These Are Perilous Days for the US
I don’t think Americans get it. I don’t think they realise quite how serious the collapse of the dollar is for the global economy, nor the long-term consequences of this decline for the position of the US in the world. Sure, they grumble about prices in London and find it odd that US lawyers want to be transferred to the UK because they can earn more money here. But at a fundamental level, to judge by the conversations I have had in recent weeks, I don’t think the US financial community appreciates quite what peril it is in.
There have been periods of dollar weakness before. The most notable marked the end of the fixed exchange rate system in the early 1970s. There have been periods of excessive dollar strength too, one of which led to the Plaza Accord in 1985 - so called because the agreement by the US and other major economies that the dollar needed to be capped was reached in the Plaza Hotel in New York.
Now it may be that in another five years the dollar will be strong again and Britons who used this age of the pound above $2 to buy property in the US will feel rather smug. Maybe. At some level, the dollar will become good value again and while currencies do overshoot their true long-term values, they do bounce back.
But there seems to be at least half a dozen reasons why what is happening now to the dollar is very serious indeed. Most obviously, the present fall is going further than previous declines. The most marked collapse is against the euro but if you measure even against sterling, a rate of $2.10 cannot be justified by the relative purchasing power of the two currencies. It may not happen, but you hear talk in the City that the rate may go to $2.40, which would be back to the old dollar/sterling rate under the fixed exchange rate system. The greater the decline, the greater the disruption to the world economy.
Why such a large fall? That leads to the second feature that distinguishes this bout of weakness: the US current account deficit is much larger both in absolute terms and as a percentage of GDP than in previous dollar cycles. Every year, the US has to borrow around 6 per cent of its GDP just to pay for its imports. Until a few months ago it was able to do so. Foreign investors were impressed by the sales pitch they got from the US banking community: buy these sophisticated financial instruments our brilliant maths experts have created and you will get a higher return than you can get from anywhere else. Now those US bankers don’t look so smart and more than one non-US investor has indicated to me they felt they have been stuffed with rubbish. They won’t trust those bankers again.
So, the third new element: trust in US financial sophistication has been shattered. The problem is not just the dollar; it is the integrity of US financial institutions. The pitch that the US has more transparent and more resilient markets than other countries is no longer credible.
The fourth element is that there are other places to invest. I was at a Middle East fund management conference last month and everyone wanted to talk about opportunities in Asia. This year, for the first time ever, China is adding more demand to the world economy than the US. It is still a smaller economy and will be for another 20 years at least. But the direction is clear, with China set to pass Germany to become the world’s third largest economy some time next year. India is also extremely attractive to Middle Eastern investors, thanks in part to the physical proximity of the sub-continent and the cultural links between the two regions. Anyone who invested in India five years ago will have done wonderfully well, far better than they would have done had they invested in the US.
Connected with this, point five, is the deterioration in the cultural relationship between the US and the rest of the world in the past few years. The US no longer appears quite the safe haven for investments that it used to, for a variety of reasons. One has been resistance in Congress to foreign takeovers. Another has been the change in visa requirements - why invest in the US if it is awkward to visit your investment? Can you really trust the US legal system to be dispassionate in a dispute between a foreigner and a national? At a low enough price, US assets will still be attractive, but they do carry a handicap and will continue to do so.
Finally, and this is perhaps the most important thing, there are now alternatives to the dollar. There is the euro, of course, and foreign central banks are building up their reserves in euros. The pound is now being held much more widely in central banks too. Most important, there are a basket of other currencies, including the Chinese yuan, which international investors feel they should hold. A decade or more ago, the options were much narrower.
So what is going to happen? Well, it is true that a very weak dollar creates problems for other countries as well as the US. It is not just that any non-American investor will have seen a large fall in the value of their investment; any foreign company trying to sell into the US or compete against US exporters will find it harder to do so.
That does not mean that US companies will always win. It was interesting that Airbus managed to secure a huge order this week from Emirates, against Boeing’s more established competitor. But a weaker dollar does create problems for the rest of us.
The problems for the US, though, will be more serious, for it needs to import, amongst other commodities, half its oil. The high dollar oil price is already increasing inflation elsewhere - here in the UK for example - but the burden on the US is relatively worse. The more the dollar weakens, the greater the difficulty the US Federal Reserve will have cutting interest rates, for to do so would make the dollar weaker still.
We may just muddle through with the dollar falling for some months more, the US going into recession, the rest of the world pulled along mainly by demand from China and from the rest of Asia, and then eventually the dollar and the US recovering.
I am not too worried about the UK economy, though things are clearly slowing here. What we have to recognise is that there is such a thing as a global economic cycle. Some sort of downturn, maybe not too serious a one, in the next couple of years does seem inevitable.
There may need to be, however, an international rescue of the dollar. The world’s central banks, including, crucially, the Bank of China, would come together and agree a package of measures to support it.
Were that to happen, it would be a mark of the way economic power is shifting in the world. It is slowly and inexorably shifting away from the US and that will, to many Americans, come as a shock.
© 2007 The Independent
Please humor me and read this post. I placed it in two threads in hope of some visibility.
Let’s talk about solutions. Let’s illumine this thread. I’d like to challenge anyone willing to share with us some of their most inspiring actions taken to change our current situation for the better.
I’m not being cynical but serious, inspire us to action either by example or out of dismayal at the luke warm response to this post.
Please don’t include the attendance of recent or future protests, but the difficult, principled stands that you are taking in your own lives that effectively and undeniable loosen the hold that corporate America has on this culture.
Who is willing to share from that Sacred space where the rubber hits the road. I’ve seen wit in abundance, insight a plenty, I’m just curious if people here are also doing the crucial work of ironing out the wrinkles of excess and unecessary consumption in their own lives, the very fodder for the Corporatocracy.
My husband and I are part of a group in our city, trying to start up a grocery co-op that would sell locally grown food from local farmers, not corps.
We have made a conscious effort to shop locally whenever possible, and evaluate whether nonlocal goods are necessary (in my life, coffee and chocolate do equal a necessity, so I purchase fair trade).
We gave family members Bill McKibben’s book “Hundred Dollar Holiday” several years ago in hopes of initiating conversation about spending habits.
We bought a home for our family of five that is under 1000 sq feet because we did not want to use more than we need.
We garden. We bike. We walk.
We aren’t off-grid or “hippies”. I’m just as vain as the next woman (or more!) and my daughters all want the latest toys. We simply have, over the past few years, become very conscious of our purchasing choices. I recommend the book “My Year without Made in China” to anyone who wants to be more aware of where their stuff comes from.
Is that an opium monologue from deep within a burgundy leather armchair, with a snifter of brandy in hand effusively enunciating each articulate point? Why, crucially, would the Bank of China ever want to save the U.S. from their certain destruction? Don’t you think that China can see as well as anyone else that the U.S. has drastically over-extended itself and is going to collapse far faster that the Romans did?
Trying to seed some wordy hope for the future of the U.S., no doubt out of some old and misguided loyalty to past friends, is doing no favor to any investor. Let the beast die it’s inevitable death. All the world knows the U.S. for the evil thing that it truly is and the seething grudges against it are limitless. When the time is right, and they perceive it safe to do so, all of the embittered enemies, hitherto unable, will strike their blow and take their pound of flesh, and it will be as Caesar was struck down after the first blade pierced his tunic and showed the stain of his blood.
it might be amusing to imagine what kinds of “austerity measures” might be imposed on the u.s. of amnesia in return for a financial bailout.
what if we were required to nationalize our privately-held central bank? our “defense” industry? the power grid? the health care system?
damn, i just hurt myself smiling.
Even though I am an American, I hope the rest of the world doesn’t bail out this fu**ing country. The USA needs to be punished for its warmongering and imperialism as well as for its genocide of Iraqi civilians. If that means that obese, stupid Americans who voted for Bush (or worse, Ralph Nader) have to pay more money for a Playstation 3 or gasoline, then so be it. America is a curse on humanity, and its nigh time that humanity curse back at America.
commander_n_chimp said or worse, Ralph Nader???
HUH Ralph has integrity something Bush never had and some of us refused to vote Gore Lieberman because we knew how bad Lieberman was back then…and we’ve been proven right by the Kyl-Lieberman ammendment recently and Lieberman’s pro-war in Iran stance. Enough of the Nader bashing already. Gore lost because of his own poor choices. I like the man and would have voted for him had he chose a better VP and made other decisions.
Recycle1
Thanks, that’s a substantive contribution to improving matters. We’ll see if more out there are focusing on solution over cynicism!
sunspot—- Since you asked—–I am a 61 year old woman who lives in a very rural setting. For all my life I have shopped at thrift stores and garage sales.No TV—just my computer. I drive as rarely as possible, minimize my electric use and keep my house cooler than most in winter, and no air conditioning in the summer. I eat locally grown food as much as possible, and have made my home as efficient as I can afford to, as a widow living on a very modest fixed income.
Friends are setting up a transportation message board online so we can minimize duplicate trips to our food coop—20 miles away, and other necessary shopping.
I recycle and never replace anything that still works just because it’s no longer the latest model. Nearly everything I own, I either love, or need.
Any other suggestions of how I could refrain from feeding the beast? My belt has been tight all my life by necessity and by life choices and priorities. But I am open to other suggestions.
Hi sunspot-
I’m nowhere near as virtuous as starofthesea, but I am trying. I live rurally on 7 acres. I’ve raised some vegetables for myself, but not seriously. This is the year I get serious. Our propane furnace died 3 years ago, and we’ve been burning firewood in a Buck stove insert and using a couple of space heaters to heat the house. It’s much cheaper, and since the guy who brings us the wood is basically chopping up peoples’ trees that have been blown down, I think it’s environmentally responsible.
My husband and I would love to go off the grid, but solar is still too expensive. I am going to plant some trees this year-I don’t have many and my horses and sheep make a concerted effort to eat them. I’m trying to find an estimate locally for drilling a well, so that I can use that water for my garden at least. I’m also eyeing my horses and wondering if maybe I shouldn’t invest in some horse-drawn garden equipment…
I was recently laid off, and I’m looking at the half-hour plus commute and trying to find ways to earn income at home so I don’t have to do that any more. My family is making a concerted effort to buy from our local merchants, though we’re still not perfect in that respect. We went to the local farmer’s market this year, and I’m trying to cut back on our meat consumption. I’m doing some shopping at Goodwill, and buying any future furniture used. There’s a co-op in a nearby city that is very successful, and I’m doing more shopping there. I’m alsotrying to get our personal financial house in order before my husband retires.
Ultimate sacrifice would be to sell my pick-up truck, which is a 2005 Tacoma and which I dearly love-and need. It’s the smallest truck I could get that will do what I need it to do. I hope I can instead manage to hang on until it’s paid off, and then just drive it into the ground. I don’t drive it any more than I have to-usually I wait until my husband gets home in his Matrix. I also don’t go into town unless I have two or three errands to do, and a friend and I take turns driving each other when we want to go into the city for the day.
How lovely a world it would be if it could be changed by will and good intention. Unfortunately, in these times, the beast is not the least bit swayed by the feeble entreaties of emotions. When faced with such a formidable opponent as is the oligarchy which rules the U.S. and the other capitalist countries, it is assured that they have no intention of relinquishing their undeserved privileges unless forced to do so. Still, individuals striving to live their lives according to sustainable principles can only be an enhancement to the necessary Revolution.
You all do not get it - still.
It is now too late. This administration has broke us with the bill for these wars and the increased welfare for the corporate oligarchy now running the country.
Our currency is like the marks became in the Weimar republic - a barrelfull to buy a loaf of bread.
Think about it.
People will only be committed to trying to feed themselves and their families while the oligarchy hides in the gated communities with all the resources.
Starofthesea, moonshadow,
To me there is just something about enumerating efforts like these to both inspire, and force our attention to the unavoidable commonality that underlies our true, effective courses of action.
For my self-promotional “gravel road cred” you can visit the other thread that I posted on, about economic depression, recession, etc.
From my heart, thanks.
I meant to include what I perceive the commonality to be, which is facing and transcending each of our own individual compulsive tendencies to consume, to hoard, and to lord.
These habits are the architecture for the unrighteous system we are encountering, we are all staring in the mirror with our eyes closed.
I think the writer is tyring in a rather roundabout fashion to warn UK readers they too might go the way of the US, as the UK in many respects is a microcosm of the US, which the author doesn’t bother to state: Housing Bubble, financial trouble at several large banks directly related to US financial problems, rapidly increasing dependency on imported fossil fuels to the point where there might be a crisis over UK nat gas supplies this winter, and a neoliberal/neocon government beholden to the same forces.
sunspot–I can say I’ve practiced what I preach–get out of debt; obtain as sustainable a property (including transport) as you can for personal food security; get a job connected to actual needs, not discretionary services; and become more involved with local community and its government.
Moonshadow—I feel your choices and efforts are plenty virtuous—-there seems more hardship in your lifestyle than in mine.
The Universe has supported me in every right step I have taken, and so hardship is not the price I pay for my seemingly principled stand.
The outcome is not what matters most—it is how we feel each and every step of the way of the journey. Sounds as if all your steps are taking you to a destination that, in the end, will serve you and your heart, very well.
And to you, sunspot—-Thank YOU for offering a constructive thread in these dark heavy days. This is the time which make one feel that no matter what they do, it will not be enough.
But still….we hope, and prsy for monumental change in the mass consciousness and trust that each of our humble efforts add to the necessary critical mass.
Old hippie friends and I have tried and still try to live off the land. We read “Mother Earth News”, use and experimented with solar, hydro, methane and composting, organic, communal, you name it and we did it. It was and is rewarding to live close to nature but difficult to survive without money. So difficult that most of us dropped back in.
We realized that gambling on stock markets here, in the UK or elsewhere was unsustainable. So we dropped out and had a hell of a good time until the siren songs of the mall, easy oil based living and conservative’s persecution assimilated us.
It probably won’t be long until the knowledge we gained in self-sufficient living will come in handy. Having waited so long and many more people having become entirely dependent, our task will not be easy. The self-sufficient will have to deal with much larger numbers of the needy who may have only their money to eat.
If we learn anything from our predicament, it should be never to leave important things like government in the hands of conservatives.
Why conservatives can’t govern:
http://www.tompaine.com/articles/2007/03/19/why_conservatives_cant_govern.php
http://www.washingtonmonthly.com/features/2006/0607.wolfe.html
http://houseoflabor.tpmcafe.com/node/30120
http://www.guerrillanews.com/forum/thread.php?id=24255
moonshadow,
Incidentally, for God’s sake please don’t sell the Tacoma! Those have to be the finest vehicles in the galaxy, or at least this arm of it.
I’ve still got an 85 Toyota standard body that’s no less reliable than any other car around. Plus, there is an often overlooked advantage to having a car whose body is in as bad of shape as mine, there is almost no distinguishable damage to my paint job when I ram parked Hummers.
All toilet paper is manufactured by large corporations in huge factories and then freighted long distances around the country burning up fossil fuels. When someone posts about the way that they are making their own toilet paper locally out of some material that they grow themselves on their sustainable plot of land, then I will start to believe. In the meantime, I went downtown last Friday and converted some dollars into euros. If worse comes to worse I can always use them for…
WHY MOST INTENTIONAL COMMUNITIES FAIL, BUT COULD SUCCEED
Most have failed due to an over idealized lifestyle of cooperation that clashes up against individual self interest.
Some people think they want to live in close cooperation with strangers until they try it and quickly find themselves drawing property lines around everything.
The meetings alone necessary to conduct business can be an enormous waste of time. The more common ownership of everything, the worse they are, hammering out endless trivial details that others dispense with in a few minutes.
Common funding of anything is always a problem except in special cases where access and use volume is not a problem. Suddenly all the good will disappears when seemingly small problems balloon into big permanent ones that carry grudges.
By the time all this gets solved, most end up back in a regular living situation of rent or own alone or with the usual partners.
The wise thing to do is start the planning in the opposite direction. Assume everyone may disagree, needs some serious privacy space and work backwards from there.
Have redundant back-stops for any failure by anyone that kick in automatically for any role. Have a series of threshold voting margins designed to address serious and emergency situations.
One idea is to get a large enough group for critical mass, say 50 - 250, and take over an entire area, the way some areas have evolved naturally as semi-enclosed communities.
To get more radical, do the same thing further out, perhaps even taking over an abandoned town. Of course the trick here is all about transportation.
Get the utilities nailed down and then work out supply routes and schedules for everything else. Buying local may not work, especially if the prices are too high.
Super-radical could include having electricity only 2 to 6 hours a day where it’s used intensely for carefully planned applications like microwave and perhaps internet. Facilities that use water and need heat and cooling could be concentrated around special concrete intensive areas for efficiency.
The most radical of all would probably take a thousand people or so to stake out an entire area and build it up from scratch as an incorporated municipal zone.
The idea here is to get away from the corporate stranglehold on so many places - have strict legal rules drawn up before starting about how economic development will proceed, particularly with zoning and building codes that allow super-green alternatives like all-passive structures with earth-tubing everywhere.
If it starts to look like so many of the safe, clean, neat, manicured gated communities around golf courses and such, it’s probably failing already, if for no other reason, high costs. For example, the only vehicles for a large radius from the center should probably be a few small buses or vans.
Most important, options could be built in to accomodate anyone from full do-it-yourselfers to pay-for-everything types. Considerations could be set up for medical care as well, from no coverage to everything covered, perhaps even with on-site services.
It’s not for the faint-hearted or upper income, but it could be a good fit for an increasing number of like-minded persons who seek a practical escape from the rising costs and congestion problems associated with an increasingly complicated lifestyle that’s also become shallow and bland.
Coming water problems alone could be a reason to look into these options.
Curmudgeon99: As Ed McMahon would say to Johnny Carson: “You are correct Sir!”
Hamish: The U.K. goes down the toilet with the U.S.A.
Commander_n_Chimp: When I lived south of the border, I had a friend who desperatly wanted to get in the U.S., he had bought the Hollywood propaganda, and thought America to be the end all. Over time, like the rest of the world, he began to hate America. A couple years back, when we realized the empire was going to collapse, he was gleefull. I told him to wipe the smile off his face, though the empire may be evil, what replaces it isn’t love and happiness, but war and death on a scale we haven’t yet witnessed. Also, the self-hating Americans tend to be the most bigoted Americans.
moonshadow: Conservation will make you wealthier and the planet healthier.
Ramsay
“War and death on a scale that we haven’t yet witnessed”? Meaning on the continental U.S.A.?
Changing the capitalist system will only require getting rid of that single percentage point of individuals who virtually control all aspects of modern societal life. They are the ones who are the evil mafia who mandate that a world wide arms industry is the greatest enterprise of human endeavor on this planet and they are the ones who start wars for their profit in order to sustain themselves and their control.
A Revolution does not mean total destruction, and it doesn’t even necessarily mean open warfare. And it doesn’t mean an assault against all of the rich, or intellectuals or any particular group except those scumbags that make up the criminal gang that seeks to eventually control the world. And that group, even though they use different colored and different symboled flags, is no different in any way, ideologically, than the Nazis of German fame.
To prove that a Revolution is not necessarily as destructive as modern open warfare it is only necessary to study the glorious Revolution in Cuba, where much of the Spanish architecture from the seventeenth century is still in evidence.
This could have been the shortest, most accurate article in CD’s history if it had been left at this:
“I don’t think Americans get it.”
Nope. We sure don’t. Giving a vote to the sheep that constitute the American electorate is about as wise as giving LSD and an AK-47 to a postal worker with post-traumatic stress.
“Our country is wherever we are well off.”
–John Milton (1608-1674)