Robert Fisk. The demise of the US dollar.
Xi Ling
Thank you very much for this post. Robert Fisk might pass to the history of journalism or the history of economics or both for this work: The demise of the dollar (1)
Everybody knows that in last G20 meeting in Pittsburg, many pending agreements were done. Reactions among public opinion can only be compared in extension and intensity to Michael Jackson family affairs. The independent editor, Sean O'Grady, told "the markets have spoken, and they can see the writing is on the wall for the dollar, long-term. Maybe the only surprise in all this that it has taken the world so long to wake up to the changed economic realities.". (2)
I think it is not a big surprise for any of us. We all know that it is on the agenda since some weeks before the first G20 meeting in Washington as we talked here in November 2008. (3)
Western economists and economic authorities seem to be concerned by deflation, at least that is what they tell. However the big risk is price inflation. This is going to be the next wave. Much much higher than the October 2008 crisis. Paradoxically it comes once most countries are exiting this crisis. Is it just a risk? Some such as India, Australia, Indonesia, etc. are wisely taking actions (4) because as soon as crisis leave economies, inflation risks and asset bubbles appear risking to become hyperinflation. Because we have to combine two effects: US dollar collapse and higher production costs.
Regarding US dollar, that risk is much higher than years ago and only recession delayed that one or two years. US economy is again in the same circumstances than in 2007, its cause again is excess of liquidity.Paradoxically we have excess of liquidity amid lack of credit. We can it see clearly in the chart "mb3_oct_2009" (5) that only in September the Fed has stabilized the amount of US dollar liquidity, probably to avoid criticism at the G20 meeting in Pittsbourg. From an historic perspective we see in "m3b_long_term_oct_2009" (5) that this situation can only be compared in recent decades with the years before "The Nixon effect" 1970-1971 although social situation now is worse than in 1970-71 as we can see in "pain and misery index oct 2009" (5). But also because saving rates in the 60s were much higher than in the first decade of this century.
"Gold’s rally to a record shows commodity investors remain concerned that the U.S. economic recovery will spur inflation" (6). "Gold is a forecaster of inflation instead of a coincident indicator" (6)
Unfortunately, for them, propaganda does not change facts. To repeat again and again that "a strong dollar is good for America" made it go up the first time. Once people around the glode see no affirmtive actions those words became just empty words that nobody believe.
As we can see in the chart trade_budget_deficit_oct_2009, it is not just trade deficits what spurs fears, it is mostly federal deficits in the US what panics. We all around the world want to see what pres. Obama is going to tell about Afghanistan. Will he cut expenses in defense? or will he allow it to grow as long as US can and want to afford military adventures?
That simple question might mean how long will the US dollar keeps a role in the international scenario. Until 2018? or earlier?
Peace and best wishes.
Xi
(1) The demise of the dollar
(4) India’s 10-Year Bonds Fall on Rate Outlook, Government Auction
xi
http://www.youtube.com/watch?v=CBDPGkW6SCU
http://www.youtube.com/watch?v=kFi1KlUh5PI
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> (2)http://seanogrady.independentminds.livejournal.com/14289.html
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> (3) Bretton Woods 2. How much can we expect?http://groups.google.com/group/world-thread/browse_thread/thread/238a...
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> Are you attending the obituary in Washington this weekend?http://groups.google.com/group/world-thread/browse_thread/thread/c798...
> (4) India’s 10-Year Bonds Fall on Rate Outlook, Government Auctionhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=adBNrVMtdqX4
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> (6) Gold Rise to Record Shows Investors Split With Bankshttp://www.bloomberg.com/apps/news?pid=20601087&sid=alO7Gib3l2CY
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> 18KViewDownload
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> m3b_long_term_oct_2009.png
> 15KViewDownload
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> pain_misery_index_oct_2009.png
> 17KViewDownload
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> trade_budget_deficit_oct_2009.png
> 14KViewDownload