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Strelnikov_ Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-30-06 09:47 PM
Original message
America And The Dollar Illusion
Article Hartmann read portions of the other day. Consistent with what I remember Paul Krugman speaking about three years ago. He noted that the economic imbalances will be sustained far longer than most think possible. But once the system begins to unravel, it will fall apart rapidly.

America and the Dollar Illusion
http://www.spiegel.de/international/0,1518,440054,00.ht...

War For Wealth Series
http://www.spiegel.de/international/0,1518,k-6997,00.ht...


The only way to fight a weak dollar is to strengthen it. Many people no longer care whether the US currency still justifies the faith people seem to have in it. The new game, which amounts to playing with fire, works exactly the other way around: The dollar deserves the faith it gets because otherwise it loses that faith. Dollars are bought so they don't have to be sold. The dollar is strong because that's the only thing that can prevent it from growing weak. Reality is ignored because only by ignoring it can the dream come true. Or, to put it still more clearly: Behaving irrationally has become rational behavior.

. . .

Of course, those playing this game know that, in the long term, currencies can't be stronger than the national economies from which they derive. Consumption without production, imports without exports, growth on credit -- these are all things that can't last in this world. Ken Rogoff, the former chief economist of the International Monetary Fund (IMF) and a man who thinks as clearly as he speaks brashly, recently criticized US economic policy even as he seemed to be praising it: Rogoff said the current boom in the United States is "the best economic recovery money can buy."

. . .

Experts have often forecast the effects of a dollar meltdown. If the downward trend were to begin, interest on credit would rise step by step in an attempt to curb devaluation. That way, the dollar crisis would spread from the world of currencies to the real world of factories, businesses and household accounts within days. Major and minor private investments yield lower returns when interest rates climb. People would start to save, the economy would falter and eventually shrink. The first mass layoffs would arrive soon afterwards. US citizens would have to once more drastically reduce their level of consumption, as unemployment and waves of bankruptcy would shake up the country. Millions of households would become unable to pay back their bank loans. Then real estate prices and share values would begin to drop, having been overpriced for years and used as mortgages for consumer credit. When the real estate bubble bursts, consumption inevitably dwindles even further. The hunger for imports would fade, causing problems for exporting countries as well. It would only be a matter of days before newspapers would once more feature a term that seemed to have disappeared decades ago: world economic crisis.

. . .

Today's investors face a difficult choice, one they're not to be envied for. They can see the relative weakness of the US economy and they're registering the tectonic shifts in the world economy. They know that a great statistical effort is being made to prolong the American dream. For some time now, government statistics have announced sensational productivity leaps for the US economy -- productivity leaps that, strange as it may seem, haven't led to any rise in wages for years. This is in fact genuinely bizarre: Either capitalists are reaping the fruits of increased productivity all by themselves -- which would be a political scandal even in capitalism's heartland -- or the productivity leaps exist only on paper. There is much to suggest that the second hypothesis is correct.


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omega minimo Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-30-06 09:56 PM
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1. Ahhhh Trickle Down Economics!
Ain't it great!! :banghead:
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OwnedByFerrets Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-30-06 09:59 PM
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2. When, not if, when the dollar crashes,
its gonna be much worse than the last crash we experienced.
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omega minimo Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Oct-30-06 10:07 PM
Response to Reply #2
3. Whatif it's propped up indefinitely?
Now there's a scary thought :scared:
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