The Economy - Circling the Drain…

Politics, The Economic Beat
The US Dollar vs Japanese Yen

The US Dollar vs Japanese Yen

Before we start, let me apologize. This article is convoluted, and complex. Economic conditions are rapidly devolving … as I’ve mentioned before (see The Economics Beat) the economy is stumbling into a long delayed recession.

I’ve pointed out the symptoms leading up to this ranging from zero interest loans, for cars and other durable goods, as well as the no payments for 2 years deals furniture places are offering.

I pointed out how the dollar has fallen against competing currencies (yes, this trend continues, apace) and even reported on Wall Street recognizing the coming recession.

I was wrong in my estimate that gasoline would top $4 by Christmas, but we’re now hearing expectations of $4/gallon gas by the summer travel season.

We even reported that the AEA predict a severe economic downturn, that should last at least 18 months to 2 years, with negative growth expected.

Well, today we’re going to look at some further issues, and their impact. In a previous article I wrote about how the dollar is always in a constant state of flux, changing in relative value to other currencies.

Well, that works both ways… or to be completely correct, 143 factorial ways (there are 143 different currencies, all of which can be traded and exchanged against each other, leading to 143 factorial relationships between all the world currencies - that’s 143*142*141* … etc etc … *3*2*1, which is a frighteningly large number, which is best expressed as 3.85 x 10^247).

Now, when you consider that each of those 143 different currencies is also in flux, both because of trade patterns, and concious decisions by central banks, to make trade with the parent country look more or less favorable, when compared with other economies.

As Benn Steil of the Council of Foreign Relations said at a recent meeting (as reported by the Washington Post), “The United States is exporting inflation worldwide“, by forcing other sovereign nations to print up mountains of their own currency, with which to buy dollars.

This is a definite consequence of using dollars as the “float currency” of International trade.

An example of how this is used would be to slash the cost of borrowing dollars, then turning around and offering to lend US banks $60 billion in 28 day loans, every 2 weeks - it forces other economies to play follow the leader, by giving them great incentive to help cart off our cast-off inflation.

Ben Steil wrote in Foreign Affairs, last May that moving to a single Global Currency would remove currency crises, currency speculation, the need for foreign exchange reserves, and Global currency imbalances would also be eliminated along with all Balance of Payments problems.

Perhaps we’ve found the real reason for all of this World Class fiscal mismanagement?

Could it be that we’re being set up for a major economic collapse, to clear the way for a single world currency, to help rationalize global economics, and lead us one step closer to a “One World Government“?

If that’s not the plan, I’d be surprised. But enough of the global picture, at least for a few moments.

While we’re looking at the impact that tumbling dollars have on our economy, petroleum prices are the first place we saw an effect, but the same effect is happening across the board, with wheat, sugar, and other comodities prices rising.

The consumers aren’t seeing the effects yet, but wheat prices have more than quadrupled.

We can expect to see food prices moving upwards, with at least doubling in some cases. This could be the start of some very hard times indeed, if people suddenly find their grocery bills doubling or worse.

Some frightening data points include the fact that foreign purchases of US debt bonds have been trailing off, for about three years.

This leads to the conclusion that our trading partners, most especially the Gulf Cooperative Council (middle eastern oil rich nations), are looking to strongly move away from the US dollar as a float currency.

If this happens, it will cause the whole house of cards to come tumbling down.

If the world leaves the dollar, it could very well end the United States status as a First World nation.

The inflation we’ve exported for years would definately come back to haunt us, at that point, as we’d no longer have the economic clout the threaten our trading partners with.

While it sounds like this may be just a U.S. problem, it’s not.

Gold prices have shot up from around $670/ounce to the most recent price of $970/ounce.

One meaning of this is that the actual value of dollars has decreased by roughly 29%, by this one measure.

And if that’s not enough, I’m trying to follow up on the rumors that our government has been using federally held lands (all those “Federal lands” out west) as collateral for the increasing mountain of debt we’ve been accumulating.

The interesting part of these rumors is that if they’re true, and we are about to lose our economic clout, I could see the debt holders calling their loans, and claiming the collateralized resource rich areas, for their own economic development and enrichment.

Who might these debt holders be?

Think about growing economies, with a significant trade imbalance against the United States, who are currently becoming more agressive in their search for resources to help fuel their growth.

Still can’t figure out who? Well, what country exports recyclable waste papers from America, in the empty shipping containers they ship manufactured goods to America in? And then recycles the paper, producing the majority of paper needed to run their economy.

If you still haven’t guessed, that trading partner is China.

As I said, these are just rumors that I’m following, trying to find proof. But these rumors, taken with all of the rest of the economic situation I’ve outlined, do not look good for us.

So, finally, remember, the economy is faltering, recession is almost guaranteed, and depression or worse is not unthinkable. Keep yourself out of debt, strengthen your cash position, and keep your wits about you.
And in the words of Yuki Saito, head of foreign-exchange sales in Tokyo at Societe General SA (a Unit of France’s second-largest bank) “It’s crunch time for the dollar!



One Response

  1. Axis  •  February 28, 2008 @9:45 pm

    Great
    Just lovely.. more news to make us all wonder what is going on with the leaders of the country… But I agree… save all you can.. you’ll need it.

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