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Or, when the chickens come home to roost. Nothing like plain talk to
make your point...more unvarnished commentary you won’t read in the traditional,
corporate-owned mainstream media. kwc
China’s Stranglehold on the
Dollar OpEd by Mike Whitney, Alternative Press Review, Jan. 09, 2006 “It's
the death blow to the US dollar,” said Peter Grandich, editor of the Grandich
Letter. On Thursday, The People’s Republic of China fired off the
first volley in what could turn out to be economic Armageddon. China announced
that it would begin to diversify its foreign-exchange reserves away from US
dollar. Gulp! The only thing keeping the dollar atop its fragile perch is
the fact that other countries have been willing to lap up the $600 billion of
American red ink every year via the trade deficit. That amounts to roughly $2
billion per day or nearly 7% GDP. Currently, China is holding $769 billion, the vast majority of its foreign exchange
reserves. This is a humongous sum by any measurement and represents
approximately 30% of China’s gross domestic product. Regrettably, the Bush
administration’s wasteful spending makes the dollar look like a bad long term
investment, so China
will either have to change its strategy or face a huge loss on its reserves. It’s a thorny predicament and one that
China needs to handle delicately. If they move too aggressively it could trigger
a sell-off and send the dollar plummeting. It is unlikely that China will act recklessly,
but even the mere suggestion of change has put the markets on edge. Gold futures already jumped 4% in one week as large
institutional buyers are voting with their feet that the dollar is headed for
the dumpster. n fact, since Bush
took office, gold has gone from the $200 range to $540 on Friday; a sure sign
that investors have lost confidence in Washington’s ability to curb spending.
Even if China does not begin to cash in its greenbacks, we can expect to see
considerable market volatility on Monday. The Federal Reserve had anticipated China’s action for some
time. That’s why the
Board of Governors of the Federal Reserve announced earlier this year that they
would cease to publish the M3 monetary aggregate (including the following components:
large-denomination time deposits, repurchase agreements, and Eurodollars.) That
way the Fed can print
enough money to absorb the shock waves of a massive sell-off without the nosy public knowing what’s going on. It’s a clever ruse, and an effective way
of bilking the American people out of their hard-earned savings while the
dollar continues to burrow into its earthen grave. Greenspan knew this day was coming, that’s probably why he
chose to take an early retirement; splashing around in the Barbados while the
dog-dung hits the fan. Here’s what he said in April before the Senate Budget
Committee: “The federal budget is on an unsustainable path, in which large
deficits result in rising interest rates and ever-growing interest payments
that augment deficits in future years. Unless that trend is reversed, at some
point these deficits would cause the economy to stagnate or worse.” “Unsustainable path”?!? It was Greenspan and Bush who engineered that “unsustainable
path”. He enthusiastically supported the president’s $450 billion per year tax
cuts that redistributed America’s wealth to the 1% of the people that he
represents. The tax cuts alone set the country on the road to catastrophe. The
national debt has increased an unbelievable $3 trillion under the
Bush-Greenspan cabal. He also endorsed the shaky lending practices (ARMs;
adjustable rate mortgages, interest-only loans; $0 down payments) that inflated
the housing bubble and caused an unprecedented wave of speculative buying. As
the Fed continues to raise rates and tighten loan-requirements, the bubble is
slowly limping towards the abyss carrying America’s economic future with it. Greenspan anesthetized the country with low-interest rates
while Bush and Co. maxed out the national credit card and loaded the boats with
everything in the public till. Meanwhile, the economy kept sputtering along
while Greenspan concealed the long-range effects of massive deficits behind a
mountain of cheap money. Now, the well is running dry, and Americans will be
facing rising interest rates, a stagnant economy, and a falling dollar. China’s action signals that we are entering a period of
economic instability, where America’s future is largely in the hands of its
creditors. Economic
policy in China will now determine the interest rates on mortgages in
America. Welcome to the new world order, comrade. The Fed believes it can finesse the problem by manipulating
the money supply beyond the public view.
We’ll see. The last time Greenspan tried that trick he ended up
dropping rates 12 times in a year and a half as the steam whooshed from the
stock market bubble leaving the economy on life support. Greenspan knows that low interest rates (“cheap money”)
cannot always forestall disaster. If China starts a sell-off, its doomsday for the greenback.
Japan would be forced to sell, with Germany close behind. The smaller nations
would join the feeding frenzy, followed by the hedge and pension funds. It
would be like a stroll through the Weimar Republic in the early 1930s. So, what’s next? On
Monday, the Fed will “preemptively” sluice zillions into the system to increase liquidity and stave
off a possible run on the dollar. That way they can maintain the appearance of
normalcy while what little is left of American middle class wealth is shifted
into the flannel pockets of the central bankers via inflation. This will put
the American economy on a long downward trajectory to third-world penury. America is on the road towards hyperinflation; designed to
savage the middle class, undermine popular social programs, crush organized
labor, privatize all areas of the federal government, and “flatten” the
workplace (to use the language of globalization guru, Tom Friedman) so that
Americans will be forced to compete with the poorest paid workers in the world.
The effects of massive deficits are entirely understood.
Eventually, the chickens come home to roost and the poor and middle class
suffer horribly. It won’t be any different this time |
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