The Dollar is in trouble

[mcgon1979]

Sinking Currency, Sinking Country
Fri Nov 2, 3:00 AM ET

The euro, worth 83 cents in the early George W. Bush years, is at $1.45.

The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.

Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.

Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?

Nope. The dollar has plummeted in value, more so in Bush's term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.

Is it all Bush's fault? Nope.

The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.

The prime suspect in the death of the dollar is the massive trade deficits America has run up, some $5 trillion in total since the passage of NAFTA and the creation of the World Trade Organization in 1994.

In 2006, that U.S. trade deficit hit $764 billion. The current account deficit, which includes the trade deficit, plus the net outflow of interest, dividends, capital gains and foreign aid, hit $857 billion, 6.5 percent of GDP. As some of us have been writing for years, such deficits are unsustainable and must lead to a decline of the dollar.

A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.

What does this mean for America and Americans?

As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War.

U.S. tourists traveling to the countries whence their ancestors came will find that the money they saved up does not go as far as they thought.

U.S. soldiers stationed overseas will find the cost of rent, gasoline, food, clothing and dining out takes larger and larger bites out of their paychecks. The people those U.S. soldiers defend will be demanding more and more of their money.

U.S. diplomats stationed overseas, students and businessmen are already facing tougher times.

U.S. foreign aid does not go as far as it did. And there is an element of comedy in seeing the United States going to Beijing to borrow dollars, thus putting our children deeper in debt, to send still more foreign aid to African despots who routinely vote the Chinese line at the United Nations.

The Chinese, whose currency is tied to the dollar, and Japan will continue, as long as they can, to keep their currencies low against the dollar. For the Asians think long term, and their goals are strategic.

China — growing at 10 percent a year for two decades and now growing at close to 12 percent — is willing to take losses in the value of the dollars it holds to keep the U.S. technology, factories and jobs pouring in, as their exports capture America's markets from U.S. producers.

The Japanese will take some loss in the value of their dollar hoard to take down Chrysler, Ford and GM, and capture the U.S. auto market as they captured our TV, camera and computer chip markets.

Asians understand that what is important is not who consumes the apples, but who owns the orchard.

Other nations that have kept cash reserves in U.S. Treasury bonds and T-bills are watching the value of these assets sink. Not fools, they will begin, as many already have, to divest and diversify, taking in fewer dollars and more euros and yen. As more nations abandon the dollar, its decline will continue.

The oil-producing and exporting nations, with trade surpluses, like China, have also begun to take the stash of dollars they have and stuff them into sovereign wealth funds, and use these immense and growing funds to buy up real assets in the United States — investment banks and American companies.

Nor is there any end in sight to the sinking of the dollar. For, as foreigners demand more dollars for the oil and goods they sell us, the trade deficit will not fall. And as the U.S. government prints more and more dollars to cover the budget deficits that stretch out — with the coming retirement of the baby boomers — all the way to the horizon, the value of the dollar will fall. And as Ben Bernanke at the Fed tries to keep interest rates low, to keep the U.S. economy from sputtering out in the credit crunch, the value of the dollar will fall.

The chickens of free trade are coming home to roost.

To find out more about Patrick Buchanan, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

COPYRIGHT 2007 CREATORS SYNDICATE INC.

[Muad_dib77]

Mate - I have to ask.. What do you do for a living?

[mcgon1979]

Mate - I have to ask.. What do you do for a living?

I suppose I do a bit of surfing if I have time...

[Muad_dib77]

I was more thinking - Investment banker,Oil Tycoon or Stock Broker

[soc]

This is only the beginning - I'm not sure most people in Ireland realise the impending impact the current crisis in the states will ultimately have on this country.

Right now we we have a melting pot of the falling dollar value, collapse of many US and European bonds backed by the sub-prime morgates, rising oil prices and the rising prosperity of the German economy (i.e. prospect of higher interest rates). When you factor in the slippng property values it paints a dark and gloomy picture.

In real world terms a good (if somewhat simplistic) example is the impact the recent Merrill Lynch losses will have - the knock on is that they will reduce the amount of credit offered to clients trading or settling through them - this obviously places a larger overhead and increased risk at the feet of invesment banks which means they have less opportunity to trade out of bad positions which ultimately means they may trade less which then impacts prices on the market, etc., etc. Now bear in mind that many high profile companies have yet to write down the extent of their losses because they don't want to damage positions they currently hold....

Long story short - I doubt we've even seen the half of what's coming yet

[mcgon1979]

absolutely agree soc. The sub-prime lending (second chance lending) is looknig like a real bad situation. There ave already been 10,000s of repossessions in certain areas of the US. I don't think we have felt half of whats coming...

[soc]

absolutely agree soc. The sub-prime lending (second chance lending) is looknig like a real bad situation. There ave already been 10,000s of repossessions in certain areas of the US. I don't think we have felt half of whats coming...

yup - there is real unease on the markets right most of the traders I've spoken to believe there are a lot of companies yet to disclose the extent of their losses -