The dollar melts as Iraq burns by James K Galbraith

[Demeter]

December 4, 2006 02:10 PM

http://commentisfree.guardian.co.uk/james_k_galbraith/2006/12/the_dollar_melts_as_iraq_burns.html

The melting away of the dollar is like global warming: you can't say that any one heat wave proves the trend, and there might be a cold snap next week. Still, over time, evidence builds up. And so, as the greenback approaches two to the pound, old-timers will remember the fall of sterling, under similar conditions of deficits and imperial retreat, a generation back. We have to ask: is the American financial empire on the brink? Let's take stock.

It's clear that Ben Bernanke got buffaloed, early on, by the tripe about his need to "establish credibility with the markets." There never was an inflation threat, apart from an oil-price bubble that popped last summer. Long-term interest rates would have reflected the threat if it existed, but they never did. So the Fed overshot, and raised rates too much. Now long rates are falling; Bernanke faces an inverting yield curve and even bank economists are starting to call his next move. That will be to start cutting rates, after a decent interval, sometime next year...This is not good news for the dollar.

The US economy is going soft faster than the inflation hawks and growth optimists thought. Housing has been in free-fall for months. With the new Congress anxious to display "fiscal responsibility" - cue Robert Rubin who has moved in very fast on Nancy Pelosi - there won't be any help next year from them. If business investment falls off, recession could hit in 2007 or 2008. With that fear in mind, gloomy profit expectations are setting in, and that's not good for the dollar.

The US trade deficit is near all-time records. By itself, this proves nothing: the US supplies reserves to the world system, and it can run any deficit that the world is prepared to finance. But, sooner or later the world may start to get other ideas.

MORE..READ THE ARTICLE!

[Gman]

1. It's not that sooner or later the world may start to get other ideas.

It's that sooner or later the world will start to get other ideas.

[Double T]

4. The world has ALREADY started to get other ideas.

[Joanne98]

2. Ben Bernanke was fighting "wage inflation"......

http://www.freedomtofascism.com/blog/afftfblog.html

[Seattleman]

5. Wage Inflation, the only kind that matters

You nailed it. We have watched virtually every thing else rise over the last several decades except wages. Sure there are some jobs that are paying better, medical and government workers come to mind, but a huge number of other Americans have seen their wages remain stagnant for a very long time.

Initially it happened as our manufacturing base was outsourced, but it excelerated when they opened the floodgates of immigration.

Don't expect anything but more of the same until America becomes a Third World Nation.

[Joanne98]

7. Ain't that the truth....

[necso]

3. There is considerable risk

that the nations who are propping-us-up will let politics, irritation at various outrageous US policies, or other issues cloud their vision and judgement -- and will remove the props holding us up.

However, bold talk by various parties notwithstanding, there would be a stiff price to be paid for this worldwide. (One can argue that it's better to get the pain over with now; but with neocons in control, we're in no position to deal with any problems (new or old), much less huge ones.)

Judgements, particularly ones of this enormity, must be made in a detached, well-considered manner -- without prejudice or predisposition (etc).

[90-percent]

6. Other nations...........

Other Nations would gleefully pull out the props they graciously give us to keep our economy viable, if it WOULDN'T TAKE THEM DOWN WITH US.

I guaren-fucking-tee you the whole world would be delighted if they could trigger a USA only depression and they could maintain their lifestyles and ponder why it would be ill advised to help us "get back on our feet"

-85% Jimmy

[Marrak]

8. Cheap money in housing, refinacing etc.

fueled consumer spending and assisted the economy after 9/11, big time. Now the chickens be coming home to Jr, et. al. KicK:kick: