The Dollar's Full-System Meltdown
By Mike Whitney
Clearing House" -- -- The U.S. Dollar is kaput. Confidence in the
currency is eroding by the day.
A report in The Sydney Morning Herald stated, “Australia’s
Treasurer Peter Costello has called on East Asia’s central
bankers to ‘telegraph’ their intentions to diversify out of
American investments and ensure an ‘orderly adjustment’….Central
banks in China, Japan, Taiwan, South Korea, and Hong Kong have
channeled immense foreign reserves into American government
bonds, helping to prop up the US dollar and hold down interest
rates,’ said Costello, but ‘the strategy has changed.’”
Indeed, the strategy has changed. The world has come to its
senses and is moving away from the green slip of paper that is
currently mired in $8.3 trillion of debt.
The central banks now want to reduce their USD reserves while
trying to do as little damage to their own economies as
possible. That’ll be difficult. If a sell-off ensues, it will
start a stampede for the exits.
There’s little hope of an “orderly adjustment” as Costello
opines; that’s just false optimism. When the greenback begins
listing; things will turn helter-skelter quickly.
In September, we saw early signs that the dollar was in trouble.
The trade deficit registered at $70 billion but the Net Foreign
Security Purchases (NFSP) came in at a paltry $33 billion. That
means that our main trading partners are no longer buying back
our debt which puts downward pressure on the greenback. The Fed
had two choices; either raise interest rates substantially or
let the currency fall. Given the tenuous condition of the
housing bubble and the proximity of the midterm elections, the
Fed did neither.
A month later, in October, the trade deficit hit $69.9 billion
but, then, without warning, a miracle occurred. The Net Foreign
Security Purchases skyrocketed to a “historic high” of $116.8
billion; covering both months’ shortfalls almost to the penny.
Not likely. Either the skittish central banks decided to “stock
up” on their dollar-denominated investments or the Federal
Reserve (and their banking-buddies) is buying back its own debt
to float us through the elections.
This is exactly the kind of hanky-panky that people expected
when Greenspan stopped publishing the M-3 last March keeping the
rest of us in the dark about what was really going on with the
Are we supposed to believe that the skeptical central banks
suddenly doubled up on their T-Bills while they’re (publicly)
moaning about the dollar’s weakness and threatening to
That’s a stretch.
According to the Wall Street Journal the Chinese Central-bank
governor Zhou Xiaochuan stated unequivocally that “We think
we’ve got enough.” The Chinese presently have nearly $1 trillion
in USD and US Treasuries.
The United States runs a $200 billion per year trade deficit
with China. If they’ve “got enough” we’re dead-ducks. After all,
it doesn’t take a sell-off to kill the dollar, just
unwillingness on the part of the main players to stop purchasing
at the same rate.
Of course, everyone in Washington already knew that doomsday was
approaching. That’s the way the system was designed from the
very beginning. It’s all part of the madcap scheme to “starve
the beast” and transfer the nation’s wealth to a handful of
western plutocrats. That’s explains why the Fed and the White
House whirred along like two spokes on the same wheel; every
policy calculated to thrust the country headlong toward
The administration never created a funding mechanism for the
$400 million tax cuts or for the 35% expansion of the Federal
government. Defense spending increased by leaps and bounds as
did the “no-bid” contracts for friends of the Bush clan. At the
same time, interest rates were lowered to rock-bottom to put as
much money as possible into the hands of people who couldn’t
meet the traditional criteria for a mortgage. And, if gluttonous
waste, reckless overspending and “Mickey Mouse” loans were not
enough; the Fed capped it off by doubling the money supply in 7
years; a surefire prescription for hyper-inflation.
So, which one of these policies was not deliberate?
The financial crisis that we now face was created by design. It
is intended to destroy the labor movement, crush the middle
class, quash Medicare, Medicaid and Social Security, reduce our
foreign debt by 50 or 60%, force a restructuring of America’s
debt, privatize all public assets and resources, and create a
new regime of austerity measures which will divert more wealth
to the banking and corporate establishments.
The avatars of neoliberalism invariably use crooked politicians
to spawn enormous “unsustainable” debt so that the nations’
riches can be transferred to ruling elites. It works the same
everywhere. It’s a form of corporate colonization, only this
time the victim is the good old USA.
“The Phase of Impact”
According to Richard Daughty in his prescient article “The Phase
of Impact” the Federal Reserve and the Treasury Dept have
already manned the battle-stations. Here’s an excerpt:
“Mr. Paulson, the Secretary of the Treasury, is, by virtue of
his ascension to the throne, now the head of the shadowy
President’s Working Group of Financial Markets (which was
created by Presidential Order 12631) and he is insisting that
they meet more often, namely every 6 weeks!
This whole Working Group thing was originally set up as a
fallback, ad-hoc, if-then defense to deal with possible economic
emergencies, but now they are routinely meeting every 6 weeks.
He has even ordered Jim Wilkinson, his chief of staff, to
‘oversee the creation of a Treasury Command Center to track
markets world-wide and serve as an operations base in a crisis”!
(Wall Street Journal) World-wide!! The American government is
moving to take control of the world-wide economy as the result
of an anticipated crisis? Yikes!”
Daughty goes on to say: “So a lot of the hubbub is obviously
being caused by some approaching upheaval, perhaps reflected in
something sent to me by Phil S., which is the Global Europe
Anticipation Bulletin No8 which reminded us that last May they
predicted that the economy would have a ‘phase of acceleration’
that would begin in June, and it “would be spread out over a
period of a maximum of 6 months’, which it subsequently did.
They said then, and are saying again now, that a ‘phase of
impact will begin in November 2006’, and that this impact phase
would be the ‘explosive phase of the crisis’.
This ‘phase of impact’ that is due to begin momentarily is, they
explain, ‘a period when a series of brutal crises starts
affecting by contamination the total system. This explosive
phase of the crisis, which will last 6 months to one year, will
affect directly and very strongly financial players and markets,
the owners of investment schemes with fixed incomes in dollars,
pension funds and the strategic relations between the United
States on the one side, and Europe and Asia on the other.”
(Richard Daughty; “The Phase of Impact” Kitco.com)
Predictions, of course, are rarely reliable and Daughty’s
scenario may be a bit too apocalyptic for many. But if we accept
the premise that the tax cuts, the expansion of the federal
government, the doubling of the money supply, and the $10
trillion that was sluiced into the housing bubble were not
merely “honest mistakes” made by “supply side” enthusiasts; then
we must assume that this is all part of a loony plan to demolish
the economic foundation-blocks of the current system and remake
society from the ground up.
Domestically, that plan appears to involve the activation of the
In the last few weeks the Bush administration has passed the
Military Commissions Act of 2006 which allows the president to
arrest and torture whomever he chooses without charging him with
a crime. Also, unbeknownst to most Americans, Bush signed into
law a provision which, according to Senator Patrick Leahy, will
allow the president to unilaterally declare martial law. By
changing The Insurrection Act, Bush has essentially overturned
the Posse Comitatus Act which bars the president from deploying
troops with the United States. The John Warner Defense
Authorization Act of 2007 (as it is called) also allows Bush to
take control of the National Guard which has always been under
the purview of the state governors. Bush now has absolute power
over all armed troops within the country, a state of affairs
which the constitution purposely tried to prevent. The
administration’s dream of militarizing the country under the
sole authority of the executive has now been achieved although
the public still has no idea that a coup that has taken place.
Internationally, the falling dollar means that America’s debt
will be reduced proportionate to the percentage-loss of the
dollar in relation to other currencies. This is a great deal for
the U.S. First the Fed prints fiat money to buy valuable
resources and manufactured goods and then it nabs a discount by
depreciating its currency. It’s a “win-win” situation for
Washington, although it will undoubtedly cheat unwitting
foreign-creditors out of their hard-earned profits. It’s
doubtful that their interests will weigh very heavily on the
money-lenders at the US Treasury or the Federal Reserve.
The dollar faces a second crisis at home which is bound to play
out throughout 2007. The $10 trillion dollar housing bubble is
quickly losing air causing a precipitous drop in GDP. The
housing industry is seeing its steepest decline in 30 years and
home equity is beginning to shrivel. Housing has been the one
bright spot in an otherwise bleak economic landscape. With the
housing market slowing down and prices decreasing, the $600
billion of consumer spending which was extracted in 2005 from
home equity will quickly evaporate triggering an overall
slowdown in the economy. (Consumer spending is 70% of GDP)
By the Fed’s own calculations; “The total amount of residential
housing wealth in the US just about doubled between 1999 and
2006 up from $10.4 trillion to $20.4 trillion. (“Times Online”)
If these figures are accurate than we can assume that much of
America’s “perceived” growth has been nothing more than the
expansion of debt. In fact, that seems to be the case. Wages
have been stagnant since the 1970s, 3 million manufacturing jobs
have been outsourced, savings have shrunk to below 0%, and
personal debt is soaring. We have become an “asset-based”
society and when the principle asset begins to loose its value,
we are in deep trouble. As housing prices continue to decline
through 2007 we can expect a full-blown recession. If energy
prices rear their ugly head again, (were they lowered for the
elections?) it will just be that much worse.
So, how will recession affect the dollar?
Capital has no loyalties. It follows the markets. When America’s
bustling consumer market stalls, we’ll undergo capital flight
just like everywhere else. The 3 million lost manufacturing
jobs, the 200,000 lost high-paying high-tech jobs, the tax
incentives for major corporations doing business outside the
country; all signal that corporate America has already loaded
the boats and is headed for more promising markets in Asia and
Europe. A sluggish consumer market could further weaken the
dollar and force Americans to begin saving again but, (and
here’s the surprising part) the decision-makers at the Federal
Reserve and the Treasury Dept don’t really care if the
face-value of the greenback goes down anyway.
What really matters is that the dollar retains its position as
the world’s reserve currency. That allows the Federal Reserve to
continue to print the money, set the interest rates, and control
the global economic system. The dollar presently accounts for
66% of foreign currency reserves in central banks across the
globe, an increase of nearly 10% in one decade alone. The dollar
has become the international currency, a de-facto monopoly. This
is the goal of the globalists and the American ruling elite who
dream of one system, the dollar-system; with us running it.
So, how will this cadre of plutocrats coerce the other nations
to continue to use the dollar while it plummets from its perch?
As long as oil is denominated in dollars, the central banks will
be forced to stockpile American scrip regardless of its value.
It’s no different than holding a gun to someone’s head. They
will use our debt-plagued greenbacks or their cars and trucks
will sputter, their tractors and factories will wheeze, and
their economies will grind to a halt. It’s just that simple.
America cannot maintain its superpower status unless it
continues to control the global economic system. That means the
linkage between the dollar and oil must be preserved. The Bush
troupe sees this as an existential issue upon which the future
of America’s ruling class depends. By 2020, 60% of the world’s
oil will come from the Middle East. Bush will do everything in
his power to control the resources of the Caspian Basin, thereby
expanding US dollar-hegemony and paving the way for a new
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