Thursday, June 4, 2009

It's A Long Way Down

Paul Craig Roberts warns of the coming fall of the U.S. Dollar:

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.

Uncle Deadbeat's creditors may have been patient up to now, but they aren't suckers:

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% in recent years.

How does our Regime handle the problem? It sends the Treasury Secretary to make an ass of himself, and of America, by lying to the Chinese. Unfortunately, he didn't succeed even in fooling the youngsters over there:
"Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.
His answer drew loud laughter from his student audience....

Americans won't be laughing when we realize that we are stuck with the bill, to be paid in the form of higher interest rates and price inflation. Roberts continues:
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.
As an import-dependent nation, America will have a harder time paying for foreign goods. Roberts foresees shortages adding to the woes of poverty and widespread joblessness.

If you haven't started learning to grow your own food, now would be a good time.


  1. "If you haven't started learning to grow your own food, now would be a good time." Yep, along with fixing your own stuff, making your own stuff, and bartering with neighbors.

  2. You really should think twice about using that picture with this post.

  3. Conservative Teacher, I'm not going to be "politically correct" about the illustrations I choose, or the opinions I express. Your reaction suggests that there is something hallowed and sacrosanct about the images of the WTC deaths, but they are no more terrible than photos of, say, modern war casualties. The latter are often far grislier.

    Considering the number and kinds of deaths that Americans will suffer if our nation does collapse economically, the picture of the falling man is a visual understatement.

    In my library I have a book with a photograph of a little girl. She is naked, filthy, skeletal. She leans in a doorway, weeping with hunger, one of the millions of innocent victims of World War I in Europe. Had I used THAT photograph to illustrate the prospect of mass starvation, would you have written in protest?