|
China’s Stranglehold on the Dollar
By Mike Whitney
01/09/06 "ICH"
-- -- “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. In 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
Translate
this page
(In accordance with Title 17
U.S.C. Section 107, this material is distributed without profit to
those who have expressed a prior interest in receiving the
included information for research and educational purposes.
Information Clearing House has no affiliation whatsoever with the
originator of this article nor is Information Clearing House
endorsed or sponsored by the originator.) |
