Doom For The Dollar--And Everything Else

[clem_c_rock]

How bad can this all get? With all this doom and gloom and this never ending war borrowing, could a fallout make the Great Depression look like a cake walk?

Signed,
Distressed

http://www.forbes.com/economy/2005/01/10/cx_da_0110doomdollar.html

<snippit>
Americans will have to restrict future consumption or default on debt, whether directly or indirectly.

"I think something in the near future--maybe early this year--will make us realize the error of our ways," Schiff says. "Our creditors are going to stop. They are going to bite the bullet," which means realizing we can't repay them in the way they want and expect.

They will take a huge loss, but it will be necessary to check an unsustainable process. At that point, the people of Japan and other Asian nations will be able to consume a lot more, because they will send less of what they produce to the U.S.

"They will not be producing for us; they will be producing for themselves."

</snippit>

[MADem]

1. Time to start currency speculating? n/t

[Warpy]

2. This counry was in much better financial shape during the

Great Depression. Worldwide credit was good, and people were willing to buy US debt as FDR spent the country out of disaster by circulating money from the bottom up.

The only way we're going to get out of this one is to go after the sainted rich, something that neither party is willing to do since it means going after themselves, in many cases. We are also going to have to start making some very difficult decisions about the role of the military, and just how much we should be lavishing on it while people go hungry and die from treatable illnesses. We're also going to have to make some very tough decisions about how much inflation we're willing to tolerate to rebuild US industry through protectionist policies.

This country is a hollow shell right now. We don't have enough strategic industry remaining to survive the next big war. People are getting tired of increasing their productivity every year though longer hours and shorter vacations and working while sick, only to be kept in artificial poverty as their increased productivity only fattens the few at the top.

The system as it is cannot be sustained. Whether the debt, both national and private, causes a tipping point and it crashes suddenly, or whether double digit inflation, double digit interest rates, and double digit unemployment are going to all come back and stay, is anyone's guess.

[jswordy]

9. Yer post is excellent!

I particularly like this:

This country is a hollow shell right now. We don't have enough strategic industry remaining to survive the next big war.

What we don't realize is, when we ship the widget plant offshore, we lose all the widget-making machinery, the physical location of the plant, and all the expertise on how to efficiently produce widgets. ALL THAT must then be restored before we can effectively make widgets again here.

We lose much more than just the assembly-line jobs. And that is why you are so right. We are being sold a bill of goods that our military adventures are making us a stronger country. But in actuality, we are growing weaker and weaker each day, as we continue to lose the REAL global war -- the economic one.

[callous taoboy]

12. exactly right:

"People are getting tired of increasing their productivity every year though longer hours and shorter vacations and working while sick, only to be kept in artificial poverty as their increased productivity only fattens the few at the top."

I've been teaching for 11 years and I have never heard such griping amongst teachers re: working longer hours for the same or less pay. Traditionally, teachers have assumed that they have to work off the clock to get the job done. But they have heaped too much on us now, mainly thanks to NCLB. I know that, for me, I am finding ways to cut corners so that I don't have to come up here on Sunday for the afternoon. We've had enough.

[justinsb]

3. I don't think it will be like the great depression

I think it will be a depression, but there won't be a full recovery and better times ahead. I think within 10 years the US will cease to be an economic superpower and will be more like the rest of the 'former superpowers club' France, Germany, etc. An economic middle power - with a lower per capita income than what the US currently has.

[satya]

4. I agree.

And I think it would be good for us. Maybe this would be a more livable country. The gap between economic classes has grown far too wide to sustain democracy.

I've been ashamed to be a U.S. citizen for quite some time now; unfortuntely it may take an economic realignment to put us in our place.

[idlisambar]

14. Optimistic thinking

It would be nice if you were right and an economic crisis had a purging effect like the last depression. I hope this is the case, but other scenarios exist that worry me. It depends on whether an effective alternative can be put forth to the current laissez-faire framework, otherwise we will go down even further before we ever come up.

[satya]

15. Good point--and thinks for the links in #13. n/t

[rkc3]

7. I said this yesterday - it's easier to lower the standard of living in

one country (the US) than it is to raise the standard in dozens of others.

We are a consumption-based economy and at some point the bill will come due for our excesses and the ones who will pay are the 80% of us with 60 hour work weeks and mortgages and kids and bills to pay.

It might be time to look at your 401k (if you're lucky enough to have them) and think about putting that money in foreign innvestments. Warren Buffet has increased his hioldings in foreign currencies - if he's doing this it you've got to wonder what he knows that we don't.

[HamdenRice]

16. I wish!

we could even be like France, Germany etc today -- you know health care, good vactions, work to live rather than live to work ethos, first class education, subsidized higher education, low infant mortality, almost no poverty, low military spending and peace!

We are already a banana republic with debased currency and a crazed jefe of a junta running the show.

[Romulus]

23. my thoughts exactly! (n/t)

[McKenzie]

5. I posted this a while ago.

The guy who wrote this predicted the demise of the Soviet Union as far back as the 1970's, using various indicators. In a book he published in 2003 (I think) he applied the same methodology to predict that the US is going down the tubes economically. I'm not qualified to say if he is correct. I just post this for your information and consideration.

<snip>

As a historian, the dollar represents a "mentality indicator" to me. It reflects the awareness of international trade and business leaders of the realities of the American economy. The weakness of the dollar is indicative of their assessment that the situation is much worse than is openly acknowledged. The fact is that troops destined for the war in Iraq, which has been represented as a simple mission, are still not totally prepared. After a year of back and forth, the diplomatic heavyweights of France and Germany are trying to prevent this war, and the balance of the allies are participating mostly verbally, not financially. There is an immense risk in engaging in a war on the opposite side of the globe while fettered by a $500 billion trade deficit, a weak dollar and supported only by friends who are unwilling to share the costs.

<snip>

http://www.countercurrents.org/us-senn080803.htm

[jswordy]

6. Thanks for post, but old news for watchers of financial markets, and...

...yes, it will be like the Great Depression in some ways. But the historical model that better fits what is about to happen, starting around the third quarter of this year, is the stag-flation of the Carter years. Prices and interest rates will spiral while the economy simultaneously softens. Prices have already begun to spiral, the government "core inflation" rate does not report them.

Bush is laying the groundwork to slash spending, as he must, by ripping away at the Democratically conceived and instituted social safety net, thus paring us down ever closer to the day when, like in Hoover's days, the common citizenry will be fully subject to the vagaries of capitalism. I rue that time, should it arrive!

I have already planned and tilled last year a garden twice the size of the one before it. I am preparing, and reducing my outstanding debt as rapidly as possible.

Japan ($700 billion) and China ($325 billion) are the two largest foreign holders of our debt. I think Saudi Arabia is third on the foreign list.

In the week after the tsunami, Indonesia asked Japan (a large holder of its debt, as well) for debt relief because of the devestating effect the tsunami will have on the Indonesian economy. Japan's answr? A flat NO.

The shit is gonna hit the fan.

[Art_from_Ark]

20. Not a flat NO for debt relief

While Japan balked at calls for debt forgiveness, it has proposed a debt repayment moratorium for the catastrophe-hit countries.

http://www.channelnewsasia.com/stories/afp_asiapacific/view/126164/1/.html

In addition, Japan has been the largest single donor of aid to stricken nations.

[izzie]

8. It is proof to me that the GOP can not run anything from the ---

ground up. They are people who only give orders from the top. They can run Corp because they do not have to care what they do to people, Bush has wanted to set this country up like that since he got in. He has said it over and over and so have all the Republican. Run the country like big business. It was not set up to make a profit but to service people. It is something the GOP have never learned.

[jswordy]

10. izzie, the fix we are in...

...transcends party. It is a phenomenon created over the last two decades by the elected elite of both parties.

[justinsb]

11. And by the voters

There has been this odd mentality in the states, at least in the parts I lived in, where the voters want 3 things

1) Increased spending on various programs (which programs depends on the voter)
2) Tax cuts (the bigger the better)
3) A balanced budget and debt reduction

Now, it doesn't take a genius to figure out that you can't simultaneously increase your spending, reduce your income and pay down debt but for whatever reason the leadership of the parties did not feel comfortable explaining this to voters.

[HamdenRice]

17. I does not transcend parties ...

Remember the big financial debate of the late Clinton years? How would the financial markets function if the US paid off its federal debt? What kinds of new programs (universal health care, improved access to higher education, attacking poverty, massive retraining for globalization) would the federal government be able to undertake if it did not have the recurrent expenditure of interest on the debt.

I wholly disagree with your premise. The fix we are in now is because the republicans want to bankrupt the federal government as a backdoor means of destroying federal governmental capacity.

[idlisambar]

18. unfortunately it does...

Here are some specific measures that many Democrats have pushed over the last ~30 years....

1. Our own membership in the GATT/WTO and support for China's entry.
2. Support for NAFTA
3. Support for deregulation of banking/broader finance from early 70's on.
4. Clinton administration's "Strong dollar" policies

The overall effect was to weaken our manufacturing base which has led to large trade deficits, and now these deficits are putting downward pressure on the dollar.

The state of the federal budget is a important in its own right, but a secondary concern in comparison.

[HamdenRice]

19. Your answer contradicts your premise!

I can certainly understand that you may disagree with policies of the Clinton administration and the Democrats in general, but this is not the point we were discussing. The beginning of the thread is about what deep trouble we are in because of excessive federal debt, a trade inbalance and hence a weak, indeed collapsing dollar.

If the problem we are discussing is the weak dollar and whose fault it is, how can you blame the Clinton administration for its strong dollar? Here are your exact words: 4. Clinton administration's "Strong dollar" policies.

You cannot really seriously be arguing that the Clinton administration's strong dollar policy helped create the weak dollar of the Bush administration, can you?

How did Clinton's massive surpluses lead to shrub's deficits?

I understand you may disagree with some of Clinton's policies, as do I; but you can't really blame him for opposite policies pursued by shrub.

[idlisambar]

25. let me clarify

You cannot really seriously be arguing that the Clinton administration's strong dollar policy helped create the weak dollar of the Bush administration, can you?

That is exactly what I am suggesting. An artificially strong dollar had the effect of pricing American manufactured goods out of the market, thus reducing export prospects and increasing import penetration. These competitive pressures weakened our manufacturers by either helping usher them out of business, or less dramatically reducing their profitability so that they could not make technology or infrastructure investments to keep up. Thus the too high dollar has reduced our overall industrial capacity.

Now with a weaker dollar, American manufacturing should be competing more effectively but because of the reduction in industrial capacity they are not able to respond and so the trade deficit gets still larger, setting the stage for further weakening.

In this way a strong dollar today makes for a weak dollar tomorrow. Clinton's "strong dollar" policies were only one of many that contributed to the current problem, the others I listed played a big part as well. By the way, the dollar has only just begun to drop, it has barely budged against the major East Asian currencies, and is likely in the medium/long-term to fall even further against the Euro.


How did Clinton's massive surpluses lead to shrub's deficits?

Also, as a point of history and in support of the argument, the trade deficits were already huge and growing before Bush ever took office.

[sweetheart]

21. It does, but not for those reasons

Both parties have been hegemonic and imperialist by approach, the
republicans militarily and the democrats economically. The imbalance
is based on the mistaken hubris of both parties in overestimating their
global competetiveness, what "superpower" status means, and how
fast in can erode.

Had america been open to the world becoming truly mutipolar without
belligerance, the stresses that are coming to bear would have been
diffused. But rather a generation steeped in hubris is at the wheel
of both parties trying to drive the planet from the back seat... and
it cannot work.

Without all this war nonsense, none of this would be a problem. The
republican attachment to war crimes has us in this position.

[idlisambar]

26. I don't disagree with much of this

I would suggest that the measures I listed are some of the concrete manifestations of America's imperial hubris and its overestimation of global competitiveness.

[idlisambar]

13. For more on this topic -- sites of interest

These should be on your short list

Eamonn Fingleton's site -- a lot of material concerning America's economic situation... http://www.unsustainable.org

This site is a hub for discussion of the topic. A lot of good commentary, suggestions, and thoughtful comments.....
http://www.economyincrisis.com

[Art_from_Ark]

22. Japan would be able to consume a lot more if the US economy tanks????

I don't think so. There is no shortage of consumer goods here in Japan (except maybe Prius automobiles). If anything, an economic crisis in the US would REDUCE consumption in Japan, because that would reduce US demand for Japanese products and cause a lot of consumers over here to tie the purse strings tighter.

[oc2002]

24. The administration will spin this like they did 9-11...'Its not our fault!

And the media will suck it up, because, well they are corrupt and bought.