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What Nobody's Saying: The Bailout Will Kill the Dollar


By Dave Lindorff

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 course of one hour by 25%, the biggest jump in the history of the oil market. This 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.
_____________

DAVE LINDORFF is a Philadelphia-based journalist and columnist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006 and now available in paperback edition). His work is available at www.thiscantbehappening.net

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I believe Ron Paul is a racist idiot

If the Democrats pass it, they are complicit and share in the blame if the economy goes to hell. You can't just "blame it all on Bush."

We won't be a country that makes almost nothing... in fact, the dollar has improved our exports tremendously. And large extra-national companies such as VW are building plants in the U.S.

So while the state of the Dollar is a complete turn-around from years past, don't panic. There is balance in the universe, and our balance of trade.

Resume your consumption patterns...and don't think.

This question was asked on NPR yesterday, it was asked if this would drive our dollar value down by creating $700 billion to bail out. It was stated that they sell different securities keeping the money in balance. So the money isn't being purely printed, it's just being shifted.

Story can be listened to here.
www.npr.org/templates/story/story.php?storyId=94900655

Doesn't anyone have the balls to call this farce what it is?
Bernanke and Paulson sat in front of the US Congress and paraphrased the old strong-arm robbery line,:
"Your money or your life(style)"
This is not a bailout.
It is the rape of the US Treasury.

Not just Ron Paul, but everyone at the Ludwig Von Mises institute, and I'm sure many other places as well.

-jcr

The transformation of the US from a advanced capitalist country into a Third World country in which consumer goods will be expensive, wages will be low, and most people will be barely able to survive.

Don't compensate the money men and women - they are part of the problem - compensate the investors at the low end :- 1) establish a valuation date for the investments - eg. April 16 th. 2007 , 2) establish an evaluation date for current personal capital holdings - eg. house - eg. September 2 nd. 2008 , 3) state that anyone can exchange ALL their investment holdings for their value at the valuation date up to a maximum amount of $1M minus any amount of their personal capital holding over the value of $1M . It's a simple formula and it bails out the Mom and Pop investors and passes this bailout up the chain - ie. the companies who own the investments - such as mortgaged homes - can liquidate these homes at reduced prices without any problems and the government will get a return . It ensures that Mom and Pop investors can each get $1M and live in a home together to the value of $2M . It does ensure that the people who have hijacked the money markets don't get rewarded . It does ensure that the wise investors survive , as they wont need a bail out , and become dominant - which is good for the industry .

1. The real economical reasons behind the “bailout” plan

In order to understand the real economical reasons behind the “bailout” plan, first let us consider the following:
A financial institution issuing a mortgage IS the owner of the property as long as the loan is not fully paid back, therefore the issuer of the loan simply cannot lose any amounts whatsoever on a defaulting loan. On the contrary: if the loan defaults, the bank wins the ownership of tangible value-holding real estates, which it will eventually sell.
With the “bailout” plan now the banks become double winners, because they can "keep and eat the very same cake": in addition to being the owners of the real estates involved, they are paid the price of these assets as well. Therefore the claim that the bailout plan is needed to rescue the economy through “rescuing the bank system” is a major fallacy.

The only true element in the story is the shattered world-economy. However, the reason behind the crisis is not -or not only- the housing market crisis, but, above of all, the astronomical speculative, economy-controlling funds present in the economy, which in effect lead to a similar macroeconomic unbalance as in any centrally controlled markets. In order to gain real financial power for their owners, the value of these speculative funds need to be established by producing the respective actual tangible products and services. The need of rescuing the economy from the danger of hyper-inflation is therefore primarily due to the diluting effect of non-productive speculations and greed-games, and is now met by governmental interventions forcing the production sphere to positively produce the missing tangible assets behind the inflating currency.

However, the bailout “solution” to delay the deepening of the crisis (= to delay hyper-inflation and the subsequent total collapse of the economy) is not simply the wrong solution; it is the "solution" to accomplish the worst, as it is continuing the same path that has led to the current stage. It will inevitably drive the world-economy into its final collapse by reinforcing the weakening of the productive sphere and strengthening the speculative sphere.

The signs of the above can be seen in the recent warnings of "a slow and painful recovery", despite the bailout bill. What this means is that although there will be a long and painful process it will not lead to recovery in the end, because, in addition to paying the bill to non-productive hands, the productive sphere will be forced to produce the values of what they pay. The more tangible values the productive sphere will produce, the more funds the financial sector will withdraw from production and redistribute to non-productive speculative hands, i.e. to the hands of those who have been regulating the financial markets and have driven the world-economy toward the crisis. So while the banks are double winners of the speculative greed-games the productive citizenry is the double loser.

This is a self-reinforcing vicious cycle, because the production sphere on the one hand is forced to recover the astronomical funds that have been withdrawn out it, however in lack of these funds, the resulting shrinking economy will be unable to produce what is unproducable.
Since the increasing amount of monetary units due to the diluting greed-games and speculations are still bound to represent the total values produced, the increasing unit prices (= increasing monetary units / the same or decreasing tangible economical value) are in effect carrying the burden of the speculative, non-productive funds.

The result of this is a vicious cycle called stagflation which manifests in increasing work hours for lower and lower compensation, with increasing prices and increasing unemployment. (Stagflation is always the result of a long-term macroeconomic and monetary mismanagement: the combined simultaneous effect of the shrinking production and inflation.) In short, the better and more we will produce, the more we will be punished for it, until, due to the shrinking economy most of us will be without work, and the rest will be “happy” to stay alive as low-paid slaves of the global monopolies.

This negative trend will affect the entire productive sphere, including the mid-size and small business owners, both in the US and the EU.

2. The political and social implications of the bailout plan

Regarding the political implications of the bailout plan, the plan, as a political act, needs to be assessed in consideration of the definition of “dictatorship”:
“Form of government in which one person or an oligarchy possesses absolute power without effective constitutional checks.
With constitutional democracy, it is one of the two chief forms of government in use today. Modern dictators usually use force or fraud to gain power and then keep it through intimidation, terror, suppression of civil liberties, and control of the mass media....” (Encyclopædia Britannica)

In view of the above, in a country that claims to be governed under a democratic and constitutional rule of law, the following questions should be raised to begin with:
Since when is it in harmony with the democratic US Constitution that the Government can use force, fraud and blackmail against its citizens in order to recover the losses due to certain grand-scale criminal activities?
Is it constitutional and legal to back up such crimes because of their complexity and magnitude and because the funds involved are in the billions? If the magnitude and effect of a crime is so high that it shatters world-economy, then such a crime is allowed? Or is it allowed as long as it can be explained away by spectacular political rethorics and lies?

Since when is it a legal-constitutional practice in a “democratic system of a free country” to grab the honest citizens’ properties by force and redistribute their earned wealth to a criminal sector, to those who have caused the crisis in the first place? Haven’t we learned from history that this act is clearly against the democratic property rights? Isn’t it the number- one violation of the principles of freedom; the number one evil the communist regimes established themselves upon?

Or should we take it that we have reached “perfect freedom”, when freedom means the freedom of committing crimes? As of now will bank-robbery also enjoy government support? If the bank robbers will report that they cannot recover the robbed national treasure, the whole nation – and in fact the whole world - will be forced to help them out?

Considering the recent news from Europe these amounts are likely to add up to above $1,200 billion (!) – i.e. $800 from the US plus $400 from the EU - which means that the above scenario will affect the EU countries as well.

These amounts will eventually be transferred into the very same hands that have directed the world-economy toward the crisis in the first place, and who killed off most of the competition from the “free market economies” by the process commonly known as “globalization”. The primary relevance of this fact is that such an additional astronomical amount in the hands of a small oligarchy that already controls most of the global funds secures a final and total controlling power to this oligarchy over the whole world.
Since their activity is supported by all major political powers, the global bailout plan amounts to a political power-grab over the whole world.

Finally, the global bailout plan and its negative effects on the global economy should be seen in the light of the following: the very same political lead that stands behind the process of forcing the majority of the citizenry out of the economy by regulating the world-economy toward stagflation, consistently pursue a trend of privatizing all public services, closing hospitals and eliminating all forms of social security and socialized health-care. (This is especially evident from the main trend of the EU policies of the centralized federal EU.) The net effect of this combination is that those who are and will be forced out of the economical arena will at the same time be left the without pension, social care and health-care, which in effect will indeed drastically “downsize” the world population.

This is why, when looking at the facts themselves, it is hard to avoid the question: is it just a coincidence or there is a conscious will indeed to downsize the world population in order to slow down the so called “global warming”?

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