rose against currencies, such as the euro. UK pound, and Swiss franc, against which the dollar had been steadily falling.  The dollar’s rise made US policymakers complacent, even though the rise was due to flight from over-leveraged financial instruments and falling stock markets into “safe” Treasuries.  Since April, however, the dollar has steadily declined as investors and foreign central banks realize that the massive federal budget deficits are likely to be monetized.

What happens to the dollar will be the key driver of what lies ahead.  The likely scenario could be nasty.

America’s trading partners do not have large enough trade surpluses to finance a federal budget deficit swollen to $2 trillion by gratuitous wars, recession, bailouts, and stimulus programs.  Moreover,  concern over the dollar’s future is causing America’s foreign creditors to seek alternatives to US debt in which to hold their foreign reserves. 

According to a recent report in the online edition of Pravda, Russia’s central bank now holds a larger proportion of its reserves in euros than in US dollars.  On May 18 the Financial Times reported that China and Brazil are considering bypassing the dollar and conducting their mutual trade in their own currencies.  Other reports say that China has increased its gold reserves by 75 per cent in recent years.

China’s premier, Wen Jiabao, has publicly expressed his concern about the future of the dollar.  Arrogant, hubris-filled American officials and their yes-men economists discount Chinese warnings, arguing that the Chinese have no choice but to support the dollar by purchasing Washington’s red ink.  Otherwise, they say, China stands to lose the value of its large dollar portfolio.

China sees it differently.  It is obvious to Chinese officials that neither China nor the entire world has enough spare money to purchase $4 trillion of US Treasuries over the next two years.  According to the London Telegraph on May 27, Dallas Federal Reserve Bank president Richard Fisher was repeatedly grilled by senior officials of the Chinese government during his recent visit about whether the Federal Reserve was going to finance the US budget deficit by printing money.  According to Fisher, “I must have been asked about that a hundred times in China.  I was asked at every single meeting about our purchases of Treasuries.  That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States.”

US Treasury Secretary Timothy Geithner has gone to China to calm the fears.  However, even before he arrived, a Chinese central bank spokesman gave Geithner the message that the US should not assume China will continue to finance Washington’s extravagant budgets.  The governor of China’s central bank is calling for the abandonment of the dollar as reserve currency, using the International Monetary Fund’s Special Drawing Rights in its place.

President Lyndon Johnson’s “guns and butter” policy during the 1960s forced president Richard Nixon to eliminate the gold backing that the dollar had as world reserve currency, putting foreign central banks on the same fiat money standard as the US economy.  In its first four months, the Obama administration has outdone president Johnson.  Instead of ending war, Obama has expanded America’s war of aggression in Afghanistan and spread it into Pakistan.  War, bailouts, and stimulus plans have pushed the government’s annual operating budget 50 per cent into the red.

Washington’s financial irresponsibility has brought pressure on the dollar and the US bond market.  Federal Reserve Chairman Bernanke thought he could push down interest rates on Treasuries by purchasing $300 billion of them.  However, the result was to cause a sharp drop in Treasury prices and a rise in interest rates.  

As monetization of federal debt goes forward, US interest rates will continue to rise, worsening the problems in the real estate sector.  The dollar will continue to lose value, making it harder for the US to finance its budget and trade deficits.  Domestic inflation will raise its ugly head despite high unemployment.

The incompetents who manage US economic policy have created a perfect storm.

The Obama-Federal Reserve-Wall Street plan for the US to spend its way out of its problems is coming unglued.  The reckless spending is pushing the dollar down and  interest rates up.

Every sector of the US economy is in trouble.  Former US manufacturing firms have been turned into marketing companies trying to sell their foreign-made goods to domestic consumers who have seen their jobs be moved offshore.  Much of what is left of US manufacturing–the auto industry–is in bankruptcy.  More decline awaits housing and commercial real estate.  The dollar is sliding, and interest rates are rising, despite the Federal Reserve’s attempts to hold interest rates down.  

When the Reagan administration cured stagflation, the result was a secular bull-market in US Treasuries that lasted 28 years.  That bull market is over.  Americans’ living standards are headed down.  The American standard of living has been destroyed by wars, by offshoring of jobs, by financial deregulation, by trillion dollar handouts to financial gangsters who have, so far, destroyed half of Americans’ retirement savings, and by the monetization of debt.

The next shoe to drop will be the dollar’s loss of the reserve currency role.  Then the US, an import-dependent country, will no longer be able to pay for its imports.  Shortages will worsen price inflation and disrupt deliveries.  

Life for most Americans will become truly stressful.

PAUL CRAIG ROBERTS was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com

More articles by:

Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.

Weekend Edition
May 29, 2020
Friday - Sunday
Tim Wise
Protest, Uprisings, and Race War
Nick Pemberton
White Supremacy is the Virus; Police are the Vector
T.J. Coles
What’s NATO Up to These Days? Provoking Russia, Draining Healthcare Budgets and Protecting Its Own from COVID
Benjamin Dangl
Bibles at the Barricades: How the Right Seized Power in Bolivia
Kevin Alexander Gray - Jeffrey St. Clair - JoAnn Wypijewski
There is No Peace: an Incitement to Justice
Jeffrey St. Clair
A Few Good Sadists
Jeff Mackler
The Plague of Racist Cop Murders: Ahmaud Arbery, George Floyd and the COVID-19 Pandemic
Joshua Frank
In Search of a Lost Socialism
Charles Pierson
Who are the “Wrong Hands” in Yemen?
Andrew Levine
Trump Is Unbeatable in the Race to the Bottom and So Is the GOP
David Schultz
Trump isn’t the Pope and This Ain’t the Middle Ages
Ramzy Baroud
Political Ambiguity or a Doomsday Weapon: Why Abbas Abandoned Oslo
Pam Martens - Russ Martens
A Growing Wave of Bankruptcies Threatens U.S. Recovery
Joseph Natoli
Conditions Close at Hand
N.D. Jayaprakash
No Lessons Learned From Bhopal: the Toxic Chemical Leak at LG Polymers India 
Ron Jacobs
The Odyssey of Elias Demetracopoulos
J.P. Linstroth
Arundhati Roy on Indian Migrant-Worker Oppression and India’s Fateful COVID Crisis
Melvin Goodman
Goodness Gracious, David Ignatius!!
Roger Harris
Blaming the COVID-19 Pandemic on Too Many Humans:  a Critique of Overpopulation Ideology
Sonali Kolhatkar
For America’s Wealthiest, the Pandemic is a Time to Profit
Prabir Purkayastha
U.S. Declares a Vaccine War on the World
David Rosen
Coronavirus and the Telecom Crisis
Paul Buhle
Why Does W.E.B. Du Bois Matter Today?
Mike Bader
The Only Way to Save Grizzlies: Connect Their Habitats
Dave Lindorff
Pandemic Crisis and Recession Can Spark a Fight for Real Change in the US
Nyla Ali Khan
The Sociopolitical and Historical Context That Shaped Kashmiri Women Like My Grandmother in the 1940s
Louis Proyect
Does Neo-Feudalism Define Our Current Epoch?
Ralph Nader
S. David Freeman: Seven Decades of Participating in Power for All of Us
Norman Solomon
Amy Klobuchar, Minneapolis Police and Her VP Quest
Maria Paez Victor
Venezuela in the 2020 Pandemic
Ron Mitchell
Defending Our Public Lands: One Man’s Legacy
Nomi Prins 
The Great Depression, Coronavirus Style: Crashes, Then and Now
Richard C. Gross
About That City on A Hill
Kathleen Wallace
An Oath for Hypocrites
Eve Ottenberg
Common Preservation or Extinction?
Graham Peebles
Air Pollution Mental Illness and Covid-19
ADRIAN KUZMINSKI
Unearned Income for All
Evan Jones
The Machine Stops
Nicky Reid
Proudhon v. Facebook: A Mutualist Solution to Cyber Tyranny
Kollibri terre Sonnenblume
What is a “Native” Plant in a Changing World?
Shailly Gupta Barnes
Why are Our Leaders Still Putting Their Faith in the Rich?
John Kendall Hawkins
In Search of the Chosŏn People of Lost Korea
Jill Richardson
Tens of Millions of Are Out of Work, Why on Earth is Trump Trying to Cut Food Aid?
Susan Block
Incel Terrorism
David Yearsley
Plague Music
FacebookTwitterRedditEmail