The Dollar’s Reserve Currency Role Is Drawing to an End
It is difficult to know where Bush has accomplished the most destruction, the Iraqi economy or the U.S. economy.
In the current issue of Manufacturing & Technology News, Washington economist Charles McMillion observes that seven years of Bush has seen the federal debt increase by two-thirds, while U.S. household debt doubled.
This massive Keynesian stimulus produced pitiful economic results. Median real income has declined. The labor force participation rate has declined. Job growth has been pathetic, with 28 percent of the new jobs being in the government sector. All the new private sector jobs are accounted for by private education and health care bureaucracies, bars and restaurants. Three and a quarter million manufacturing jobs and a half million supervisory jobs were lost. The number of manufacturing jobs has fallen to the level of 65 years ago.
This is the profile of a Third World economy.
The "new economy" has been running a trade deficit in advanced technology products since 2002. The U.S. trade deficit in manufactured goods dwarfs the U.S. trade deficit in oil. The United States does not earn enough to pay its import bill, and it doesn't save enough to finance the government's budget deficit.
To finance its deficits, America looks to the kindness of foreigners to continue to accept the outpouring of dollars and dollar-denominated debt.
The dollars are accepted because the dollar is the world's reserve currency.
At the meeting of the World Economic Forum at Davos, Switzerland, this week, billionaire currency trader George Soros warned that the dollar's reserve currency role was drawing to an end: "The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars."
If the world is unwilling to continue to accumulate dollars, the United States will not be able to finance its trade deficit or its budget deficit. As both are seriously out of balance, the implication is for yet more decline in the dollar's exchange value and a sharp rise in prices.
Economists have romanticized globalism, taking delight in the myriad foreign components in U.S. brand name products. This is fine for a country whose trade is in balance or whose currency has the reserve currency role. It is a terrible dependency for a country such as the United States that has been busy at work offshoring its economy while destroying the exchange value of its currency.
As the dollar sheds value and loses its privileged position as reserve currency, U.S. living standards will take a serious knock.
If the U.S. government cannot balance its budget by cutting its spending or by raising taxes, the day when it can no longer borrow will see the government paying its bills by printing money like a Third World banana republic. Inflation and more exchange rate depreciation will be the order of the day.
COPYRIGHT 2008 CREATORS SYNDICATE INC.
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When I point some of these things out to a neocon friend of mine, he just tells me I don't understand the first thing about economics. This is all going to be tidied up over time by Those Who Know.
Right?
The implication of the collapsing American economy is that America's status as the one world power would end. A possible advantage to that is that it could ease the re-establishment of the American Republic.
"Economists have romanticized globalism, taking delight in the myriad foreign components in U.S. brand name products."
One of these economists who has romanticized globalism is a fellow by the name of David Hale (a member of CFR, and a friend of the neocons). Behind the scenes, he and many others have been betraying the ideals of America from the start, and will be doing that for many years to come. Ironically, Hale and his comrades are the real fifth column of this great country, that will ultimately lose its prestige if something is not done soon and quickly.
I'm in agreement with PcH (#2) and a certain degree of impoverishment might be good for the American people as well as for their government if it put an end to the rampant materialism, consumerism, and practical atheism so characteristic of the contemporary American economy. But there are other possibilities not so happy. The government might respond to loss of American influence by re-asserting it in the one area where America still has a large comparative advantage over the rest of the world - the ability to wage aggresive war. Nuclear weapons could be used selectively to terrorize other countries to continue to provide the US with needed resources like oil and cheap consumer goods. Of course, the US government would say that it was pre-emptively wiping out nests of terrorists and the American people, at best indifferent to and at worst hostile to foreigners anyway, would buy this explanation to soothe their consciences. Am I being unduly alarmist? Well, the McCainiac is in the lead for the Republican nomination and he has already promised more wars.
You can be sure that those who caused the problems will not suffer. The rest of us will.
#4 KH posits a likely scenario. Military spending is clearly out of line: question is, how long can it be sustained. Meanwhile as Madeline A. said some time ago, "it's a shame not to use it now and then," or something similar to this.
#5 CW Is, as usual, right on. How very sad.
I'm not a believer in "the worse, the better."
At the least sign of economic distress, the public will clamor for relief from Nanny. Look at Bush and Pelosi, rushing to prime the pump with more deficit-fueled doubloons for hoi polloi.
If there's a depression, your children and grandchildren will be eating their MREs, saluting the Leader, and marching off to war against the Enemy of the Week.
While we're playing Nightmare Scenario, how much in the way of freeze-dried rations do you think Mitt the Tergiversator has stashed away?
Dr. Wilson @ 5
Yes, the masses will be rearranging the deck chairs even as the ship slips beneath the waves. One of the last things heard will be the popping of the champaign corks as the elites celebrate making off in the only lifeboats available. Given such, one might be tempted to become a rabid Marxist where it not for the crushing fact that Marxism is the disease of which it purports to be the cure.
Professor Wilson is absolutely right. When the economy tanks and corporations begin laying off people in droves, the managerial class will simply move into cushy, high-paying sinecures in the Federal government. That is what they did in the Great Depression, as FDR was happy to provide gainful employment for the white-collar elite. Already Hillary Clinton is talking about creating a massive expansion in Federal employment - jobs that pay on average of over a $100,000 a year in the Washington area. The super wealthy have their gated, remotely situated estates and their accumulated fortunes to fall back on in the event of an economic calamity. The rest of us will be reduced to beggars.
To answer #7, Mitt probably has a freezer full of caviar, alongside a vault of gold and silver, guarded by a small army of private security goons, in the basement of a second palace he probably owns on some remote island, maybe right next door to the one Dick Cheney is known to own.
"The implication of the collapsing American economy is that America's status as the one world power would end. A possible advantage to that is that it could ease the re-establishment of the American republic."
That's one possibility.
Another possibility is that Hispanic and Black nationalists, as well as neo-Confederates, decide it's time to secede.
Whatever hell or high water comes our way, I'm clinging to Christ.
I wonder what our economic situation would look like if the Fed was never established, if our gold was never confiscated, and if Bretton-Woods was fictional. I'll take the nanny state over the fascist economic controls, which, as pointed out, leads to perilous problems.
Why is America so myopic and ahistorical, that we cannot see that we are not beyond the same trappings which have ended every empire before us? It is a condemnation to be sure, one in which will likely result in our ending. But a rebirth or revitalization is certainly a pleasant thought, if only a daydream.
Perhaps we could write King George III a letter of apology (I suppose it would be the Queen now) and ask for re-entrance into the British Empire. You know, the Revolution and War of 1812 were one big misunderstanding. We realize how much we miss the warm cuddly embrace from royalty and Parliament. We could cede our overseas assets and currency problems to them, and let them worry about the financial mess. We'll even accept nominal taxation without representation. Anyone with me?
If any fool really believed this junk economics, they would have sold their houses and converted their dollars to gold or other reserve currencies.
Manufacturing jobs and trade deficits. I love the misunderstandings on these two topics. Why are manufacturing jobs better than any other job? We must preserve manufacturing jobs. Let me let you in on a little secret. We can preserve manufacturing jobs or manufacturing. Go to an auto plant and see how many machines are doing the work. Do we want to keep the manufacturing, or employ people instead of machines?
As far as trade deficits, this is one of the biggest red herrings. If we are importing more goods than we are exporting, that is a sign of health. It is not coincidence that our "trade deficit" has improved during every recession and the great depression.
If Mr. Roberts really believed what he wrote, he would have already sold every good that is tied to USD and converted it to gold. If he still owns his house and gets a paycheck in USD, he is a liar and a fraud.
The end cannot come soon enough. I'm more troubled by the lack of seriousness in my contemporaries than a faltering economy. Financial hardship will throw the mask off our illusory prosperity and prompt Joe Six Pack to unplug himself from American Idol for once. The empire abroad will finally recede only when we go bankrupt.
This generation needs to experience its own Great Depression. We don't even know how to save money anymore. How pathetic is that? In the context of mass unemployment, one of the first victims will be our insane immigration policy. This will be followed in short order by the eclipse of the idea that "diversity is strength." I can't wait.
This points to the elimination of the Federal Reserve. Also, spending more than we take in must come to and end. We already pay more in taxes than realize.
We may need all the illegal aliens to pay our Social Security bill because the system has no money. I'm afraid a welfare society is in our future.
Rob
"The government might respond to loss of American influence by re-asserting it in the one area ... - the ability to wage aggressive war." (#4, #6)
F. D. Roosevelt's answers to the Great Depression were public works ... and WWII. Which of the two was more effective?
Wasn't it the latter that brought the U.S. to world dominance, replacing the Perfidious Albion and others, resulting then in sharp improvement of domestic living standard? (Of course, nothing is forever; you know well what happens to school bullies.)
I'm afraid that when things collapse people will give in to almost anything, no matter how odious, to bring nanny state to the rescue, much as the New Deal was introduced under pretense of defeating the great depression.
Patrick @ 13: To assert that Dr. Roberts is lacking in certain relevant information, or that his chain of reasoning is wrong is one thing; to accuse him of a being a liar and a fraud is brazen, pompus and insulting. Further, Dr. Roberts was reporting what was said by George Soros and economist Charles McMillion. Perhaps you feel these gentlemen are also liars and frauds.
#13:
You're obviously an adherent of the Neil Cavuto school of economics. If trade deficits are good for a nation's economy, how come Germany, Japan and every other prosperous country make it a matter of national policy to avoid them. If trade deficits make a country rich, then how come the poorest countries in the world have a negative balance of trade.
In fact, I'll bet you're one of those oafs who doesn't even know how trade deficits are financed. They're financed by Wall Street selling our prime assets to foreign investors, with the future revenue streams from those investments all flowing out of our country. As Dr. Roberts has pointed out, decades of trade deficits have resulted in the U.S. buying from abroad what it used to produce at home. It is like selling the cow to someone else in order to buy milk from them.
Bush might have quickened our economic demise but America's economic collapse has been already written with our demographic changes.
As whites, average IQ 103, are displaced largely by the Third World, average IQs under 90, we will gradually increase our percentage of individuals who can only do unskilled or semi-skilled work, and gradually decrease our percenatage of individuals who can do skilled and high skilled work.
A nations wealth is largely a factor of its national IQ.
You're right, Joe Morgan. And thats why I would like to see tight restrictions on imports and immigrants. Both our trade and our immigration policies should serve our national interests (not corporate interests).
Yes it's drawing to an end it's true - their last ditch effort was to resist... i.e. the invasion of Iraq.
it's hard for people to 'accept' - understandably - It's the last - the very last lesson of wisdom. W. bush ain't there... he's close after his lesson of the waste of 'blasphemy.' - (i won't even explain that since no one ever learns it by words... not even pericles and the greeks nor the jews.)
it's why ron paul will be the president... even if not 'in person' - he's the "change" they're all talking about in other terms...other terms that will get them elected, but they'll either have to go back to the basics ron paul knows about as did the founding fathers...
OR - it IS also possible as I've suggested (and the alternative i do still prefer [not absolutely] but in time i.e. might work) is 'let' the pendulum swing now the other way... toward rebuilding America... thru the same people who always win, (that's politics) - except all of the tax breaks and subsidies now going instead of to corporations who take it 'overseas' "as if" that's good economy to those who just 'do it' HERE. stop the self-hating... strap on a pair - do it Here. ?
and with an eye toward LOCAL. guess what - that's where god is. it's among so many other things - where it all comes from - like t.v. itself and the semi-conductor came - out of leafy green local (christian) towns. it was never even mentioned on 'NATONAL' (greedy) t.v. - IRONICALLY. they want the perception to be only national - central - where they can suck IT all up like putting a straw in a soda.
so keep the state-capitalistic system-(that both I and the founding fathers oppose in an 'absolute' sense)-through the rebuilding of AMERICA - and also a GREEN America for all the world to emulate - and then after transition - the future is what it will BECOME... (not fascist NOT totalitarian... with an eye toward locality TODAY and always... because otherwise it Will self-Destruct... that's neither G-d's nor Human's nature - fake centrality.)
the founding fathers may have predictably been beyond us all-in time... something to go back to eventually - back to the Future, at that time. we've strayed though far enough with the big state.
i don't know if that's possible i mean right now going toward DOMESTIC state-capitalism - I SENSE it IS ... but it is a transition of minimal pain...
a little pain challenges - too much is self-defeating... (stupid)
at the top people believe it's the seat of excellence - but it's anything but that - it ain't brain surgery at the top of govt. it ain't rocket science - it's which way of necessity does the pendulum swing... [damange control] and respecting NECESSARY approximate balance along the way.
do this or answer to me. ? i just follow orders - HIS orders... i smoke his brand as well... i can't say which - it's not 'fair'
do you smoke HIS brand?
"This is the profile of a Third World economy."
Which is fitting for a nation that is increasingly reflecting 3rd world demographics. Mr Miller and Mr Morgan have said it all. The workforce follows the available jobs, but the jobs also follow the available workforce. Change the workforce into one that demands skilled, well paying jobs and those jobs will be supplied.
#13,
Yes, indeed, manufacturing is what is important. Consider that somewhere between thirty-five to fifty percent of the job loss in manufacturing over the last couple of decades may indded have been through the rise of productivity (via machines and, important to note, also via increased human ingenuity in developing better processes) but what about the other percentage shipped overseas?
Is this a sound practice? Consider that when we underwent the first industrial revolution, we did not ship agriculture overseas; we, as a nation, became capable of producing more with less people. Those people benefitted from the second industrial revolution which created our manufacturing base. In both cases our economic independence as a country and our people's interests were, on the whole, preserved. Yes, there were greedy industrialists and, yes, there have been cultural implications of moving workers from the small town to bigger urban centers, but never before had an oligarchy actively conspired in shipping the livelihoods and economic independence of a nation overseas so that the their small clique at the top could get super-rich! I would venture to say that Henry Ford would have been appalled.
As an important aside, the industrialists of the former days of the nation at least had some impetus to spend a portion of their fortunes on their fellow citizens. We have universities and libraries named after them. Where are today's "industrialists" sending their billions of dollars? Are they busyily worrying about the middle-aged guy in Detroit who has lost his auto job and retraining him so that he can benefit from the "New Economy"? How about helping their civilizational "neighbors" in poor locales such as Moldova that are dirt poor and need, say, new orphanges. No! As is the case, they are mainly preoccupied with "big" and "important" (as defined by geniuses from rock groups and other such uneducated, drug-addicted morons) projects that have to do with wiping out aids, third world debt owed to us, and other problems that ail some far-away, properly designated pc-victim group.
We live in sick times and they will get sicker. The economy is a reflection of the insanity. Wishing for a calamity that will wipe the elites out is just that, wishful thinking, because, as Dr. Wilson and others have pointed out, it is the ordinary folk who will suffer the brunt of the consequences.
In my opinion, #13, it's not so much the loss of manufacturing jobs that's important, but the loss of manufacturing capability generally. Insofar as we are incapable of producing our own material goods, we are dependent upon other countries and not self-sufficient. This can have catastrophic effects; just ask pre-WWII Japan.
Of course, part and parcel of having a manufacturing base is having skilled workers to make use of it. The loss of manufacturing jobs overseas (as opposed to job loss due to automation) thus represents not just a dangerous loss of our material ability to produce goods, but also of the knowledge and skill required to run all those goods-producing machines. To that extent, at least, the loss of manufacturing jobs is an evil in itself.
"...never before had an oligarchy actively conspired in shipping the livelihoods and economic independence of a nation overseas so that the their small clique at the top could get super-rich! I would venture to say that Henry Ford would have been appalled."
I wonder what Ford would have done had he lived in a time when instantaneous worldwide communications and rapid transport, to say nothing of a capable workforce and means of production outside our boarders, made it feasible and economical to "outsource." I would not bet the farm on Ford being such a patriot or nationalist that he would have acted differently from any modern industrialist. And patriotism/nationalism is the only impetus to override the profit motive, but it must be self imposed unless we accept the notion that it should be imposed by government. Oh, I suppose that some industrialist may take the long term view of things and reason that “outsourcing”, though good in the short term, is ultimately injurious in the longer view. Killing the “golden goose” as it were. But that is also a business decision that I am not sure government should control. So, do we let business do what is meant to do or do we engage in government control and planning. Interesting dilemma.
#25,
It is conjecture on my part, but I do believe Ford demonstrated a good deal more patriotic instinct than his modern counterparts. While he was not perfect, I don't think it is a stretch to have expected better from him than, say, the foreign-born managers of his company today who garner bigger paychecks than Henry ever did and whose motivation is primarily tied to those paychecks and not the well-being of the Michigan community, the "good name" of the company, and the long-term prospects for a company that he may have (rightly) expected his great-grandson to run. It is a somewhat pointless argument, though, to suppose what he would have and would not have done.
You are correct and I wholly agree that it is up to "us" to enforce what we expect of our industry. As workers, share holders, and as consumers we should make it clear that we expect a sort of compact with society (us) or goodbye sales. But, alas, as workers, share holders and consumers "our" sights are short and greedy - as the system expects. Like so much of "what is wrong with the world", this is first and foremost a question of our culture. Dilemma, indeed.
I remain convinced that, for those concerned about manufactured goods, oil and refined products, and our ability to borrow currency, the time after the 2008 China olympics will be the time of reckoning. The Chinese already have us by the short hairs and they are just biding their time. The time that the Chinese will be dictating to us is fast approaching.
Lee @ #27:
We are no doubt approaching the time when Beijing will be dictating our policies. A country that still honors the memory of a man who killed tens of millions of his own people (Mao's portrait still hangs in Tianamen Square), a regime that executes members of a harmless spiritualist sect and sometimes harvests their organs for sale in transplants, a nation whose motto is "Life is Cheap", will absolutely own us in the near future. That is truly terrifying.
The treason of our current generation of leaders is just sickening...
To update a cliche that was popular at least as far back as the 19th Century, if you owe your banker hundreds of billions and can't pay, it's your banker that's in trouble. I don't see China dictating policies to us if we can't pay our debts any more than we could dictate policies to Argentina. And since our military establishment is capable of destroying China if it came to war, they couldn't very well occupy the US and force us all into slavery until the last of what we owe them is paid. About all they can do is stop lending the US government money and stop selling US consumers cheap and sometimes dangerous consumer goods. Doesn't sound like a bad outcome to me. What I fear is not the Chinese dictating to us, but the US government dictating to the Chinese under threat of military attack to continue the present policies.
#29
Don't be so naive. You rely on the military being able to destroy China? How? With nuclear weapons? Just how long do think it will take before there are a sufficient number of Frankfort school graduates among our populace with their "white guilt" and "anti western" indoctrination that such war would simply be unthinkable even it if meant subjugation of the country. I shudder to think of the numbers today of people who are, say, the age that Obama attracts, that probably think Mexico would be justified in reclaiming the Southwest. After all, we ARE guilty of stealing from them. Besides, once the North American Union comes to be, who is going to fight for "North America?" With the death of patriotism and nationalism, there will be no motive to defend a nation and no no nation to defend. Saving ones own skin will be the prevalent mind set...even if such means collaborating with an occupier. This total degradation of our national spirit may take some years, even past my life expectancy, but China has the mind to wait for what it wants.
Today's wars are either low-end guerrilla conflicts in remote areas or high tech wars fought by small numbers of highly trained professionals and mercenaries who don't need the motivation of patriotism or nationalism - just that of being paid well and being able to kill, maim and bully other people. These are the products of a violent porn culture, the war as video game generation. And yes, the US could destroy China with nuclear weapons, but won't need to because the Chinese know it and won't provoke a strike. There does exist a small chance of nuclear war with China by miscalculation, if the Chinese attempt a limited war to drive US naval forces from the Chinese side of the Pacific and recover Taiwan and the US is unwilling to keep it limited. It's not a question of defending a nation; it's a question of US plutocrats and oligarchs defending their position as the world's rulers. What country has more than 700 military basis in more than 100 different countries throughout the world and wages wars of agression and conquest every few years on any pretext? Hint - it's not China.