Community | September 23, 2008 | 52 comments

What nobody's saying: the bailout will kill the dollar

source: http://counterpunch.org/lindorff09232008.html

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Vierotchka
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.

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Much more at link.
By DAVE LINDORFF

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