Asia Times: Dollar's fate written in history

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Dollar's fate written in history
By John Lee


Debt-based monetary systems are inherently unstable. Money is created out of thin air by the banks and lent to government, consumers and businesses. In order to service and repay those debts, the borrowers take on more debts. Asset prices are inflated, and the vicious cycle continues until the debtors are unable to borrow or the banks are unwilling to lend.

At that point the system snaps, everything is sold off, and we have a financial crisis at hand. Here, we examine what happens to equity and currency markets in the aftermath of financial crisis and deduce what will be the likely outcome for the United States as it emerges from the present crisis.

1998: Russia

Declining productivity, an artificially high fixed exchange rate between the rouble and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the background to Russia's financial meltdown in 1998. The estimated US$5.5 billion economic cost of the first war in Chechnya was also a cause.

Prior to the culmination of the economic crisis, the government-issued GKO bonds in a policy that has been described as similar to a Ponzi scheme, with the interest on matured obligations being paid off using the proceeds of newly issued obligations. ...........(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/KF04Dj03.html