U.S. dollar facing imminent collapse?
Pastor Dale Morgan
U.S. dollar facing imminent collapse?*
Posted: December 10, 2006
Even as the stock market is hitting new record highs almost every day,
the Federal Reserve and Treasury Department are quietly coordinating a
devaluation of the dollar that the Bush administration hopes will be a
slow decline rather than a dollar collapse.
This week, in an unusual move, the Bush administration is sending
virtually the entire economic "A-team" to visit China for a "strategic
economic dialogue" in Beijing Dec. 14 and 15.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben
Bernanke are leading the delegation, along with five other cabinet-level
officials, including Secretary of Commerce Carlos Gutierrez. Also in the
delegation will be Labor Secretary Elaine Chao, Health and Human
Services Secretary Mike Leavitt, Energy Secretary Sam Bodman, and U.S.
Trade Representative Susan Schwab.
The Bush administration wants to get China's cooperation in preventing a
dollar collapse. That's the conclusion of John Williams, an experienced
professional econometrician, who writes the "Shadow Government
Statistics" blog.
Williams has re-created M3, a money-supply measure whose data the
Federal Reserve simply stopped publishing after issuing a technically
worded March 2006 announcement.
Williams reports M3 is currently growing at close to a 9.6 percent rate
and trending higher, compared with an 8 percent rate early this year,
when the Fed quit reporting the measure.
"The Fed is pumping liquidity into the U.S. economy," Williams said "and
the Fed evidently did not want the markets to follow too closely what
the Fed was doing with the money supply."
China today now is holding a historically unprecedented $1 trillion in
foreign exchange reserves. During the Thanksgiving holiday, an
announcement by China that their central bank planned to diversify
foreign-exchange holding away from the dollar caused the dollar to drop
in value on international currency markets. Since then, the dollar has
hit a 20-month low against the euro.
"This was almost an orchestrated announcement," Williams claimed.
"Around Thanksgiving the markets were thinly traded. I'm not sure who
was playing games there, but the signal was clearly heard."
"You're dealing with mass psychology here," Williams argued. "The
central bankers around the world know they are going to take a hit on
their dollar holdings. None of the central bankers want to start a
dollar panic, but none of the central bankers want to be the last out of
the dollar, either."
Williams explained that the Federal Reserve is in a bind.
"Raising rates would kill any chance of avoiding a recession, but in
terms of the dollar, we can't raise the rates fast enough when the
dollar starts to slip quickly."
Are we experiencing a dollar collapse?
"Not yet," Williams answered. "I believe we're going to have a dollar
collapse, but the Fed is going to do its best to slow play the dollar's
decline in value, so that it takes a year or two for the dollar value to
reach its low point."
Williams explained the risk of collapse the dollar faces:
"There will be a central bank, most probably in Asia, who will start the
move away from the dollar and when it happens, you're going to see other
central bankers covertly trying to follow. The move will magnify very
quickly and it could become a full-fledged panic and a dollar collapse."
The Fed is struggling right now to contain inflation and stimulate
economic growth. All the Fed is doing right now with all their grand
policy shifts is using a lot of propaganda and market massaging to try
to prevent a financial panic."
Recent reports have shown that U.S. gross domestic product growth slowed
to 1.6% in the third quarter, the lowest in more than 3 years.
Will a declining dollar help narrow the U.S. trade deficit with China?
"You could take a 30 percent decline in the value of the dollar,"
Williams argued, "and it wouldn't make much of a dent in our trade
deficit with China, not as long as Bush administration trade policy
continues to one-sided in favor China."
"The Fed is faced with an impossible circumstance with the trade and
budget deficits being run by the Bush administration," Williams said,
"and they are just playing games with the markets and the public by not
publishing M3, the broadest measure of money supply and the best
indicator we have of long-term activity."
M3 is the broadest measure of the total money in the economy, including
checking and savings accounts, cash, time deposits, and money-market
funds. Economist Milton Friedman, one of the key economists contributing
to the conservative theories that led to the development of
"Reaganomics," argued that money supply is a key measure correlated both
with economic growth and inflation.