The war and the dollar
Check out Ann Berg's latest on the unique convergence of circumstances that's set to bring down the dollar in a way that's never happened before in wartime:
…war is being waged in a monetary climate that has no precedent: an inflationary fiat monetary system, a derivatives bubble, a pesky PATRIOT Act, and a bulging trade deficit with China. The confluence of the four spells trouble for the dollarized system, a system that broke away from the gold-backed Bretton Woods arrangement in 1973.
Some of these will be familiar to DR readers. But this one was a revelation to me:
…the PATRIOT Act is doing its best to make global business in dollars a thing of the past. (Sarbanes Oxley – a piece of legislation intended to prevent future Enron scandals – is another regulatory nuisance to capital formation.) U.S. red tape has pushed London ahead of New York as the premier issuer of initial public offerings (IPOs). Also, debt issuance (both corporate and government) in euros has exceeded that of dollars.
And then there's China:
Where the dollar would end up if the gang of three Xiaos decided to reduce its $700 billion-plus dollar exposure by 20 or 30 percent by selling dollars and buying euros or Japanese yen (the latter waking from its long slumber) is beyond this writer's guess. The Chinese government, dissatisfied with the meager returns on its U.S. Treasury debt, has recently announced the formation of a new investment vehicle – promised to be the first trillion-dollar hedge fund, working entirely in secret. Bush's third Treasury secretary, Hank Paulson, who urges China to let the dollar slide against the yuan, says not to worry.
It's as if the rest of the world were planning to bring down the Empire's ambitions by wrecking its currency. Come to think of it, Paul Craig Roberts speculated a few weeks ago about that very possibility.
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