Who’s responsible for the meltdown? The Federal Reserve

Gold has spiked over $950, a new high, while oil futures passed the $100 per barrel mark. The battered greenback has taken a beating, and yet, Fed chairman Bernanke is signaling that there are more rate cuts to come. The prospect of a global run on the dollar has never been greater.

The problem far exceeds the Federal Reserve's paltry increases to the money supply or Bush's projected $168 billion “surplus package”. Capital is being sucked out of the system faster than it can be replaced which is apparent by the sudden cramping in the financial system and a more generalized slowdown in consumer spending.

An article which appeared on the front page of The Financial Times [but not in the US media] illustrates how hard-pressed the banks really are: “US banks have been quietly borrowing massive amounts of money from the Federal Reserve...$50 billion in one month”.

The present troubles originated at the Federal Reserve and, ultimately, they are the ones who are responsible for the meltdown. The Fed refused to perform its oversight duties because its friends in the banking industry were raking in obscene profits selling sketchy, subprime junk to gullible investors around the world. They knew about the “massive off balance-sheet positions” which allowed the banks' to create mortgage-backed securities and CDOs without sufficient capital reserves. They knew it all; every last bit of it, which simply proves that the Federal Reserve is an organization which serves the exclusive interests of the banking establishment and their corporate brethren in the financial industry.

[Excerpt of an article by Mike Whitney, Counterpunch]

300 Days to Create a Trillion Dollars

Last August, the near meltdown of the Sub-Prime Mortgage Markets led to a panic sell-off of stocks which quickly became a worldwide liquidity crisis. In response, an unprecedented $400 billion dollars was created at the press of a few computer keys to save the entire financial system from a wipe-out, followed by the Federal Reserve lowering interest rates by one-half a percent.

What is the root cause of the dollar crisis? The single leading factor destroying the value of the U.S. dollar is the law of supply and demand. The world has become flooded with paper dollars.

It took the U.S. government 354 years (1620 – 1974) to create the first $1 trillion dollars in circulation. It only took 300 days to create the last trillion dollars of paper money.

Somewhere there's a point of equilibrium where the demand for dollars by foreigners can no longer absorb the flood of the money supply. On that day, our country will no longer be able to pay its bills.

At the same time, everyone holding U.S. Treasury bonds, U.S. debt, or U.S. stocks may create a mad rush for the exits. In a panic sell-off, every single dollar outstanding could fall in value suddenly and dramatically. If you believe the U.S. dollar cannot fail, you'll be very surprised to learn that currency failures are not rare events. In fact, history is loaded with failed currencies around the world.

[Excerpt of an article by Michael Byrd, Austin Report]

The Decline of the American Empire

The notion that Washington had entered a "New American Century" -- a phrase used by the nationalist and neo-conservative unilateralists who championed the Iraq war -- seems largely to have gone the way of the dodo bird.

Yale Professor Paul Kennedy argued that the U.S. was falling into a familiar historical pattern where the combination of huge military budgets and ever-larger deficits led inevitably to the kind of "imperial overstretch" that transformed once-mighty empires into shadows of their former selves.

Washington Post neo-conservative columnist Charles Krauthammer exulted on [the American empire], "The fact is no country has been as dominant culturally, economically, technologically, and militarily in the history of the world since the Roman Empire."

What a difference five years and an invasion and bungled occupation of Iraq make! References to the Roman Empire at this point are more likely to refer to its decline than to its power.

"I’ve argued that not since the Roman Empire has anyone had such extraordinary power as the United States after the Cold War," says Donald Kagan, a dean of neo-conservatism. "But all of the elements of our strength are now being challenged, and it’s perfectly possible that we are seeing a relative decline in U.S. power that will prove lasting."

[Inter Press Services]

Iran forcing more Dollar Doldrums

Japanese investors are selling their dollars on the Tokyo Financial Exchange with worries about a recession in the U.S. economy.

The dollar also recently had its biggest weekly loss this year against the euro after Federal Reserve Chairman Ben S. Bernanke signaled he may cut interest rates further amid mounting concern that the economy is headed for a recession.

Iran, OPEC's second largest exporter, has already cut all of its ties with the greenback with respect to oil transactions.

And on Sunday, Iran established its first oil products bourse in a free trade zone on the Persian Gulf Island of Kish. Oil and petrochemical products will be traded in Iranian Rials, as well as all other hard currencies, the statement quoted Iranian Oil Minister Gholam Hossein Nozari as saying. About 20 brokers are already active in the market, it added.

As the fourth-largest oil producer in the world, Iran has a measure of influence over international oil markets. The country ranks second for output among OPEC Countries, and controls about 5 percent of the global oil supply. Tehran also partially controls the Persian Gulf's Strait of Hormuz, through which much of the world's oil supply must pass.

Now, the Organization of Petroleum Exporting Countries (OPEC), which supplies 40 percent of the global crude demand, plans to discuss a proposal by Iran and Venezuela to price oil in non-dollar currencies.

US subprime crisis costs global 7.7 trillion dollars

The meltdown in the US subprime real-estate market has led to a global loss of 7.7 trillion dollars in stock-market value [over the last 4+ months], a report by Bank of America showed Thursday.

The crisis, which has spread beyond US shores to banks and other sectors worldwide, is "one of the most vicious in financial history," according to Bank of America chief market strategist Joseph Quinlan.

Quinlan said in the report that the losses are worse than any in the past few decades, including Wall Street's Black Monday of 1987, the 1999 Brazilian real currency crisis and the collapse of hedge fund Long Term Capital Management in 1998.

"The current financial crisis is one for the record books and one, more ominously, not over yet."

[AFP]

Expensive Oil is far from being the Only Problem

"The greatest challenge to the world is not US$100/barrel oil. It's getting enough food so that the new middle class can eat the way our middle class does," says Donald Coxe, global portfolio strategist at BMO Financial Group, at the Empire Club's 14th annual investment outlook in Toronto.

The credit crunch and the reverberations of soaring oil prices around the world will pale in comparison to what is about to transpire. "It's not a matter of if, but when," he warned investors. "It's going to hit … hard."

The impact of tighter food supply is already evident in raw food prices, which have risen 22% in the past year. Wheat prices alone have risen 92% in the past year.

Mr. Coxe said the sharp rise in raw food prices in the past year will intensify in the next few years amid increased demand for meat and dairy products from the growing middle classes of countries such as China and India, as well as heavy demand from the biofuels industry.

With 54% of the world's corn supply grown in America's mid-west, the U.S. is one of those countries with an edge. But Mr. Coxe warned U.S. corn exports were in danger of seizing up in about three years if the country continues to subsidize ethanol production. Biofuels are expected to eat up about a third of America's grain harvest in 2007.

[Excerpt of article by Alia McMullen, Financial Post]

The Unexplained Broken Undersea Communications Cables

As the dollar plummets, the Gulf Oil producers’ dollar holdings are worth less and less.

Iran intends to open its own Oil Bourse this month that will trade in “non-dollar currencies”. An operational Iranian Oil Bourse, actively trading supertankers full of petroleum in non-dollar currencies, poses a great threat to the American dollar's continued dominance as the international reserve currency.

Oil-rich Gulf Cooperation Council (GCC) member states Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE have set 2010 as the target date for adopting a monetary union and single currency.

The past week has seen a spate of unexplained, cut, undersea communications cables that has severely disrupted communications in many countries in the Middle East, North Africa and South Asia. According to CNN the first two cut cables “account for as much as three-quarters of the international communications between Europe and the Middle East.“

The news media initially advanced the explanation that the cables had been cut by ships' anchors. But on 3 February the Egyptian Ministry of Communications and Information Technology said that a review of video footage of the coastal waters where the two cables passed revealed that the area had been devoid of ship traffic for the 12 hours preceding and the 12 hours following the time of the cable cuts. So the cable cuts cannot have been caused by ship anchors, in view of the fact that there were no ships there.

Three things stand out about these incidents, several cables cut over a period of days:

All of them, save one, have occurred in waters near predominantly Muslim nations, causing disruption in those countries;

All but two of the cut/damaged cables are in Middle Eastern waters;

So many like incidents in such a short period of time suggests that they are not accidents, but are in fact deliberate acts, i.e., sabotage.

The evidence therefore suggests that we are looking at a coordinated program of undersea cable sabotage by an actor, or actors, … who have the technical capability to carry out clandestine sabotage operations on the sea floor, and who have exhibited a pattern of violently destructive policies towards Muslim peoples and nations, especially in the Middle East region?

Read full article by Richard Sauder

The Economy 101

During the final two decades of the twentieth century, the U.S. economy was the envy of the world. The dollar was the world’s dominant currency. Foreign central banks accumulated dollars as their main reserve asset. Commodities like oil were denominated in dollars, and emerging countries like Argentina and China linked their currencies to the dollar in the hope of achieving U.S.-like stability.

But as the century ended, so did this extraordinary run. Tech stocks crashed, the Twin Towers fell, and Americans’ sense of omnipotence went the way of their nest eggs.

The dollar is falling in value versus other major currencies and plunging versus gold. The whole world is watching, scratching its collective head, and wondering what has changed. The answer is that everything has changed, and nothing has. The spectacular growth of the past two decades, it now turns out, was a mirage generated by the smoke and mirrors of rising debt and the willingness of the rest of the world to accept a flood of new dollars. Like a family that has maintained its lifestyle by maxing out a series of credit cards, America is at the point where new debt goes to pay off the old rather than to create new wealth.

A quick scan of world history reveals them to be depressingly familiar. All great societies pass this way eventually, running up unsustainable debts and printing (or minting) currency in an increasingly desperate attempt to maintain the illusion of prosperity. And all, eventually, find themselves between the proverbial devil and deep blue sea: Either collapse under the weight of their accumulated debt, or keep running the printing presses until their currencies become worthless and their economies fall into chaos.

[Excerpt of book by James Turk and John Rubino]

Gold, the Shadow Currency

All great debt-ridden societies either collapse under the weight of their accumulated debt, as did the U.S. and Europe in the 1930s, or they keep running the printing presses until their currencies become worthless and their economies fall into chaos. This time around, governments the world over have clearly chosen the second option.

Now, what does a collapse in the value of the dollar mean for your finances? First, it hurts people on a fixed income, because the value of each dollar they receive plunges. Ditto for those who are owed money, because they’ll be paid back in less-valuable dollars (hence the disaster hitting many banks). Bonds, which are basically loans to businesses or governments that promise to make fixed monthly payments and then return the principal, will be terrible investments, since they’ll be repaid in always-depreciating dollars.

The only unambiguous winner is gold. For the first 3,000 or so years of human history, gold was, for a variety of still-valid reasons, humanity’s money of choice.

As recently as 1970, it was the anchor of the global financial system. And since the world’s economies severed their links to the metal in 1971, it has acted as a kind of shadow currency, rising when the dollar is weak and falling when the dollar is strong.

Not surprisingly, gold languished during the 1980s and ’90s, drifting lower as the dollar soared, and being supplanted by the greenback as the standard against which all things financial are measured. But now those roles are reversing. As the dollar suffers one of the great meltdowns in monetary history, gold will reclaim its place at the center of the global financial system, and its value, relative to most of today’s national currencies, will soar.

[Excerpt of book by James Turk and John Rubino]

Hard Times Coming

The Fed is in a trap.

To cut interest rates much more could collapse the dollar, which because of the huge US trade imbalance --and all the consumer goods and raw materials that are imported--would lead to serious inflation.

Plus with the current rate cut, the US now has the third lowest interest rates in the world. Any further cut makes the dollar a very undesirable currency for foreigner investors.

Yet if the Fed doesn't cut interest rates even further, the stock market will continue to plunge, which again discourages foreign investors from pouring their money into the U.S., which in turn puts downward pressure on the dollar.

So soaring inflation may be next, as strapped companies in China, India and elsewhere start raising their prices for goods shipped to the US and paid for in dollars. Then the Fed will have to respond by raising interest rates again, in an effort to shore up the currency. And with that will come deeper recession and an even lower stock market.

Oh, did I forget to mention the Trillion dollar military debacle that has no end in sight, that is sucking money out of the country like a giant industrial vacuum cleaner?

[Excerpt of an article by Dave Lindorff, Information Clearing House]

The Profile of a Third World Country

Seven years of the Bush Administration has seen the federal debt increase by two-thirds while US household debt doubled.

This massive Keynesian stimulus produced pitiful economic results. Median real income has declined. The labor force participation rate has declined. Job growth has been pathetic, with 28% of the new jobs being in the government sector. All the new private sector jobs are accounted for by private education and health care bureaucracies, bars and restaurants. Three and a quarter million manufacturing jobs and a half million supervisory jobs were lost. The number of manufacturing jobs has fallen to the level of 65 years ago.

This is the profile of a Third World economy.

The "new economy" has been running a trade deficit in advanced technology products since 2002. The The US does not earn enough to pay its import bill, and it doesn't save enough to finance the government's budget deficit. To finance its deficits, America looks to the kindness of foreigners to continue to accept the outpouring of dollars and dollar-denominated debt.

At the meeting of the World Economic Forum at Davos, Switzerland, this week, billionaire currency trader George Soros warned that the dollar's reserve currency role was drawing to an end. If the world is unwilling to continue to accumulate dollars, the US will not be able to finance its trade deficit or its budget deficit. As both are seriously out of balance, the implication is for yet more decline in the dollar's exchange value and a sharp rise in prices. As the dollar sheds value and loses its privileged position as reserve currency, US living standards will take a serious knock.

If the US government cannot balance its budget by cutting its spending or by raising taxes, the day when it can no longer borrow will see the government paying its bills by printing money like a Third World banana republic. Inflation and more exchange rate depreciation will be the order of the day.

[Excerpt of an article by Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review]

A Global Crash Coming

The credit storm that began in the United States with subprime mortgages has spread to markets across the globe.

CNN reports this morning that "Todays' [plunge of world markets] renews speculation that the crisis in the U.S. housing market may trigger a global recession."

According to the UN's World Economic Situation and Prospects 2008: "The major uncertainty for 2008 now emanates from the US economy. The domino effect of a US recession would be to knock down export growth from China, Europe and Japan, in turn reducing their demand for exports from developing countries," it said.

According to the Wall Street Journal: "Chinese authorities have slammed the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world's third-largest economy. In recent weeks, regulators have quietly ordered China's commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals."

China is awash in US Dollars and that surplus is causing a steady rise in food and energy costs. This could be mitigated by allowing their currency to "float" freely. But a sudden, steep increase in the Chinese yuan's value could also send the world headlong into a global recession. For now, the lending freeze and price fixing appear to be the way out.

The dollar continues to take a pasting. Gold and oil has shot up to record levels.

Jon Basile, economist at Credit Suisse, summed it up like this: "There's a heck of a lot of bad news out there." Indeed.

The recession message from Fed chairman Ben Bernanke

Fed chairman Ben Bernanke’s recent keynote on the state of the economy could have been accompanied by a funeral dirge. He made no effort to conceal the gloomy facts:

“Currently, about 21% of subprime ARMs are ninety days or more delinquent, and foreclosure rates are rising sharply ...The far-reaching financial impact of the subprime shock is that it has contributed to a considerable increase in investor uncertainty about the appropriate valuations of a broader range of financial assets …The market strains have been serious, and they continue to pose risks to the broader economy.”

Bernanke's grim (but realistic) forecast: “The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become more pronounced.”

When someone of Bernanke’s status makes statements to this effect, that says it all. We're entering a major recession.

U.S. Recession 'has arrived'

The feared recession in the US economy has already arrived, according to a report from Merrill Lynch.

An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years. The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months".

Merrill Lynch said that the current consensus view on Wall Street that ‘there is a good chance of avoiding a recession’ is "in denial". "To say that the backdrop is 'recession like' is akin to an obstetrician telling a woman that she is 'sort of pregnant'," the report said.

[BBC excerpt]

2008 a new superpower is born

China's currency, the yuan, has just hit a new high against the U.S. dollar.

Meanwhile, largely due to China’s increasing consumption, oil prices soared to $100 a barrel for the first time ever, reaching that milestone amid an unshakeable view that global demand for oil and petroleum products will continue to outstrip supplies.

While the rest of the world is gloomily contemplating economic slowdown and even recession, China is set to make 2008 the year it asserts its status as a global colossus by flexing frightening economic muscle on international markets, enjoying unprecedented levels of domestic consumption and showcasing itself to a watching world with a glittering Olympic Games.

The world's most populous nation will confirm its transformation in three decades from one of the poorest countries of the 20th century into the globe's third-largest economy. (It is widely predicted to overtake Germany as the world's third largest economy this year.)

Last year, China surpassed America as the greatest driver of global economic demand.

The U.S., despite its vast wealth and power, presently places only in 12th position among industrial countries, in the United Nations Human Development Index that ranks countries in terms of life expectancy, literacy, education and standard of living.

In the Realm of the Dying Dollar

Great powers die slowly. The world is losing confidence in the dollar, in no small part because it has lost confidence in America's strategic judgment and in its sustainability as a great power in the face of record budget and trade deficits, which are forcing the United States to borrow ever more money from future rivals like China and Russia.

Meanwhile, Osama bin Laden seems to be achieving his publicly avowed goal of provoking the United States into overextending itself and draining its economy.

Nobel laureate Joseph Stiglitz, a former World Bank economist, notes that President Bush took a nation with a budget surplus upon assuming office and turned it into a global debtor, and he has underinvested in education and alternative energy. "The United States had not experienced a turnaround of this magnitude since the global crisis of World War II," Stiglitz writes.

If the passing of American hegemony happens, it will occur very slowly--death by a thousand cuts of credit.

While China and other big dollar-holding countries such as Singapore, Russia and the Persian Gulf states are very worried about the erosion in value of their dollar-denominated holdings and inflationary pressure, they also know that an abrupt move to cut their pegs to the dollar or to sell off in large amounts would force a run on the currency. That would leave them even poorer. Instead these countries are pursuing careful reallocations of their investment holdings, shifting slowly to the euro or a "basket" of currencies that will allow them to hedge against the dollar's decline. The effect will be more like a slow-acting poison: drip, drip, drip.

[Newsweek]

Farewell to the US Dollar

At the beginning of 2003, one euro bought one US dollar. Eighteen months ago, it bought $1.20. Now it is pushing $1.50, and there is no reason to think that it will stop there.

Three of the world's biggest oil exporters, Iran, Venezuela and Russia, are demanding payment in euros rather than U.S. dollars. Only straws in the wind, but all in the past couple of weeks.

For the majority of Americans who do not travel abroad, the only visible effect so far of the dollar's steep fall has been higher fuel prices at the pump. The Chinese imports that fill the big-box stores still cost the same, only because the Chinese yuan is still pegged to the American dollar. But that may be about to change, along with many other things.

The main reason for the collapse of the U.S. dollar is President George W. Bush's attempt to fight expensive foreign wars while cutting taxes at home. "Ronald Reagan proved that deficits don't matter," as Vice President Dick Cheney told then-Treasury Secretary Paul O'Neill.

But they do matter to foreigners. As the U.S. dollar fell in value, the price of oil (which is usually calculated in dollars) rose to compensate for it, but there was no comparable adjustment for foreign central banks that had huge amounts of U.S. dollars in their reserves. China, which was sitting on about a trillion U.S. dollars, simply lost several hundred billion as the currency's value fell. So various central banks started wondering if they should diversify their reserves, and some acted on it.

Many countries are replacing part of their dollar reserves with a basket of other currencies, and those who have pegged their currency to the dollar are starting to cut loose from it: Kuwait has already done so, and the United Arab Emirates is actively considering it. If China unpegs, things will move a lot faster, but in any case the long farewell of the U.S. dollar has begun.

[Excerpt of article by Gwynne Dyer, Salt Lake Tribune]

Credit crisis worsens, Alan Greenspan says the Fed is powerless

Fallout from the sub-prime mortgage crisis wreaked further havoc as Bank of America, Wachovia and PNC all said that investment write-downs would be worse than forecast as the credit crunch worsened.

Kenneth Lewis, Bank of America’s chief executive, said the credit markets “have turned down again and will probably remain challenging into next year.”

Kennedy Thompson, Wachovia’s chief executive, described the credit markets as the toughest in his 32-year career and said that no one knew when the situation would improve.

Alan Greenspan, the former Federal Reserve chairman, described the sub-prime mortgage crisis as an “accident waiting to happen” as a period of unprecedented global growth lulled investors into a false sense of security.

Mr Greenspan noted: “After more than half a century observing price bubbles evolve and deflate, I have reluctantly concluded that bubbles cannot be safely defused by monetary policy or other policy initiatives.”

[Excerpt of an article by Tom Bawden, The Times]

The chairman of investment bank Morgan Stanley's Asian arm, Stephen Roach, says the United States economy is headed towards recession and the rest of the world should be concerned.

[The Sydney Morning Herald]

National Debt growing at 1 million dollars a minute

Like a ticking time bomb, the mind-numbing $9.13 trillion (that's over $9,000,000,000,000.00!) national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day -- or nearly $1 million a minute.

What's that mean to you? It means almost $30,000 in debt for each man, woman, child and infant in the United States.

So long as somebody is willing to keep loaning the U.S. government money, the debt is largely out of sight, out of mind. But the interest payments keep compounding, and could in time squeeze out most other government spending. A major economic slowdown, as some economists suggest may be looming, could hasten the day of reckoning.

The first day the Chinese or the Japanese or the Saudis say, `we've bought enough of your paper,' then the debt -- whatever level it is at that point -- becomes unmanageable.

Texas billionaire Ross Perot made paying down the national debt a central element of his quixotic third-party presidential bid in 1992. The national debt then stood at $4 trillion and Perot displayed charts showing it would soar to $8 trillion by 2007 if left unchecked. He was about a trillion low.

[The New York Times]

A Global Crash on the Horizon

International Business editor for the UK Telegraph, Ambrose Evans Pritchard, summed up yesterday's action in the Asian markets: "The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets. …

'This is a severe warning sign,' said Hans Redeker, currency chief at BNP Paribas. 'Asia ignored the credit crunch in August but now we're seeing the poison beginning to paralyze the whole global economy.'"

The credit storm that began in the United States with subprime mortgages has spread to markets across the globe. In fact, the train has already crashed. What we're seeing now is the boxcars piling up on top of each other.

According to the Wall Street Journal: "Chinese authorities are slamming the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world's third-largest economy. In recent weeks, regulators have quietly ordered China's commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals."

China is awash in US Dollars and that surplus is causing a steady rise in food and energy costs. This could be mitigated by allowing their currency to "float" freely. But a sudden, steep increase in the Chinese yuan's value could also send the world headlong into a global recession. For now, the lending freeze and price fixing appear to be the way out.

In California Governor Arnold Schwarzenegger has joined with four mortgage lenders to freeze adjustable interest rates (ARMs) for some of the state's highest-risk borrowers; another unprecedented move. The Governor hopes to avoid a collapse of the California real estate market which has gone into a tailspin.

Jon Basile, economist at Credit Suisse, summed it up like this: "There's a heck of a lot of bad news out there." Indeed.

The Sinking Currency

The euro, worth 83 cents in the early George W. Bush years, is at $1.47.

The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.

Oil is approaching $100 a barrel. Gold, down to $260 an ounce not so long ago, has surpassed $800.

Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?

Nope. The dollar has plummeted in value, more so in Bush's term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.

Nor is there any end in sight to the sinking of the dollar.

[Excerpt of an article by Patrick J. Buchanan]

Sinking Currency, Sinking Country

The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.

The prime suspect in the death of the dollar is the massive trade deficits America has run up, some $5 trillion in total since the passage of NAFTA and the creation of the World Trade Organization in 1994.

A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.

What does this mean for America and Americans? As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War.

Americans traveling to the countries whence their ancestors came will find that the money they saved up does not go as far as they thought. U.S. diplomats stationed overseas, students and businessmen are already facing tougher times.

[Excerpt of an article by Patrick J. Buchanan]

Dollar Devaluation

You want to know why so many Americans are struggling financially? Because the U.S. Dollar has been devalued by a third (1/3) over the past 5 years!

Today the FED cut interest rates by a quarter of a point in another effort to salvage the economy.

The Dollar has hit a new low, and devaluation means the cost of everything is going up.

The Middle Class is getting annihilated from this silent event. Incomes are not keeping up. This was done because this administration equates stock market success with economic success and has directed their efforts to drive up equities at literally any cost.

Meanwhile the Wall Street Banking Firms continue to make huge profits.

[Excerpt of an article by Robert McHugh, Ph.D.]

The ailing U.S. economy

With today being the 20th anniversary of “Black Monday,'' when the Dow fell 23 percent in one day, it seems a good time to post an overview on the latest on the economy.

- U.S. stocks tumbled the most in two months after earnings reports from banks, manufacturers and industrial companies heightened concern about the health of the financial markets and the economy.

- Oil prices have soared to another record high above $90 per barrel on Friday amid global supply jitters and tensions between Turkey and crude producer Iraq.

- It is on record that Japan and China led a record withdrawal of foreign funds from the United States in August, heightening fears of a fresh slide in the dollar and a spike in US bond yields.

- China now exerts enormous influence over the economies of virtually every country in the world, so that a slight change in its domestic economic policy has the potential to send shockwaves rippling throughout the world. Nowhere is this more apparent than with the United States, which is very much at the mercy of China when it comes to prices, wages, interest rates, most importantly, the value of the Dollar.

- Meanwhile, currency traders were given a green light to continue selling the US dollar, as the International Monetary Fund said the greenback "remains overvalued" and rejected claims the euro, which continues to increase in value, had risen too far.

The Crash that comes

America is frequently referred to as the “richest nation on earth”, but the reality is that most American people are just living on borrowed money, and for many the transformation from “seeming rich” to “poor” could happen overnight.

In fact, there is not one sector in the U.S. that has shown any measure of refrain. Government, corporate, and consumer debt are all at record levels.

Private debt is now much higher than during the Great Depression, and has been allowed to grow as if there were no consequences to borrowing, and no limit to what can be paid back in the future. The U.S. is more leveraged by private debt than ever before, and families have the lowest rate of saving since 1929, the beginning of the Great Depression.

The Federal Reserve has bailed out the U.S. economy a couple times in recent months, to the tune of billions of dollars. This has involved the Fed pumping liquidity into the system to thwart greater economic chaos, and also cutting the interest rate on the money it lends directly to banks.

What most American citizens don't realize is that the Federal Reserve, which controls the U.S. currency, inflation, and deflation at the cost of the American people, is a private corporation.

While the name “Federal Reserve” might suggest otherwise, it is simply a private company set up by big bankers in 1913, a company that makes decisions based on profits, as required by stockholders. The Federal Reserve System controls the U.S. currency, inflation, and deflation at the price of the American people.

The fact that Americans hold a great deal of private debt isn't troublesome to them, merely profitable.

Banks show shakey third quarter losses

Investment bank Merrill Lynch said credit and mortgage woes will lead to it post a third-quarter loss, as it takes almost $5 billion in writedowns in the wake of a credit crunch that paralyzed Wall Street this summer.

And Merrill Lynch was not by any means the only institution to announce its earnings would take a significant hit due to the declining mortgage market. Washington Mutual Inc. said its third-quarter earnings would tumble 75 percent on loan write downs and substantially higher provisions for loan losses.

Citigroup said its quarterly earnings would fall 60 percent, as it planned to write down more than $3 billion in securities backed by underperforming mortgages and loans tied to corporate bonds.

JPMorgan Chase and Bank of America are expected to disclose losses of about $3 billion in mortgage securities and leveraged loans when they report earnings this month, the Financial Times reported, citing an analyst.

Meanwhile, data from the U.S. Department of Housing and Urban Development suggests there about 750,000 homeless across the U.S. on any given night, with about 40 percent of those members of homeless families.

The cause: A convergence of low wages, high housing costs, an increase in housing foreclosures and cuts in federal and state housing assistance programs. One official explains: "I think what we are seeing here is a perfect storm.”

The Dollar's double Asian blow

Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears that other Asian central banks with control over two thirds of the world's foreign reserves may soon join the flight from US assets.

Vietnam is seen as weather vane for the bigger Asian powers. Asia together holds over 65 per cent of the world's total. The concern is that once one or two members of the region jump ship, it could set off a broader scramble.

Separately, the gas-rich Gulf state of Qatar announced that it had cut the dollar holdings from 99 per cent to 40 per cent, switching into investments in China, Japan, and emerging Asia. The move can easily be seen as a vote of no confidence in US economic management.

Last month, Saudi Arabia set off jitters in the currency markets when it decided not to cut interest rates in lockstep with the US Federal Reserve, raising doubts about its commitment to the Saudi dollar peg.

Kuwait has already abandoned its dollar peg, fearing that its economy would overheat if it continued to import America's loose monetary policies.

Separately, Iran said it would soon refuse to accept dollars for its oil exports, preferring to be paid in a "more credible currency".

If a number of OPEC suppliers began demand long-term futures contracts in euros instead of dollars, this would have an impact over time.

Hans Redeker, currency chief at BNP Paribas: “OPEC and Asia have been the two blocks funding the US current account deficit."

[The Telegraph]

U.S. nears $10 Trillion in the red

Congress just raised the limit once again, and the U.S. debt nears $10 trillion.

That's comes out to about $30,000 for every American.

For the fifth time since 2001, Congress is raising the debt limit, increasing it by $850 billion to $9.815 trillion. That's $9,815,000,000,000.00.

According to the folks who follow this stuff closely, the national debt has been rising by an average of $1.36 billion per day since September of last year.

Congress has an easy solution to deal with the rising tide of red ink. Instead of fretting over it, members simply allow the government to borrow more money, much to the consternation of some critics.

Sen. Kent Conrad, D-N.D., who heads the Senate Budget Committee, said the United States is ''in hock'' to Japan, owing more than $600 billion, and China, owing more than $400 billion.

He said the rising debt comes at the worst possible time, right before a flood of baby boomers retires, but that Congress has no choice but to raise the debt ceiling.

''If we fail to act in a timely way on raising the debt limit, the creditworthiness of all United States instruments would be called into question,'' Conrad said. "That could have a very severe effect on already shaky financial markets.''

[Excerpt of an article by Rob Hotakainen, McClatchy News Service]

The Crash has begun

The saga of the sagging American dollar continues. For the first time in 31 years, the Canadian loonie is stronger than the U.S. dollar.

In recent days, the dollar has also fallen to a record low against the euro for the seventh consecutive session.

Former U.S. Federal Reserve chairman Alan Greenspan said it is possible that the euro could replace the U.S. dollar as the reserve currency of choice.

Until the dollar might REALLY tanks, how dies the weakening dollar affect Americans? US consumers' standard of living may drop as they pay more for foreign goods, but demand for American labor will rise, say economists.

The last time that the buying power of the US dollar was this low was about a decade ago, and the major difference was that the price of oil ranged from $22 - 26 a barrel (in 2006 dollars). However, today the price of oil is about $80 a barrel.

Like when the buying power of the dollar was low, China's exports were tiny. The Census bureau reports the trade imbalance with China alone is $141 billion through July.

Globally, that skepticism has seeped over into the gold market and is one reason the price of gold is now above $732 a troy ounce, a 27-year high. So far this year, gold is up about 15 percent.

How the U.S. economy remains afloat

What does it mean that the US has a $800 billion trade deficit? It means that Americans are consuming $800 billion more than they are producing.

How do Americans pay for it? They pay for it by giving up ownership of existing assets--stocks, bonds, companies, real estate, commodities. America used to be a creditor nation. Now America is a debtor nation.

Foreigners own $2.5 Trillion more of American assets than Americans own of foreign assets. When foreigners acquire ownership of US assets, they also acquire ownership of the future income streams that the assets produce. More income shifts away from Americans.

How long can Americans consume more than they can produce? American over-consumption can continue for as long as Americans can find ways to go deeper in personal debt in order to finance their consumption and for as long as the US dollar can remain the world reserve currency.

Americans have increased their consumption by dropping their saving rate to the depression level of 1933 when there was massive unemployment and by spending their home equity and running up credit card bills.

Foreign governments and investors are diversifying into other traded currencies. As a result, the dollar prices of the Euro, UK pound, Canadian dollar, Thai baht, and other currencies have been bid up. In the 21st century, the US dollar has declined about 33 percent against other currencies. The US dollar remains the reserve currency primarily due to habit and the lack of a clear alternative.

[Excerpt of an article by Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, and Associate Editor of the Wall Street Journal editorial page.]

Is China quietly dumping US Treasuries and buying Gold?

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies," Hans Redeker, currency chief at BNP Paribas said.

Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world's biggest pool of resrves, followed by Japan.

While the greenback has been resilient over recent weeks, most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.

[Excerpt of an article by Ambrose Evans-Pritchard, The Telegraph]

The Market Chaos

How could something so small — delinquent subprime mortgages, which account for less than 2% of U.S. mortgage lending — trigger a financial meltdown so severe that it drove the formerly thriving stock market down 10%, sharply tightened credit for both homeowners and businesses, and even scared the Federal Reserve?

Little by little, the factors that contributed to the fall are becoming clearer, even if the relationship among them is not fully understood.

Much of the disaster has to do with the way those shaky mortgages were turned into complex investments and sold to banks, hedge funds and other institutions, here and abroad. As the risks of those securities became clear and their value fell, their owners were squeezed, particularly if they'd bought the securities with borrowed money to amplify their potential profits. To raise cash to cover their losses, they sold off unrelated investments, notably stocks. Markets tumbled.

The Fed — which had minimized the threat until the crisis began to unfold — began pumping liquidity into the system and on Friday cut the interest rate on the money it lends directly to banks. Whether the threat is now contained or will spread deeper into the economy is, for now, guesswork. What seems clearer is that these complex investment strategies are creating greater risks than was generally recognized.

[Excerpt of USAToday Opinion]

Just how vulnerable is the U.S. economy?

The last time the Federal Reserve stepped in to rescue the U.S. economy, to the extent it did yesterday, was just after that infamous September 11th when investment confidence had been shattered.

A couple days ago, China let Washington and Wall Street know that China’s considerable holdings of US dollars and Treasury bonds “contributes a great deal to maintaining the position of the dollar as a reserve currency.”

In other words, "We got you by the short hairs!"

Adding that “the Chinese central bank [may] be forced to sell dollars, which might lead to a mass depreciation of the dollar.”

The delusion that the US is “the world’s sole superpower” is no longer a reality.

Read more