Got ahold of those ankles yet?
24 October 2007
So, remember back in this post, when I said we were headed for a crash?
I spoke about the disaster that looms due to the subprime market dropout, and the fact that when people stop buying our money, and start dumping it, we will be in serious trouble. Well, today I picked up a couple of interesting articles over at Trumpet.
In the first, we see that the Japanese are now buying their crude oil with yen, and not with U.S. Dollars. What’s more, the Japanese were simply honoring a request when they did so. What’s troubling about this is: our dollar is beginning to lose its power, its weight in the world. It’s starting to be shunned.
The next one is far more troubling. Qatar and Vietnam have begun unloading their stock in U.S. Dollar reserves. In fact, Qatar reduced their holdings from 99% to 40%. But, what’s even more distressing is this passage in the article:
For now, the shift away from the U.S. dollar presents two major scenarios for the economy and the dollar. The first is a slow kill: A growing list of countries abandoning the U.S. dollar or reducing the amount of U.S. treasury bills and U.S. bonds they purchase from the United States. The dollar and economy would be starved of the funds needed to sustain the status quo, which would precipitate severe economic contractions. The second possibility is the quick kill: Major dollar reserve holders dumping the dollar at a furious rate, rendering the U.S. dollar worthless practically overnight. Many Americans would simply wake up paupers because the U.S. dollar and their savings would be worthless.
Does any of that sound familiar? Assets becoming worthless overnight? Princes degrading into paupers? If you cracked a history book in high school, you will know well the story of the 1929 Market Crash. What’s that? You didnt hear about this on NBC Nightly News? Katie Couric has not been filling you in? Oh, well…perhaps you should pay attention then. Because Congress knows. They have for awhile. How do I know this? Because Robert Kuttner testified before them, and gave them a near complete rundown on the very frightening parallels between 1929 and 2007…
Since repeal of Glass Steagall in 1999, after more than a decade of de facto inroads, super-banks have been able to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s - lending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way. And, much of this paper is even more opaque to bank examiners than its counterparts were in the 1920s. Much of it isn’t paper at all, and the whole process is supercharged by computers and automated formulas. An independent source of instability is that while these credit derivatives are said to increase liquidity and serve as shock absorbers, in fact their bets are often in the same direction - assuming perpetually rising asset prices - so in a credit crisis they can act as net de-stabilizers.
When the frenzied selling and dumping of the US Dollar begins, the throw-away society we take for granted will disappear. Maybe gradually, maybe overnight. It depends on how bad people want to be rid of their dollar stockpiles. What’s more, considering how badly we have honked off everyone else in the world, they really have no compelling reason whatsoever to hold back out of any kind of loyalty, or friendship. When you think about the fact that crude sellers are asking a major industrial nation such as Japan to pay in their national currency, as opposed to US Dollars, and you think about where those crude sellers are concentrated (Hint: its the part of the world with a country who’s name rhymes with I-Quack.) you should start getting a better picture. These folks, have a major world resource, and loathe the United States…and now they would like to reduce their trade in American dollars.
And so I ask: got a nice good grip on those ankles yet?
Current Mood:
Alarmed & 
Predatory
