Over the past two months a strange and disturbing thing
happened to the dollar: China and Japan began to shift away
from buying US Treasury debt (dollars) and into the Euro
market and other curriencies. Across April and May, the Euro
began to rise, moving from about $1.20 to the area of $1.30.
This has happened despite the fact that the US Treasury has
been signaling more and more aggressively that US interest
rates will continue to rise, making the dollar theoretically
more appealing to foreign purchasers. There is an
extraordinary economic danger associated with this: if the
dollar collapses, the US economy is going to suffer a
catastrophic blow that could double gas prices and send
inflation soaring beyond anything Americans have ever
known.
The weaker the dollar becomes, the higher US interest rates
must go, and the more pressure Americans will be under, at
every level. The Organization for Economic Cooperation and
some elements of the International Monetary Fund are
predicting that the dollar will fall from 35% to 50% to
account for the gigantic debt that the Bush Administration
has created by the combination of tax cuts and spending on
the war in Iraq.
This will result in an increase in gasoline prices from the
region of $3.00 to the region of $6.00, and will cause all
imports to roughly double in price. This will mean that
everything from clothing to cars to many grocery items will
shoot up in price. At this point, the housing market will
collapse, and there will be a wave of bankruptcies. But the
new bankruptcy act, forced through congress by Tom DeLay
last year after he received a half million dollar
contribution from the credit card industry, will insure that
debtors can never liquidate their indebtedness, meaning that
they can never re-enter the economy, and therefore that
recovery, if it occurs, will take at least a generation.
This legislation had languished for years, because it is so
economically dangerous.
A 'run' on the dollar, caused by panicking foreign holders
attempting to sell into non-existent buying, could cause
the dollar to collapse very suddenly, even over a matter of
days.
There is evidence that the US is attempting to manage the
decline
by purchasing its own debt. As Asian purchasing of US
paper declined last month, the slack was taken up by
Caribbean and UK banks that would not normally have the
liquidity to make such purchases. Therefore, they are acting
for a third party, and the only party that would buy dollars
when a loss in value is inevitable is the US Treasury.
By doing this, the US is hoping to prevent a sudden collapse
of the dollar and the subsequent unwinding of the US and
world economies in a fiscal disaster so profound that it
will eclipse the Great Depression. It can work for a while,
but inevitably if the US becomes the only major customer for
its own currency, the dollar will go into freefall. Where it
will stop, and what will happen to the world economy then,
are the looming unknowns that have made world equity
markets so uneasy over the past thirty days, and promise to
bring more trouble in the future.
Art credit: freeimages.co.uk
It takes courage to face a situation like this without flinching.
For us, the really courageous people are the
people
like YOU who have come forward about their visitor
experiences. At unknowncountry.com, we look at all the
information that?s available to us every day and sift out the
TRUTH. Where else will you find insight like this? Not on Fox
News or CNN. Why can we do it? We're not part of the
mainstream, because the only boss we have is
you.
KEEP us
independent:
subscribe
today.
