Collapse Of The U.S. Dollar: Too Close Or Too Far?
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Prensa Latina
March 30, 2005
Collapse Of The U.S. Dollar: Too Close Or Too Far?
By Elsy Fors
Havana -
Most U.S. citizens, and many millions of others around the world, have about as much idea of what a collapse in the value of the U.S. dollar might really mean, as they have about how the dangers of global warming might affect human life.
Maybe they have noticed the price of fuel has gone through the roof, or that favorite imported products cost more than they used to, but there is nothing to throw them into panic - yet.
Nevertheless, international accounts indicate the US dollar has lost 38 percent of its value compared to the euro since February 2002, 25 percent in relation to the Canadian dollar, and 23 percent facing the Japanese yen.
These are but three examples.
Twenty years ago, the main US allies signed the so-called Plaza Agreement with Washington in the New York Plaza Hotel, to reduce the value of the US dollar, in order to enable the local market to balance its high commercial deficit.
But the US consumer buys more imported goods and services than locally produced ones, so the rise in exports generated by a cheaper dollar diluted the additional income with growing imports, leading to increasingly higher prices.
The other "twin", the budget deficit, was likewise inflated by tax reductions approved by George W. Bush that gave most benefit to the highest income bracket, ie the rich, so less contributions to the Treasury were made.
Experts quoted by The Financial Times, The New York Times and other media are in agreement in their predictions of a crisis in the world economy, and consequently, an ever-growing debt for the US, now the greatest debtor in history owing in all between 70 and 100 trillion dollars.
Awareness of the coming catastrophe has not entered the minds of most US citizens, fed only a diet of commercial radio and television trash controlled by five or six corporate media outlets. Truth is a delicacy alien to the palate of 99 percent of US citizens, especially economic truth.
For instance, if the US dollar falls 40 percent, and you had a million dollars before the fall, your million dollars will only be able to buy goods and services valued at 600,000 US dollars. This means that you will have lost 400,000 dollars of your total buying power.
The US dollar is the main international trade currency. Most of the world monetary reserves are expressed in US dollars.
Entire countries and their monetary reserves are tied to the fate of the US dollar, so it is easy to predict a generalized crisis, because of the wide interrelation joining the US economy with the rest of the world. Those who stand to lose most, and who pay for the financial forecasts, have already moved their money towards purchases of gold and silver, which have been a shelter against the vagaries of currency for 5,000 years.
Warren Buffet, the richest US citizen according to Forbes magazine, owns 20 percent of all the silver in existence, and has stated he no longer trusts his own country"s currency.
Bill Gates, President of Microsoft, is the owner of between 10 to 20 percent of the Pan American Silver Mine, and multi-millionaire George Soros also has abundant shares in gold and silver.
Now, under the government of George W. Bush, the budget deficit has reached 500 billion dollars, and the balance of trade another 500 billion, giving a joint deficit of more than a trillion dollars.
So why is the crisis not here? Because countries in the US dollar's sphere of influence, and mega economy investors, have been financing a good part of US debts. Another important amount comes from cutting domestic social programs and pensions, and allocations to education and environmental protection.
Renowned international economist Barry Eichengreen assured that according to the current exchange rate, the US account deficit is on an explosive course, and will increase from the current level of between 5 and 6 percent of the Gross Domestic Product (GDP) to 8 percent by 2008, and up to 12 percent in 2010.
Eichengreen predicts that a strong fall of the US dollar would increase pressure on interest rates, and lead to a significant depression in US consumption and investments, followed by a recession.
Although markets do not yet anticipate a recession, foreigners who consider the current deficit and balance of payments unsustainable will continue to sell their dollars until interest rates go up again.
Sung Won Sohn, Head Economist of the Wells Fargo Bank, said that depreciation of the US dollar will not be enough to reduce the US balance of payments deficit, and that the main problems are the budget deficit and the low domestic saving rate.
Lehman Brothers senior economist Ethan Harris warned there is a limit to what foreign investors can do to keep on financing the US deficit, and said it is an unsustainable way to run any economy.
Economic commentator Kart Richebacher stated the origin of the commercial deficit was not devaluation of the US dollar, but the low domestic savings rate and low investment, and that in the 1989-1993 period, when the balance of trade deficit dropped, US total credit grew by 819 billion dollars a year.
However, in the four last years, ending in 2004, it grew three times faster, 2.4 trillion a year. This was the result of the expansionist policy of the US Federal Reserve, which reduced interest rates 13 times between January 2001 and June 2003.
In conclusion, many analysts consider that as a consequence of the trade imbalance restoration of the US economy is impossible, given its vulnerability to a sudden downturn.
Informant: Friends
Prensa Latina
March 30, 2005
Collapse Of The U.S. Dollar: Too Close Or Too Far?
By Elsy Fors
Havana -
Most U.S. citizens, and many millions of others around the world, have about as much idea of what a collapse in the value of the U.S. dollar might really mean, as they have about how the dangers of global warming might affect human life.
Maybe they have noticed the price of fuel has gone through the roof, or that favorite imported products cost more than they used to, but there is nothing to throw them into panic - yet.
Nevertheless, international accounts indicate the US dollar has lost 38 percent of its value compared to the euro since February 2002, 25 percent in relation to the Canadian dollar, and 23 percent facing the Japanese yen.
These are but three examples.
Twenty years ago, the main US allies signed the so-called Plaza Agreement with Washington in the New York Plaza Hotel, to reduce the value of the US dollar, in order to enable the local market to balance its high commercial deficit.
But the US consumer buys more imported goods and services than locally produced ones, so the rise in exports generated by a cheaper dollar diluted the additional income with growing imports, leading to increasingly higher prices.
The other "twin", the budget deficit, was likewise inflated by tax reductions approved by George W. Bush that gave most benefit to the highest income bracket, ie the rich, so less contributions to the Treasury were made.
Experts quoted by The Financial Times, The New York Times and other media are in agreement in their predictions of a crisis in the world economy, and consequently, an ever-growing debt for the US, now the greatest debtor in history owing in all between 70 and 100 trillion dollars.
Awareness of the coming catastrophe has not entered the minds of most US citizens, fed only a diet of commercial radio and television trash controlled by five or six corporate media outlets. Truth is a delicacy alien to the palate of 99 percent of US citizens, especially economic truth.
For instance, if the US dollar falls 40 percent, and you had a million dollars before the fall, your million dollars will only be able to buy goods and services valued at 600,000 US dollars. This means that you will have lost 400,000 dollars of your total buying power.
The US dollar is the main international trade currency. Most of the world monetary reserves are expressed in US dollars.
Entire countries and their monetary reserves are tied to the fate of the US dollar, so it is easy to predict a generalized crisis, because of the wide interrelation joining the US economy with the rest of the world. Those who stand to lose most, and who pay for the financial forecasts, have already moved their money towards purchases of gold and silver, which have been a shelter against the vagaries of currency for 5,000 years.
Warren Buffet, the richest US citizen according to Forbes magazine, owns 20 percent of all the silver in existence, and has stated he no longer trusts his own country"s currency.
Bill Gates, President of Microsoft, is the owner of between 10 to 20 percent of the Pan American Silver Mine, and multi-millionaire George Soros also has abundant shares in gold and silver.
Now, under the government of George W. Bush, the budget deficit has reached 500 billion dollars, and the balance of trade another 500 billion, giving a joint deficit of more than a trillion dollars.
So why is the crisis not here? Because countries in the US dollar's sphere of influence, and mega economy investors, have been financing a good part of US debts. Another important amount comes from cutting domestic social programs and pensions, and allocations to education and environmental protection.
Renowned international economist Barry Eichengreen assured that according to the current exchange rate, the US account deficit is on an explosive course, and will increase from the current level of between 5 and 6 percent of the Gross Domestic Product (GDP) to 8 percent by 2008, and up to 12 percent in 2010.
Eichengreen predicts that a strong fall of the US dollar would increase pressure on interest rates, and lead to a significant depression in US consumption and investments, followed by a recession.
Although markets do not yet anticipate a recession, foreigners who consider the current deficit and balance of payments unsustainable will continue to sell their dollars until interest rates go up again.
Sung Won Sohn, Head Economist of the Wells Fargo Bank, said that depreciation of the US dollar will not be enough to reduce the US balance of payments deficit, and that the main problems are the budget deficit and the low domestic saving rate.
Lehman Brothers senior economist Ethan Harris warned there is a limit to what foreign investors can do to keep on financing the US deficit, and said it is an unsustainable way to run any economy.
Economic commentator Kart Richebacher stated the origin of the commercial deficit was not devaluation of the US dollar, but the low domestic savings rate and low investment, and that in the 1989-1993 period, when the balance of trade deficit dropped, US total credit grew by 819 billion dollars a year.
However, in the four last years, ending in 2004, it grew three times faster, 2.4 trillion a year. This was the result of the expansionist policy of the US Federal Reserve, which reduced interest rates 13 times between January 2001 and June 2003.
In conclusion, many analysts consider that as a consequence of the trade imbalance restoration of the US economy is impossible, given its vulnerability to a sudden downturn.
Informant: Friends
Starmail - 9. Apr, 15:03
