The Bailout Will Kill the Dollar
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    The Bailout Will Kill the Dollar

    A little something to help you sleep tonight.

    Alex Jones' Prison Planet: The truth will set you free!

    The Bailout Will Kill the Dollar



    Dave Lindorff
    COUNTERPUNCH
    Tuesday, September 23, 2008

    What nobody in the corporate media is mentioning amid all the blather about the $700-billion Paulson bailout proposal is the impact it will have on the US dollar.

    We are told that this huge gift to the financial sector—the assumption, at top dollar, of all the bad debt they’ve piled up–will be at taxpayer expense, but that’s only the half of it. (Really only the quarter of it because since the US government is technically bankrupt already, spending more than it takes in each year, all that money will be borrowed, and will be added to the national debt, meaning that just as the real cost of the $500-billion Iraq War is closer to $2 trillion, the real cost of the $700 billion bailout will be more like $1.5-2.5 trillion.)

    But besides the direct bill handed to taxpayers for this gigantic con, there is the fact that adding that much to the national debt is also going to drive the dollar down precipitously against foreign currencies. We’re already seeing that happen, even while they’re just talking about the bailout. The dollar is falling against all major currencies—the Euro, the Yen, the Renminbi and the British pound. And it will continue to fall as the details of the bailout come out.

    This will add to already powerful pressures in countries like Saudi Arabia and China, which hold huge quantities of US dollars and US dollar-denominated debt, to shift out of dollars and into other currencies—particularly the Euro and the Yen. Last week, an article in China’s People’s Daily, which like Pravda in the old Soviet Union, is the official voice of the leadership in China, called for just such a move. Russia is also calling for an end to the dollar as the underpinning of the global economy.

    For some years now, many economists have been predicting an end to the dollar as the world’s reserve currency, but this latest plan by the US Treasury will push such a shift forward from “some day” to “now.”

    As long as the dollar has been the reserve currency—the currency in which key commodities like gold or oil were priced, and the currency that exporting nations stocked in their treasuries as a store of value – it was protected against collapse. But once it loses that status, there will be nothing to prop it up any longer, and it will quickly slide to a value that it deserves. We got an inkling of what is going to happen today, as crude oil prices leapt in the short time it took me to research and write this essay (less than an hour!) by 25%, the biggest jump in the history of the oil market. This timely vindication of my point was purely a move caused by loss of confidence in the dollar. There was no oil supply disruption. In fact, demand for oil has been sinking as the economic crisis grows. Oil producers and traders simply realized that the dollar is going poof, so they radically jacked up the cost of oil in dollars.

    If you want to see what where the dollar is headed, look to the currencies of the debtor nations—countries like Mexico or perhaps Mozambique. A nation that makes almost nothing, and that imports most of its needs, cannot have a strong currency.

    This might not matter much if we had a functioning domestic economy, where people could find the goods and services they needed without turning to sources from abroad. A big country like the US could simply turn inward and function on by its own domestic economic standards.

    I remember back when the former Soviet Union was in a state of economic and political free fall in the early and mid 1990s, the currencies of the constituent countries, like Russia, Ukraine and Belarus had had collapsed to virtual worthlessness on the international market. A Byelorussian friend, an engineering professor from Minsk, living and working near me in China at the time, explained that although when he traveled the world, he felt like a pauper, things weren’t so bad back home Belarus, where he and his family would go in the summer. “My apartment only costs a few dollars a month to rent,” he explained, “and our food is bought on the local market using rubles, so it is very affordable.” The same was true for other needs, like clothing and books for school, he explained. The only problem was buying gas for his Russian Volga. “Gas,” he explained, “is priced as an international commodity, so it takes me one month’s wages in Belarus to buy the gas to drive once to and from our country dacha.”

    You can start to see the problem. Since agriculture has been killed off in most of the US, in favor of giant agribusiness enterprises situated in the western part of the country and some parts of the Midwest, most people elsewhere will not have local produce available, and the cost of transporting food from California to places like New York or Pennsylvania will be prohibitive once the dollar collapses, since oil is priced internationally. Meanwhile, goods like TV sets, computers, phones, cars (or at least the key components of cars), clothing, etc., are no longer even made in the US, and will thus be completely unaffordable. As for the service jobs that are supposed to have replaced our old manufacturing sector, no one will be interested in buying what they’re offering, because they’ll be scrimping just to buy the key staples they need to survive, so of course joblessness will soar.

    Eventually, of course, entrepreneurially minded people will begin establishing local farms again where they once flourished generations ago, and small factories will be built to provide key essentials, but all this will take time, and will have to cater to a market of people operating at a much lower standard of living.

    The banking sector, meanwhile, which is the proximate cause of this monumental disaster, won’t mind any of this, for it will continue operating on the international stage, shifting its focus to lending money (no longer dollars, though), to growing economies in Asia and Latin America and eastern Europe. And this is what, in truth, the “rescue” of Wall Street is all about.

    It’s not about saving Main Street, as Paulson claims. Main Street, under the bailout, is toast. It’s about helping the banks and investment banks and insurance companies that brought on this crisis to ride it out in style, their astronomical losses bankrolled or absorbed by the American public, so that they can shift their operations overseas and continue with their rape and pillage of the global economy.

    The US will be left behind, a smoking ruin, with Americans, like Weimar Germans before them, going shopping with wheelbarrows full of worthless green paper to exchange for a few days’ groceries.
    By faith Noah,being warned of God of things not seen as yet, moved with fear,prepared an ark to the saving of his house;by the which he condemned the world,and became heir of the righteousness which is by faith Heb.11:7

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  3. #2

    We have met the enemy and he is us!

    Geez, HK4U ain't you the ray of sunshine. But, a rather astute and insightful view of our current national situation. This weekend the wife and I will be going to Costco to stock up on a lot of long store goods. What is really of concern is the availability of medication. Shooting the insulin on a daily basis is not something I can afford to have interupted. I can remember a little saying of my father who was a depression era child--use it up, wear it out, make it do, or due without--I fear we'll all come to know the true meaning of that saying all too soon. The future appears to be a great unknown at this point except for one thing the Govt is asleep at the wheel!

  4. #3
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    Last week, I went to the grocery store and bought about ten or twelve items; the cost was an eye popping $38! Last year, $38 would have purchased me enough groceries to last an entire week; this time, it was only 3 bags, and I did not even need to put them in a cart! Outrageous!

  5. #4
    which is why food storage is a very good idea.. not to mention meds and ammo. what a joke our country is turning into!
    You can have my freedom as soon as I'm done with it!!!

  6. #5
    Quote Originally Posted by Scarecrow View Post
    which is why food storage is a very good idea.. not to mention meds and ammo. what a joke our country is turning into!
    And the joke is on us and it is a bad one.
    By faith Noah,being warned of God of things not seen as yet, moved with fear,prepared an ark to the saving of his house;by the which he condemned the world,and became heir of the righteousness which is by faith Heb.11:7

  7. #6
    Join Date
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    Quote Originally Posted by Scarecrow View Post
    which is why food storage is a very good idea.. not to mention meds and ammo. what a joke our country is turning into!
    You're not kidding. I just moved out of my parents' house last year and I'm still pretty much living paycheck to paycheck. I have yet to stock up on anything, so if I get hurt or lose my job tomorrow, I'll be homeless. I'm not asking for a handout like the typical Democrat would, but I do need to start thinking about the future.

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