Death of the Greenback
The only surprise about this is that it is taking so long.
Chimpy’s doubling of the national debt, coupled with his utterly insane policy of subsidizing the outsourcing of American jobs, should have rendered the greenback utterly worthless years ago. The Chinese were quite willing at the time to subsidize us because it was a means to an end; once we’d gutted our own commons, the Chinese would be in a much better position to become superior to us in every field. A couple of Chinese military officers wrote up several scenarios for destroying our economy a decade ago; none of their scenarios matches the destruction wrought by the moronic monkey.
The Rushpublican Dildoheads are going to try to blame this on the present President’s borrowing policies, but that’s a load of crap, even though the present President is certainly wrong to be doing all he’s doing with borrowed money. Why not ask the rich who have robbed us blind over the last 30 years to give something back? A sane tax rate for the ultrawealthy would not only take the pressure off the dollar, it would go a long way towards demonstrating to foreigners that we’re finally getting serious about shoring up our revenue streams, which would make them more confident about the debts we already have.
As a corporatist, Barack Obama simply isn’t going to do this. He’ll let the Chimpy rebates to the ultrarich expire on schedule, but that isn’t going to be enough. Not now.
Prepare for that wave of inflation everyone’s so worried about. It is surely coming. And interest rates will be right behind it.
It was an awful week for the dollar, which sank to its lowest level of the year last week, and with markets now focused on a trillion-dollar-plus U.S. deficit, the greenback’s sharp slide is not over yet.
Unlike in the recent past, when investors terrified of a global financial meltdown sought safety in Treasury bills and other dollar assets, the greenback is now being driven by its own fundamentals, and all of them look fairly bleak.
Massive spending and unorthodox monetary policies over the last year have the United States looking down the barrel of a $1.75 trillion deficit. That reality took on a new relevance last week when Standard & Poor’s said it may cut Britain’s AAA credit rating because of soaring public debt, prompting fears that the United States could be next.
Persistently sluggish U.S. growth and rising unemployment also suggest interest rates may be at zero for some time yet.
That has started to frighten foreign investors away from U.S. assets altogether: U.S. Treasury yields spiked to six-month highs this week and the dollar has lost some 10 percent against a basket of currencies since March .DXY.
“The charts suggest the dollar is oversold, but people are starting to ask existential questions about the United States,” said T.J. Marta, founder and chief strategist at Marta on the Markets in Scotch Plains, New Jersey.
“The fear is about how much the government can do — it’s underwriting the banking system, the insurance industry, the auto sector. At some point, people say, ‘Oh my God, is the whole thing going to implode?’”
The government has said it will need to borrow $2 trillion, or 14 percent of the country’s total economic output, in 2009 alone. It has already spent most of a $700 billion rescue plan to prop up the banking system and juiced up the economy with a $787 billion fiscal stimulus plan.
The Federal Reserve, meanwhile, is committed to buying $1.5 trillion in mortgage and agency debt issued by Fannie Mae and Freddie Mac and is making direct purchases of U.S. Treasury bonds to the tune of $300 billion.
And it won’t get any easier. The dollar could face more selling if Treasury struggles to attract many takers for $101 billion of fresh government debt this week.
After that, Treasury Secretary Timothy Geithner heads to China, the biggest buyer of U.S. government debt, where he will have to reassure his hosts that the United States will be able to ensure the value of the dollar even as its deficits balloon.
It all adds up to more gray skies for the dollar, with near-term rallies seen as excuses for renewed selling that could send the euro, which broke $1.40 last week for the first time since January, toward $1.45 and sterling toward $1.60.
“There are half a dozen reasons to sell the dollar. Until we get an event to alter the course of events, traders will stay on the bandwagon,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
I don’t see what that event could possibly be. There’s not even been any serious tinkering with Chimpy’s fiscal policies, and the incentives to offshore jobs are still there. It is hard to imagine a return to the economy we had in the late 1990s, or even the late 1970s.
Heckuva job, Chimpy.
Tags: bush, dollar, economy, failure, obama, recession, rushpublicans
May 26th, 2009 at 1:39 am
The good news about a declining dollar is that it discourages imports and makes our exports more affordable to foreign buyers. Our trade imbalance has been an ongoing, unsustainable disaster for 30 years.
Of course, a declining dollar whipsaws the Chinese. It means they get to sell less to U.S. consumers at the same time their vast holdings of dollar debt slips in buying power when repaid. Geithner better be practicing his tap-dancing routine.
The worrisome news about a declining dollar is that one of these days another currency will take over as the primary one used for international commerce, especially oil commerce. That will be a blow to national prestige, pride and morale. It could also result in U.S. currency becoming more volatile and considered relatively weak.
Marginal tax rates on the top 1 percent of income earners should be increased to the 45 percent to 48 percent range. Additionally, Social Security’s top rate should be raised substantially.
These sane, sensible steps aren’t likely to be taken. But if they somehow are, the 99 percent rest of us should get a tax break on the cost of ear protectors. The bitching, moaning and wailing will be deafening for years.
May 26th, 2009 at 2:14 am
The problem, as I see it, is that it really doesn’t matter whether or not our domestically-produced stuff becomes cheaper, because we don’t produce anything anymore. And I don’t even want to think about how much it would cost us to re-establish a strong manufacturing base.
May 26th, 2009 at 7:38 pm
Remarkably, some things are still made in the U.S., and some of them are exported.
As for the industrial base, I would like to see a no-nonsense study done, leading to creation of a federal reindustrialization program.
May 27th, 2009 at 1:53 am
What happens when you need something that you simply cannot get from an American supplier? Given the nature of things, that wouldn’t take long; even a pair of socks would be nearly impossible to come by.
Yes we make things, but for all practical purposes our commons are gutted.
May 28th, 2009 at 3:28 am
It’s not hard to imagine the economy of the 30s though.