Dollar on the Edge

[wizdum]

Dollar on the Edge
12-Jun-2006

Over the past two months a strange and disturbing thing happened to the dollar: China and Japan began to shift away from buying US Treasury debt (dollars) and into the Euro market and other curriencies. Across April and May, the Euro began to rise, moving from about $1.20 to the area of $1.30.

This has happened despite the fact that the US Treasury has been signaling more and more aggressively that US interest rates will continue to rise, making the dollar theoretically more appealing to foreign purchasers. There is an extraordinary economic danger associated with this: if the dollar collapses, the US economy is going to suffer a catastrophic blow that could double gas prices and send inflation soaring beyond anything Americans have ever known.

The weaker the dollar becomes, the higher US interest rates must go, and the more pressure Americans will be under, at every level. The Organization for Economic Cooperation and some elements of the International Monetary Fund are predicting that the dollar will fall from 35% to 50% to account for the gigantic debt that the Bush Administration has created by the combination of tax cuts and spending on the war in Iraq.

This will result in an increase in gasoline prices from the region of $3.00 to the region of $6.00, and will cause all imports to roughly double in price. This will mean that everything from clothing to cars to many grocery items will shoot up in price. At this point, the housing market will collapse, and there will be a wave of bankruptcies. But the new bankruptcy act, forced through congress by Tom DeLay last year after he received a half million dollar contribution from the credit card industry, will insure that debtors can never liquidate their indebtedness, meaning that they can never re-enter the economy, and therefore that recovery, if it occurs, will take at least a generation. This legislation had languished for years, because it is so economically dangerous.

A 'run' on the dollar, caused by panicking foreign holders attempting to sell into non-existent buying, could cause the dollar to collapse very suddenly, even over a matter of days.

There is evidence that the US is attempting to manage the decline by purchasing its own debt. As Asian purchasing of US paper declined last month, the slack was taken up by Caribbean and UK banks that would not normally have the liquidity to make such purchases. Therefore, they are acting for a third party, and the only party that would buy dollars when a loss in value is inevitable is the US Treasury.

By doing this, the US is hoping to prevent a sudden collapse of the dollar and the subsequent unwinding of the US and world economies in a fiscal disaster so profound that it will eclipse the Great Depression. It can work for a while, but inevitably if the US becomes the only major customer for its own currency, the dollar will go into freefall. Where it will stop, and what will happen to the world economy then, are the looming unknowns that have made world equity markets so uneasy over the past thirty days, and promise to bring more trouble in the future.

Link

[joe_shmoe]

1. A great post - the biggest barrel we're staring down

We're soon going to go from all 5 levels of Maslow's pyrimid down to the first 2 real soon.

No wonder I'm buying gold and stocking up on food.

A good set of summeries I'm putting together:
http://reseaudesign.com/research/economy/

[wizdum]

3. Thanks for the link to those graphs...they're interesting....

No wonder I'm buying gold and stocking up on food.

I am doing the same thing. Bought a corn furnace to because fuel may be in short supply, but I live in the midwest, so there will always be plenty of corn.

[n2doc]

2. I see this doomsday stuff a lot

What they ignore is that China and the other countries would be really hurt by a collapse of the US economy. They will not let the dollar crash. I guess no one has noticed that gold is back under $600 and the euro is back to 1.25. We may see a further weakening of the dollar and we will certainly see rates rise, but the global bankers will not let the dollar collapse. It would cost them way too much money.

[wizdum]

4. The situation is much more complicated than you make it out to be.

"What they ignore is that China and the other countries would be really hurt by a collapse of the US economy."

The Chinese are selling their wares on almost every continent and can stay afloat financially without the US. They have been increasing their financial ties with other countries to do just that. They are relinquishing their dollar holdings quietly so as not to crash the value of the greenbacks they are holding, and buying up gold without a peep to prevent the price from skyrocketing all at once. No one will be able to prevent the downfall of the dollar at this point. The war in Iraq is being fought to militarily enforce the hegemony of the dollar, but it has backfired. Other countries absolutely despise the US now, and are looking to divest themselves of dollars. This is it. You are about to witness the fall of an empire. :popcorn:

"They will not let the dollar crash."

wanna bet???

"I guess no one has noticed that gold is back under $600"

And it won't stay there for long. The only reason it is not a thousand dollars an ounce at the moment is because the central banks are cooking the books. They are claiming they own more gold than they actually do. The gold remains in their vaults, but they have sold half of it off, but continue to hold it in their vaults for other investors. They do this to manipulate the price of gold and beat it down, but it's not staying down for long, particularly because for the first time in history Chinese citizens are permitted by their government to buy gold.

Pretty soon its going to be pop goes the weasel on the price of gold.

[n2doc]

7. I guess we'll see.

I have seen this stuff going back to the late 70's, and the story doesn't change, only the players.
Anyone who thinks that the loss of the world's largest economy wouldn't be felt is, well, pretty confident in the economic strength of countries like China and India. Countries with economies built on sucking dollars out of the US, I might add. It takes time to build up independance, and I do not think they are anywhere close yet.

Again, I don't doubt that there are serious problems. $70 oil and $600 Gold tell you that. I just am a bit sceptical about claims that we will catestrophically collapse. Much of the price of both commodities is built upon industrial and domestic demand, demand that would vanish if the dollar collapsed. There would be a tug of war, then, between lack of demand and intrinsic value. But we will see. I have put money into oil and Gold stocks, so in some sense I would benefit in the short term from a dollar collapse. But I don't expect it. Just a slow decline with lots of volatility.

[wizdum]

10. However you are forgetting that China and India...

...have the largest populations on earth and their industries could easily stay afloat purely on the strength of their domestic sales, without having to rely on the US as a crutch.

dubya has ruined the economy and economic conditions now more closely resemble the pre World War II economic climate as opposed to the post WWII industrial era, when the US led the world in manufacturing to rebuilt Europe after WWII, and represented more than 50 percent of the world's economy. Now we are at 30 percent. The reason people have been sounding the alarm about the US economic health since the 1970's is because that is when the dollar went off the gold standard. The dollar is now also being kicked to the curb as the petro currency, which is extremely damaging to the currency overall. With dubya increasing the national debt as we post, the dollar is poised to bite the dust bigtime. Be prepared! Don't underestimate the destructiveness of dubya. The defeat we are currently suffering on the battlefield of Iraq will be overshadowed by his ruinous economic policies. The plunge protection team is doing everything in their power at the moment to shore the economy up. But the longer this war goes on, the quicker the crash will occur. Take steps to protect yourself from cold and hunger.

[Joe Bacon]

5. This was the Republican plan all along

Spill so much red ink that the dollar collapses, the IMF moves in and forces the elimination of all social programs, starting with Social Security and Medicare.

The "safety net" is removed and millions of people forced to go to churches and charities for help. The the Republicans turn the clock back further and reinstate the POOR HOUSES. and POOR FARMS.

THis is what they have wanted all along, and their preacher pals have brainwashed the masses to accept this!

[wizdum]

6. Excellent observations. dubya's puppet masters have always...

...had a policy of devaluing the dollar since day one. They hired the new treasury secretary specifically to ease the dollar down to the lowest possible denominator while causing the least amount of chaos. But their plan will backfire in the end. One thing that has always remained outside the partisan divide in this country is social security. It is THEE most popular program in our nation's history. It may not be the darling of elitists, but the American people have come to feel it is their birthright because they put so much money into it. If the elitists succeed in abolishing Social Security and other social safety net programs, they will have a revolution on their hands and every last one of them will be run out of office on a rail. Then the government will be revamped and the new Congress of the people will uphold the constitution and issue a new improved interest free dollar, cutting out the federal reserve all together, which is nothing more than a privately company making families like the Rothschilds, Rockefellers and Bilderbergs fantastically wealthy.

This will be inevitable result of their manipulation of our currency, because the American people will roll over and play dead just about as fast as the Iraqis did. NOT!!!

Bwahahahahahaha.

All I can say dubya is "bring it on!"

David Rockefeller's 1991 Bilderberg Quote revisited:

Quote:

"We are grateful to the Washington Post, the New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years."

He went on to explain:

"It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national autodetermination practiced in past centuries."

-- David Rockefeller, Speaking at the June, 1991 Bilderberger meeting in Baden, Germany (a meeting also attended by then-Governor Bill Clinton and by Dan Quayle

[cliss]

8. I have some mixed feelings about this.

I'll share what I've observed. You can agree or disagree. I'm going to focus on the notion of "this is what they planned all along" and "they intended to destroy the system".

Why would a group of leaders come in and destroy a system that has rewarded them? And basically keeps the rest of the world running? That would be self-sabotaging, like the I Ching hexagram of the "bird burning its nest". It makes no sense.

But you do hear it! You hear about how the Repugs wanted to destroy this and that program, kill the middle class, destroy our economy, ruin Social Security, destroy Iraq etc etc.

Here's my take -

1) Bush & Cheney do not act on their own. They have a LARGE number of people behind them. There are people like the CEO's of Halliburton, CACI, Titan, the military industrial complex. Then you have the bankers. If Cheney tried to do something against their wishes, he would be out on his ass.

2) So why would this be a problem? Why wouldn't the country prosper since these companies are prospering? Answer = because we have different industrial groups COMPETING and that's what's causing these huge distortions in the government. One group makes money FROM war (KBR, Bechtel, Blackwater) Another group IS DAMAGED from war, like the industrialists, retailers,

3) I agree that they put in John "Snowjob" Snow to flush the dollar. They stood by as it went into cardiac arrest, and then into the ICU. They wanted it to go down.

4) And now they're propping it back up? I did read a while back that some banks in the Caribbean were buying up huge dollar amounts.

5) What does this tell us? It tells us that THEY'RE NOT SURE WHAT THE HELL THEY ARE DOING. The idiots. Think of The Three Stooges. They're working on a car. They're under the hood. They've got a wrench; they'll tighten a few belts, loosen a few others.

That's the answer, DU:ers. They're not sure what the hell will be the outcome of their policies.

[Joe Bacon]

9. They do not care

The sole purpose of the Republican Party is to concentrate wealth in as few hands as possible.

They WANT a depression, because, in the words of Andrew Mellon "In a depression, wealth flows back to its NATURAL OWNERS!"