Three Views on Dollar Decline

[Macrobius]

http://www.rense.com/general76/doll.htm (alarmist)

http://www.kitco.com/ind/Gnazzo/apr162007.html (level headed)

http://www.kitco.com/ind/Willie/apr122007.html whatever this means:



The USGovt has lost control of the USDollar, at a time when trade war is escalating, trade deficits continue unabated, and the US grows increasingly isolated. Concurrently, an assault on the PetroDollar is underway which could be a key element in the Iran War being fought behind the scenes.

[Walter Yannis]

What would happen if the Chinese suddenly decided to call our bluff and let the yuan float against the greenback?

I don't know the answer, I offer it as a thought experiement.

Chaos for a while. If they timed it right, extreme consume pain, dislocation, as non-existent US industry tries to gear up to meet demand?

[Macrobius]

What would happen if the Chinese suddenly decided to call our bluff and let the yuan float against the greenback?

I don't know the answer, I offer it as a thought experiement.

Chaos for a while. If they timed it right, extreme consume pain, dislocation, as non-existent US industry tries to gear up to meet demand?

Hard to say -- I don't think anyone knows for sure. I would point out that something very close to this happened under Nixon in 1971. We had high debt because of Vietnam build up, and the world knew the dollar wasn't what the (then) fixed-rate managed pegs said it was. The Europeans, who were our largest manufacturing rivals back then, engineered a 'float' of their currencies against the dollar. The result was the pain and dislocation of the 70s -- high inflation, chronic shortages, once in a lifetime bond yields, collapse of equities, 'stagflation', desperate attempts by the government to fix prices and wages.... Not end-of-the-world stuff but I would say the direct and proximate cause of the White American Middle class losing about half its real 'quality of life' status. We're pretty close to 25% of our pre 1973 wages in real dollar terms, 30 years on.

The oil shocks mattered too (again, outcome of our support for Israel in 1967/73 and Iran baiting, not to mention payback for supporting the Shah -- not unlike Saddam in Iraq). The end result is we put the worms back in the can with petrodollars -- Carter cut a deal in 1976 with the Arabs to lock their money up in Citibank as CDs for 25-30 years. We paid them (the bin Laden family and such) interest and weapons. Crisis was postponed until maturity of the CDs (2001 and 2006, for the first wave of each flavour). The Petrodollars in the vault were the 'fractional reserve' that set the money supply -- effectively pegging money supply to oil production, which is not necessarily the worst possible choice for a 'standard'. Glitch with Iran in1979 and throughout the 80s in Central America. Going off the Carter-Reagan-Bush-Clinton-BinLaden system of the last 30 years will involve, mostly, settling on a new currency of last resort. No obvious choices here yet. Euro maybe, if Russia coorperates and they build a pan-Eurasia Co-prosperity sphere -- but I see potential disruption there. The Muslim issue is a powderkeg and the Machiavellian in me sez the US has a long-term geopolitical interest in keeping things hot for Europe. I'm not the only one to have noticed that double game either.

I'm betting we cut a deal with the Chinese to lock down the supply of 'Sino-Dollars' only this time the Fed doesn't manage them, and the two economies have to be coordinated the same way the Feds and State and Local 'governments' all get along -- a bit of informal competition working itself out into a pecking order, with the brawniest hunters getting their cut of the tax-farming gazelle prize first. I-get-your-tax-revenues-but-you-don't-get mine is the ultimate decider of status. Possibility number 2 for Reserve Currency is that the Chinese pension fund + Gold supplies becomes, de facto, the reserve currency for the NWO. I can see a China vs. Russia/Europe tension developing in the midst of the Great Game. That is *the* strategic issue not on most Americans' radar.

We could see institutional reorganization in US Banks after the mortgage crisis plays out -- perhaps even a restructuring of the Fed. I bet several major banks go down or mortgages + derivatives + yield curve speculation (carry trade in currency, metals). I also predict we split our currency ('dollar') into an internal and external variety, with Soviet-style prohibitions on mixing the two -- external dollars for the black market, arms/drug trade, and foreign exchange; internal rubles for your credit card, ATM, and paycheck. Different tax rates between them. Not to mention conversion risks. :) It's the obvious move to hide a (domestic) devaluation while maintaining the value of the external float. Finger in the dyke stuff but I bet they try. Current guess at our counterfeit 'external' books is 11 Trillion. Some analysts think Bush was told point blank to monetize the latter and that's what's been driving our foreign debt -- showing up our true liabilities from drugs-for-guns trade on the current account books, so to speak.

The key strategic factor is that now any two big blocs are in the Game, but no one can play alone, at least not at very high risk. America comes closest, but our supply lines to the hot spot are way too long to 'win' as an Asian land power. I think our destiny will be decided in Mexico and Venezuela and maybe Argentina. We need to be thinking about *our* 'soft underbelly' -- Chinese goods landing in Mexico and getting trucked into the heartlands should tell you something. It is clear what the ruling class want -- tight integration of China and 'North America' as a counterpoise to 'Eurasia', with Japan and India as outlying trading partners, loosely integrated into the same system. The latter two fear China much more than we do, and may be, er, reluctant partners.