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May 9, 2008 at 18:40:47
by Michael Hammerschlag Page 1 of 1 page(s) |
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Azilal, Morocco: To Americans living abroad, the slow sickening slide of the Dollar vs. every other currency has been a visceral painful spectacle, whether you were converting to Rubles, Crowns, Euros, or currently, Moroccan Dirhams. But looking at my current bank statement was a shock: the 2000 Dirham ($273) ATM withdrawal was $6 more than the same amount 10 days before- could the dollar have dropped that much? Yep- from 0.6896 Euro to $1, to only .634€, or a breathtaking 8% drop in 5 weeks. I meant to argue that this may be the Apocalypse, with gold near $1000/oz and oil $119/barrel but events with the vaporizing Bear Stearns and Carlyle Capital have graphically demonstrated it. (The "blue chip" Bush/Reagan administration Carlyle Group affiliate was investing with only 3% actual equity, or recklessly gambling with a 33 fold margin!). The exaggerated prices of staples is largely due to US instability. To someone who'd spent time in Russia in the early 90's, watching the steady strengthening of the Ruble against the Dollar was like seeing water flow uphill. It's hard to explain how expensive it is in Euroworld; they use a Euro like a 50 cent piece (now $1.56), and round to the nearest 10 Eurocents, throwing away 7 US cents on every second transaction. One can't get tea and a banana for less than $9, about the minimum to sit down it any cafe. The Euro has been a decidedly mixed blessing: predictably prices in expensive countries didn't drop to Greek or Portuguese levels; they went up to 50% above the most expensive country. From Rome to Amsterdam to Paris to Valencia; the story is similar- since the advent of the Euro in Jan. 2002, prices have roughly doubled. Everything is 3-8 times the US price; I hunted for a little roll of duct tape for weeks, and finally found it at $8. In Amsterdam, Saturday late night kids in a deli get only fries at $2.80 because it's the cheapest thing by far on the menu. They foolishly have coins for up to $3- the smallest bill generally used is $16 (€10), which psychologically devalues any currency- it's simply so easy to spend coins, with often over $18 worth in ones pocket. 
The proximate cause for the current US misery is the rupture of the housing bubble and the sub-prime mortgage crisis, but the base cause of the dollar's collapse and much of the current instability has been George Bush 2 giving $4-5 trillion of tax rebates to the rich, corporations, and funding his wanton war. To fund this reckless deficit spending after the Clinton balanced budget, we've borrowed some half a trillion a year (with all the off-the-books spending) from Japan, China, England, Brazil, OPEC by selling them US bonds, in effect printing money. We are the rich guy on the hill with a drug problem that goes down into the shanty towns to borrow money, and we've vastly distorted the world's economic situation with our practices. The Democrats dabbled in this, but the Republicans have, since Reagan, been closeted in their psychedelic room blasting trickle-down rock, and mainlining debt by stealing from their children. Their unholy obsession with deregulation has created this financial Wild West disaster of complex junk financial instruments that no one understands, let alone controls. These worthless derivatives were supposedly worth more than all the real stocks and bonds put together.
Congress, seeing America's problems only in isolation, thinks Americans don't have enough money, rather than stupidly spend every penny (including ones they don't have), so have fabricated an election year giveaway tax credit, but that fuels the deficit that is the root of the problem. It's a "Tinker Bell market" , says Wall St. sage Allan Sloan, dependent on huge amounts of cheap easy credit, now "vanished like pixie dust... which could exist only as long as everyone agreed to believe in it." UBS Bank wrote off $37 billion of losses, Merril Lynch, Citigroup, and HSBC lost another $41 billion, and Japan could be sitting on $300 billion of our worthless investment "vehicles". A collapse by any major player could create a chain reaction of falling dominos. Desperate to prevent that, the Fed injected $500 bil just to save Bear Sterns and stabilize things. The oil crunch, food price rises, and incipient civil war in Iraq (which will cease the 2.4 million barrels/day flow) all contribute to the danger of an unprecedented meltdown. With our reckless diversion of crops to alcohol, now fuel=food.
The world only bought our treasury bonds because the dollar was stable and strong. With Bush's conversion of our greatest surplus into our greatest deficit, those days are gone. In Bush's first year, the dollar was 1.19 Euros, now it is only 0.63 €, a 47% drop in the trillions of dollars of the American Dream that our foreign creditors and investors hold: long term bonds, stocks, real estate. All they have to do to provoke a worldwide economic crisis is just start buying Eurobonds rather than ours (forget selling ours). That's started, with the Chinese threatening to dump ours in response to our pressure to revalue their Yuan, the South Korea talking of diversifying their holdings, Iran switching their trade in oil from dollars to Euros (and Putin threatening to), and the Japanese warning of "enormous capital flight" from the dollar. Once the image of American financial invincibility is breached, flight from our bonds could become a flood.
To keep countries buying (funding our habit), bond interest rates will have to be jacked way up- causing interest rates to rise across the board (instead they've been cut, depressing the dollar more), and causing an avalanche of bankruptcies by firms and people bloated by cheap credit. If you think the mortgage crisis is bad, you ain't seen nothing yet. Out of survival, the world is shifting away from dollars, and the ultimate result could be a global economic collapse, because America is overextended way past the cliff, the net is disappearing, and a sinking America will drag down the world.
7 months ago I urged my friends and acquaintances to sell all their holdings and buy gold (then $740/oz) because a catagory 6 financial hurricane was coming. Well, it's here.
Michael Hammerschlag's commentary and articles (HAMMERNEWS.com) have appeared in International Herald Tribune, Seattle Times, Providence Journal, Columbia Journalism Review, Honolulu Advertiser, Capital Times, MediaChannel; and Moscow News, Tribune, Times, and Guardian. He's toured Europe + Africa for the last 6 months after living in Moscow.
http://HAMMERNEWS.com
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| 12 comments |
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The grand exit.
I agree with almost everything the author writes except for the US dollar dragging down the rest, countries will offload their holdings in dollars take a hit and switch to Euro's. No doubt there will be a small blip but don't forget the USD has been in trouble for a while and most people have seen the light. This irresponsible US government have sold the US out for their own personal gain. It reminds me of that other fascist country, Germany where a woman tipped the money out of a basket and kept the basket, the Mark had become worthless, it was just paper garbage. by douglas kay (0 articles, 0 quicklinks, 0 diaries, 83 comments) on Saturday, May 10, 2008 at 10:12:36 AM  (0+)
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Reply: author replies
Torrelolinos, SP by Michael Hammerschlag (18 articles, 0 quicklinks, 7 diaries, 6 comments) on Sunday, May 11, 2008 at 8:07:24 AM (0+)
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The media first makes blind...
so we will blame Venezuelan oil by John Hanks (1 articles, 0 quicklinks, 0 diaries, 1762 comments [39 recommended, 0 rejected]) on Saturday, May 10, 2008 at 10:26:51 AM (0+)
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WE'RE IN THE MONEY, SO COME ON HONEY.........
The problem now of course is , to simply hold our horses, it's witch craft! To end would be a shame. The heat is too intense for us, the day makes no sense to us, it's witch craft! The administration is working on a delicate project which will hone into each nickel in the pockets of the poor to revitalize the Elite's economy. Let no poor man stand in the way of the neo-cons, who are the button pushers to the cosmos. Wolfie asks if you can spare a dime? by Wolfie (9 articles, 0 quicklinks, 33 diaries, 1208 comments) on Saturday, May 10, 2008 at 11:37:25 AM (0+)
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Partisan passing of the blame
Your article is polically charged, but it shows your ignorance of economics. The plunge of the U.S. Dollar cannot be blamed solely on the Republicans, or on Bush himself. Bush is clearly part of the problem, but the lion's share of the blame should go to the Congress for allowing the unconstitutional Federal Reserve to continue to inflate our currency and not back it by anything solid. There is wisdom to the gold standard, which by the way is mandatory under the constitution. A currency backed by gold will never inflate--it will always keep its value while other paper currencies fluxuate. You try to turn this issue into a polical one so you can say, "see, the Democrats would *never* let this happen" yet they've been complicit at the very least in this ponzi scheme to deprive Americans of their wealth. The United States is an empire, and has been since the beginning of the Cold War. Read this article for a better understanding: by Dooglio (0 articles, 0 quicklinks, 0 diaries, 30 comments) on Saturday, May 10, 2008 at 11:45:30 AM (0+)
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Help yourself and stimulate the economy at the same time.
Money is worth as much as the paper it's printed on if the promise of it's value is made by an un-trustworthy government. The value of the Dollar reflects the rest of the world's opinion of ours. I have already dumped my $ into tangibles that will help me survive the hard times to come. I started with a fuel efficient car, a wood burning stove, lumber and fencing for a veggi garden and a chicken coop. Next is a motor scooter. The rest will soon be in gold and energy stocks. Prepare. Our luxury bubble is bursting right now. by MoreRon (3 articles, 0 quicklinks, 2 diaries, 7 comments) on Saturday, May 10, 2008 at 11:51:05 AM (0+)
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Government-Corporate marriage
Has everyone had enough of the Republican's. I hope so. But can the Dems. get it all together? I hope so. At least we have alot O'Gold. Paper money is a government joke perpitrated upon the nation when nobody was looking. Now what? by woody (0 articles, 0 quicklinks, 0 diaries, 10 comments) on Saturday, May 10, 2008 at 12:35:21 PM (0+)
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FORTRESS EU keeping American expats out these days
You don't mention the fact that hundreds of thousands of Americans think they have a lot to contribute to European Society but they cannot handily get an EU work permit--its almost as hard as an American getting a work permit for Mexico in many cases. In short, despite speaking fluent English, fluent German and nearly fluent Spanish and some French, I (and others like me) cannot go to Europe and get a job like we do in other corners of the planet. In short, we can't earn in Euros or pounds and send our earnings back to the USA. The USA has not worked hand-in-hand with European states to better balance the immigration needs on both continents these days. This is another Bush, Clinton, Bush, Reagan legacy. Dollar battered Americans cannot earn money to send home in Fortress Europe--because we have such bad relations generally with much of the rest of the planet. by ALONE (196 articles, 1 quicklinks, 7 diaries, 557 comments [5 recommended, 0 rejected]) on Saturday, May 10, 2008 at 12:59:13 PM (0+)
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"Mighty Dollar
As one of thos expats who have received the "W" 60 % "paycut" I have observed a couple more things that the average redneck" "buhie" probably couldn't imagine; In April I passed 60 years "on the road" ---I participated in both the German and Japonese occupations, spent the thirty years representing three of our most successful multinationals and enjoyed an unlimited budget retirement since. Like most in my situation I spent fifty years or so "waving" my blue passport---try that now and it will get you a seat"on the back of the bus". Try referring to "W" as "the leader of the free world" and you will probably have to clean the vomit off the bus. I,m sure no one in the current administration would consider this a problem however---Imagine how the hundreds of thousand retired or disabled expats from the US military that are trying to exist or feed their families on what the average military retirees dollars are worth now! HOWEVER, they probably mostly voted for "W" TWICE. by Napolean (0 articles, 0 quicklinks, 0 diaries, 4 comments) on Sunday, May 11, 2008 at 4:09:09 AM (0+)
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Dollar rebound starting in three months
Great article, well done and informative! I think that the euro is incapable of filling the shoes of the dollar for several reasons. Given the severity of the dollar crisis at current I say hold on to your hat the next eight months, the s**t is quite possibly going to hit the fan. by David C Beach (0 articles, 1 quicklinks, 8 diaries, 169 comments) on Sunday, May 11, 2008 at 5:03:17 AM (0+)
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The *FED* Battered Dollar
Actually, as much as I oppose the Bush administration (which is a lot; I do not call myself Anti-Bush Alice for no reason), their crazy fiscal policies are not the main reason the dollar is falling. The main reason is that the Federal Reserve "creates" money out of nothing. However, the outrageous spending of the Bush administration on this illegal and immoral war and on totally wrong policies at home, certainly does not restrain the Fed. The "tax cut" and "tax rebate" is something I have mixed feelings about. The tax cut, regardless of leftist blathering, is not the cause of deficits. The outrageous spending is. The tax rebate would be fine if it were done by cutting spending in other areas, but I believe it is more money created out of nothing. I discuss all this at great length on my blog where I just reviewed some books by the great economist Murray Rothbard. This is an alternative point of view. The more angles you see a situation from the better informed you'll be. So, have a look. by Alice Lillie (0 articles, 0 quicklinks, 0 diaries, 72 comments [16 recommended, 1 rejected]) on Sunday, May 11, 2008 at 9:38:40 AM (0+)
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Geo-Finance
The present financial situation is, indeed, primed to turn increasingly volatile. Just how far the criminal American gangsta group will go to flex muscle on behalf of Europe's deranged aristocracy and their filthy British Empire remains to be seen. It seems an historic, overseas act of war precipitating a rush of hot money liquidity into the U.S. might lie in the realm of realistic possibility. After all, the corrupt European synarchist scum must surely be aware a nation steeped in republicanism is not easily made to reduce itself to a mere shell of its former self in the face of desperate financial crisis (wasn't FDR their last lesson in history on this count?). Thus, some operation supportive of the dollar's exchange rate value might soon be in the cards... by Tom Chechatka (6 articles, 1 quicklinks, 1 diaries, 57 comments [1 recommended, 0 rejected]) on Tuesday, May 13, 2008 at 8:39:50 AM (0+)
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