I watched MSNBC yesterday. The news and business types were discussing the economy and housing bubble burst vs the jobs outlook. We continue with one of the lowest unemployment rates in recent history. The newsperson asked why our economy and jobs were not being affected. The business person sat back contentedly and said, “Because we are largely invested in the Global Economy.”This brought me right back to our Global Economy discussions here. We discussed this on a recent blog per our friend Lupita´s recommendation:
"Our economy is just an illusion of economic growth. Big business has partnered with the Administrations from Reagan forward to develop a method to expand our labor force, push wages down and increase corporate profits. The method, via NAFTA and other agreements is to bring in non-English-speaking, easily exploitable, foreign, preferably semi-literate, deportable workers. As Bernanke has stated , “Higher incomes also tend to increase the demand for medical services so that, indirectly, higher incomes may also increase federal health expenditures.” That is why the immigration laws have gone unenforced and why they are in no hurry to pass any type of Immigration Reform. As long as they remain status quo, they will continue to reel in the profits."
Ultima provided us a very good link about the Dollar Nosedive (see summary below).
Given all we know about the Global Economy and the Dollar Nosedive, is the media just playing dumb? Or, is it part of the overall strategy to mislead and distract the public?
The Dollar Nosedive: (summary) The dollar era began on July 22, 1944. Delegates from 44 countries met in a conference in Bretton Woods, NH. The group, led by British Economist Maynard Keyes supported strongly by President Roosevelt, decided the U.S. Dollar, tied to gold, would be Global Economic Standard. Other countries´currency would derive their value from this standard. If an individual country's currency became too strong or too weak in relation to the US currency, its central bank would intervene by buying or selling US dollars. This was the start of the “Global Economy.” In 1973, the Bretton Woods system ended and per President Nixon´s recommendation, the dollar stood as the World standard with no Gold guarantee.
This worked well for the US. Americans could print green bills and sell them abroad without driving up inflation in their own country. They can go into debt to pay for war or enjoy the benefits of tax cuts. This attitude has led to a record US national debt of $5 trillion. Americans also enjoyed the luxury of consuming more than they produced. The balance of trade deficit grew from $80 billion in 1990 to a projected level of more than $700 billion in 2007. This is more than 5 percent of the country's GDP.
China holds the astonishing sum of more than $1.4 trillion in its reserves. The Chinese have invested most of their money in US Treasury Bills, a low-risk but also relatively low-return investment. In doing so, they have kept the dollar high and their own currency low, ensuring that their exports remain competitive.
While Asia finances America's excessive consumer spending, the Americans buy Asia's cheap T-shirts, cars and flat-screen TVs. "Getting this much into debt while at the same time enjoying returns on long-term government bonds of less than 5 percent -- I'd call it the biggest free lunch in modern economic history," says Harvard historian Niall Ferguson, referring to the audacity with which the Americans take advantage of their privileges as holders of the world's reserve currency.
The dollar's plunge in the last 10 weeks is a sign that America's pact with East Asia has become fragile. The Asians have become far less willing to buy dollars and Treasury bills. As the countries of the Far East become increasingly impatient with the United States, they have begun shifting their reserves to euros.
Lenders are unwilling to simply look on as the value of their US Treasury bills drops; they have already lost billions upon billions in recent weeks. The dollar's share of worldwide currency reserves has shrunk from 80 percent in the 1970s to about 65 percent today. China, Russia and Malaysia have already partially uncoupled their currencies from the dollar, and Kuwait plans to follow suit in May 2008. Many oil producers are now distancing themselves from the US currency, both for economic and ideological reasons.
Investment bank Morgan Stanley considers it unlikely that Saudi Arabia would abandon its peg to the dollar. But according to a recent study, smaller Gulf states could follow Kuwait's lead: "This could deal yet another psychological blow to the dollar" -- and to America, that once-proud economic power.
The nation is deeply uneasy, as the collective head scratching begins over the causes of the crisis. Many Americans feel by now -- and justifiably so -- that their future could be far gloomier than the present.
Note: All of this does tend to make the Pyramid of Capitalism all the more relevant today.
Posts
