Alternative Perspective
 Collapse of U$ Dollar???
Issue 44, February 11th, 2004
Compiled by Madhukar Shukla

 Alternative Perspective is an attempt to widen our awareness about issues related to business, environment, role and influence of media, geo-politics, culture, etc. It aims to share, on a regular basis, some of those pieces of news and information, which do not find place in the highly monopolised mainstream media. Please feel free to share/ forward/ distribute this newsletter to others who may be interested.

Amidst the media focus on issues ranging from Iraq to Janet Jackson, this has remained one of the least reported pieces of news - that the Almighty US$ has been losing its shine. Not only has it gone down 50% in value against Euro in last 3 years, but with developments elsewhere, it stands danger of losing the global status of being the currency of choice. If that happens, the implications will be not just for the US enconomy, but for the global economic system.



Note: The URLs of sources used in the text are numbered and given at the end of the Newsletter.

In This Issue:
  • The Dollar Crisis
    There is a simple law of any sustainable economic system: Consumption must be funded through some kind of production. A world run by fiat floating currency violates this law - and so over a period of time, distortions do necessarily set in. With a 5% current account deficit and $7trillion accumulated debt, the US economy needs an inflow of debt at $55-60mn an hour(!!!) to keep itself afloat. Unable to produce as much as it consumes, it finances the debt by issuing debt instruments, denominated in US$. The mutually suicidal collusion between the USA and its trading partners[1] has continued because, round the world, so many economies are built on the edifice of US consumption. However, as the following articles show, this spiral has reached its own tipping point, building up into a potential collapse and crisis.
    http://www.mises.org/fullstory.asp?control=1386%20

  • End of Petro-Dollar?
    The collosal debts notwithstnding, one of the sources of strength of US$ has been that world-wide trade of oil was denominated in dollars. US being the largest consumers and importer of oil, it also made sense to do so. Since all countris need oil, US$ has been the de facto forex reserve currency for all nations. In the last 2-3 years, however, with the formation of European Union with a common currency, this the need to denominate oil in US$ is increasingly being questioned in the OPEC bloc[2]. Not only EU imports as much oil as USA, but also with a strengthening Euro (and a fluctuating/ declining dollar), selling oil in Euro will give the exporters better value for money (Iraq, with second largest oil reserves, was the first country to do so[3], and paid the price for that). But the second largest exporter of oil, Russia, has also voiced its intention to switch from selling oil in US$ to Euro[4]
    http://www.businessreport.co.za/index.php?fArticleId=344627

  • The Flight of Forex Reserve US$
    As a consequence, the composition of global forex reserves has also started shifting away from US$. During last couple of years, not only the other two members of the Axis of Evil, North Korea[5] and Iran[6] moved their forex reserves from US$, but many other countries, e.g., Canada[7], China[8], Indonesia[9], etc., have also started converting their reserve currencies to Euro. The scene is set for a downward spiral: as more and more countries offload US$ in the currency market, the lower would be its value - and therefore even more will sell US$ in currency markets...
    http://www.globalpolicy.org/socecon/crisis/2004/0205dollaralternative.htm

  • No End in Sight to Rising Fiscal Deficit
    To add to this emerging scenario, the fiscal situation within US also is not too optimistic. There are at least two (if not more) reasons why the deficit will keep on increasing: Firstly, increasing military/ security spending will due to the US foreign policy of armed engagements/misadventures (aka "war on terrorism")[10]; and secondly, the demographics of baby-boomer generation[11], which will be retiring (and asking for social security) in the next 4-5 years.
    http://www.cbpp.org/9-29-03bud-pr.htm

  • Summary of the Collapse?!!
    Perhaps, this is an alarmist viewpoint, and as some (would like to) believe[12], a more neo-liberal form of globalisation will stabilise the US$... or, on the other hand, as Hisorian Niall Ferguson notes: "the magnitude of the problem is such that most Americans find it quite literally incredible. The main reason why America's crisis remains latent is precisely because people refuse to believe its existence."[13]
    http://www.nex.net.au/users/reidgck/FEB18EIR.HTM


    Other Sources Quoted in the Newsletter:
    [1]: http://www.financeasia.com/articles/E867AEB6-642E-11D7-81FA0090277E174B.cfm
    [2]: http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm
    [4]: http://www.globalpolicy.org/socecon/crisis/2003/1010oilpriceeuro.htm
    [3]: http://www.rferl.org/features/2000/11/01112000160846.asp
    [5]: http://news.bbc.co.uk/1/hi/world/asia-pacific/2531833.stm
    [6]: http://www.payvand.com/news/02/aug/1080.html
    [7]: http://www.ratical.org/ratville/CAH/linkscopy/Cshift2euro.html
    [8]: http://fpeng.peopledaily.com.cn/200201/07/eng20020107_88188.shtml
    [9]: http://www.mindfully.org/WTO/2003/Indonesia-Dump-Dollar17apr03.htm
    [10]: http://www.fpif.org/papers/spending2003_body.html
    [11]: http://www.theatlantic.com/issues/96may/aging/aging.htm
    [12]: http://www.larouchepub.com/other/2004/3104g-span_berlin.html
    [13]: http://www.stern.nyu.edu/eco/wkpapers/workingpapers03/03-14Ferguson.pdf


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