The Inevitable Collapse of the Greenback
By Mike Whitney
-- -- Why is George Bush destroying the dollar?
Or is it Bush? Maybe, it is the Federal Reserve, the privately
owned group of 12 central banks that prints our money and sets
A UK Telegraph article on Tuesday “Dollar Drops as great
Sell-Off Looms” explains the current dilemma. The dollar is
falling against the euro and the Asian currencies while gold and
energy prices continue to skyrocket. “Greenback liquidation
comes amid growing concerns that global central banks and Middle
East oil funds are quietly paring back their holdings of US
” David Bloom, a currency expert at HSBC, said the dollar was
vulnerable to a steep sell-off as investors begin to refocus on
America’s yawning current account deficit, now 7% of GDP”. (UK
Just to add some perspective to this topic; Argentina’s economy
collapsed when its trade deficit reached 4% of GDP. The US
deficit is at an unprecedented level.
Normally, we could say that these are the predictable effects of
market forces, but that’s not the case here. After all, we know
that Bush insisted that the lavish tax cuts be made permanent
even though it was understood that such action would undercut
the dollar. So, what is going on here; why does Bush want to
kill the goose that laid the golden egg?
There are two ways to weaken the currency; either print more
money which dilutes the supply, or create new debt which lowers
Bush has done both simultaneously and with such gusto that it’s
a wonder the dollar hasn’t crashed already. He’s expanded
government spending by 35% and produced humongous $450 billion
per year tax cuts. Add this to the projected costs of a $2
trillion war and the dollar was bound to get hammered.
At the same time Bush has been spending us into oblivion, the
Federal Reserve has kept the printing presses humming along at
full-throttle doubling the money supply in the last decade.
Almost half of all greenbacks are now located outside the
country, which means that if the dollar becomes less attractive
to investors those greenbacks will come flooding back to America
and plunge the country into recession.
Regardless of one’s political leanings, there is an obvious and
demonstrable attempt to savage the currency by the political and
The real force behind Bush’s actions is the Federal Reserve. No
one has any illusion that our paper-mache president, who even
boasts about not reading the newspapers, is making complex
policy decisions about geopolitics and finance. As a privately
owned institution, the Fed has its own agenda which runs
contrary to the interests of the American people. Many people
fail to realize that it was Greenspan who cooked up the massive
increases in Social Security in 1983 to help Reagan reduce the
soaring interest rates that were caused by his tax cuts for the
wealthy. Ever since then, Social Security payments have gone
directly into the general fund; paying for roads, social
programs and war. This was the Fed’s clever way of creating a
flat tax directed exclusively at the poor and middle class.
The Federal Reserve has engineered many similar coups, the most
impressive being the huge stock market bubble of the late 1990s.
Greenspan kept the cheap money flowing into the Wall Street
Casino (and refused to even increase marginal rates on stock
purchases) while PE’s skyrocketed and the bubble expanded to
Following the explosion, which left tens of thousands of
Americans stripped of their retirement and savings, Greenspan
breezily noted that it is not the task of the Fed to stop
Really? The European Central Bank (ECB) takes an entirely
different tack intervening whenever it is clearly in the public
interest. Greenspan’s recalcitrance has nothing to do with
principle; he was simply acting on behalf of constituents in the
Currently, the Fed has created the largest equity bubble of all
time; the $9 trillion housing bubble, slapped together over the
last 3 years by lowering rates to an unbelievable 1.5% (at one
point) and facilitated through shabby lending practices. As
rates continue to rise to satisfy America’s need for $2 billion
cash inflows from foreign lenders every day, the carnage from
the housing-bomb is bound to be extensive and agonizing.
The Federal Reserve has always served the singular interests of
the ruling class, the only difference now is that the present
clash is designed to drive the wooden-stake into the heart of
the middle class and create a permanent American oligarchy.
Bush has purposely generated another $3 trillion in debt
ensuring that the dollar will fall mightily and working class
people be left with a trifling of their life savings.
6 months ago, the Federal Reserve, anticipating the day when the
foreign inflows would dry up, eliminated the M-3, their public
record of foreign purchases of dollars and securities. It all
sounds very abstract, but what it means is that we no longer
have any way of knowing how quickly foreign banks are dumping
their greenbacks. This means that the American people will be
left holding the bag once again; stuck with an inflationary
dollar while foreign investors bail out.
The Federal Reserve gave Bush the go-ahead on his “war of
choice” just as they cheerily endorsed the budget-busting tax
cuts. They’ve doubled the money supply and done everything in
their power to shift middle class wealth to corporate kingpins
and American plutocrats.
Still, this doesn’t explain why they appear to be intentionally
savaging the dollar?
Here’s the key: We are not a “capitalistic” system or a “free
market” system, that’s all just philosophical mumbo-jumbo. In
practical terms, we are a “Dollar system” and the greenback must
continue to dominate the world oil trade or the Federal Reserve,
the IMF, the World Bank and all the privately owned global
institutions will crash and burn. That’s not their plan; their
plan is to perpetuate this debt-pyramid into infinity;
integrating dissident states into an expanding and predatory
The face value of the dollar doesn’t matter to the men who print
the money. The actual value is constantly manipulated to shift
wealth from one class to another. (via bubbles and inflation)
What really matters is who controls the system and the means
whereby others are coerced to participate. In the last decade
the amount of dollars stockpiled in foreign banks has gone from
53% to nearly 70%; this is a monopoly that the US intends to
defend by every means possible. To maintain this monopoly, the
Federal Reserve has linked arms with the oil industry (and the
US military) in its effort to control the world oil market. This
has become an “existential” issue for the corporate elites who
run American foreign policy. If the dollar is not supported by
access to the world’s dwindling oil supplies, then there is no
incentive for foreign banks to accumulate the anemic dollar.
(Oil is sold exclusively in US greenbacks)
By this standard, we can see that Bush’s fictitious war on
terror is really just a smokescreen for a global resource war
that will decide which economic system prevails.
Will it be the dollar system, with its wars and gulags spread
across the planet? Or will some other system emerge, some
non-ideological incarnation of socialism that redistributes
wealth according to people’s needs like we see in Venezuela?
The future of the dollar may be decided sooner than any of us
had imagined. Iran’s Mehr News Agency announced that the
long-awaited Iran Oil Bourse (OIB) will open sometime next week
on Kish Island challenging head-on America’s monopoly on the
sale of oil in dollars. Iran’s plan is a direct attack on the
greenback as the world’s “reserve currency”. The US must
preserve that advantage because it allows it to maintain massive
deficits as well as a national debt of $8.4 trillion without
fear of economic collapse or hyper-inflation. The opening of the
bourse guarantees that central banks around the world will
convert some of their reserves into euros precipitating a sharp
decline in the dollar’s value.
This may be the most serious threat the dollar has ever faced.
The fundamental economic law of “supply and demand” ensures that
the bourse means hard times for the greenback. This explains why
the Bush administration is cobbling together a feeble coalition
of European allies (England, France and Germany) to push a
resolution through the Security Council expressing their
“serious concern” about Iran’s alleged nuclear programs.
Washington is looking for international cover to conceal its
battle-plans. The hawkish members of the administration want to
preempt the opening of the bourse with a unilateral attack
(nuclear?) on Iranian facilities.
Even if Washington succeeds in stopping Iran’s plans to compete
in the oil market, it’s still a bumpy road ahead for the
greenback. The dollar is under growing pressure from
overspending and mismanagement. The prospect of diminishing
foreign inflows and a fragile housing market are telltale signs
of an inflationary cycle.
America is now facing a slow-motion meltdown that could escalate
into a widespread run on the dollar. Attacking Iran will only
aggravate the situation and push tenuous states towards new
alliances. (China, India, Venezuela and Russia have already
expressed support for the new bourse) Military action will do
nothing to relieve America’s enormous account imbalances or
lesson the vulnerability of the ailing greenback.
The problems facing the dollar are purely systemic. The
privately owned central banks in the Federal Reserve cannot be
trusted to decide monetary policy any more than the oil giants
can be trusted to decide foreign policy. When the public
interest is excluded from policy-making, catastrophe is
Expect the greenback to follow a long-downward spiral.
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