[Marxism] Falling dollar -- good winter for stores in US, but problems will grow

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

"This Christmas British shoppers by the tens of thousands are flocking
to New
York as naturally as they once stormed Oxford Street, saving a small
fortune in the process....

"Right now the world's greatest power is the world's greatest debtor....

"Now America is in a special position. Not only does it account for a
quarter of the entire world economy. For all its problems, the dollar
remains the unchallenged reserve currency, meaning that the US can
simply print its own currency to pay international debts.

"For years too, the US consumer has been the world's buyer of last
resort, whose profligacy has kept the factories humming in Asia, and to
a lesser extent Europe. Their trade surpluses will be no protection if
the dollar goes through the floor. A sharp recession in the US would
damage everyone - West End store-owners, European car-makers and Chinese
textile mills alike." 

This is one of the most perceptive articles I have seen on the fall of
the dollar.  In my opinion, there is no doubt that the decline of the
dollar and the growth of indebtedness have been indicators of the
overall decline of US imperialism internally and relative to its
competitors, for all the reasons that Marx laid bare in Volume 3 of
Capital.

This article highlights the debt and even the trade deficit as
PRIVILEGES, not burdens, of a declining imperialism.  They bear no
comparison with the vulnerability and dependency of debtors like
Argentina and Nigeria. Even the debt and trade deficit are indications
of US supremacy in decline, of the vampirism of declining imperialism,
and not a sign that the US is under the thumb of foreign bankers etc.

Finally the article highlights the consequences of Japan and Western
European imperialism trying to crack down on the profligate ways of
their dangerously overweight and emphysemic competitor. The radical
dreams of a European-Japanese boycott of the US economy or catastrophic
withdrawal from the US stock and bond markets are not high on the
priorites of European-Japanese capital for a simple reason.  These ideas
would be suicidal, and could only be taken in a state of totally blind
panic or if the only alternative was certain destruction (in which case
they would know that destruction might occur anyway). 

So the dreams of my favorite web article title of recent weeks, "How We
Can Destroy the US Economy, at Minimal Cost to the Rest of the World,"
are unlikely to be fulfilled by Christmas or even well beyond.

The decisive collapse of the US and world currencies, financial markets,
and trade is coming, I believe, but it is highly unlikely to be a
planned action. Insofar as planning is involved, the Europeans and
Japanese in particular will strongly lean in the other direction."
Fred Feldman


The Independent - Dec 10, 2004
http://www.independent.co.uk

Buddy, can you spare a dollar?

American tourists arriving in Europe will find they are paying five
times more for a coffee or a hotel room than they would at home. But in
the US, the currency crisis is passing almost unnoticed. 

by Rupert Cornwell

It may not be easy in this Bush-hating era, but a little sympathy
nonetheless is surely in order for American visitors to Europe. This
Christmas British shoppers by the tens of thousands are flocking to New
York as naturally as they once stormed Oxford Street, saving a small
fortune in the process. Not so Americans who this holiday season find
themselves in London, Paris or Berlin.

Once upon a time, their currency was king. Now a trip across the
Atlantic is like a visit to the financial dentist, in which small
fortunes are extracted from their pockets without even the benefit of an
anaesthetic. The reason of course is the accelerating decline of the
dollar, now about to breach the $2 to the pound barrier for the first
time in a dozen years.

But their discomfort hides a paradox. This December, the American
visitor to Europe finds himself paying $4 for a cup of coffee or metro
fare that would cost $1 at home. His familiar $40 meal will cost $100,
and the hotel room that runs at $60 in the typical Midwestern city of
Edwardsville, Illinois, say, costs five times as much in London or
Manchester. If only he had stayed at home.

The United States itself remains a land of eminently affordable plenty.
Go into a dollar store, as I did the other day in Edwardsville, and you
will be amazed at what can still be purchased for a humble $1 bill.

Thus this modern crisis is barely noticed back home. Despite the trauma
of 9/11, the US remains in many respects oblivious to the world beyond
its borders. Only 20 per cent of the population have passports. There is
of course nothing intrinsically wrong with that. America is a continent
in itself - and what distinction attaches to a British passport, when
its sole function is to get the bearer to booze and sex binges in Prague
or Majorca? Far more than European countries, the US is economically
self-sufficient.

True, Americans grumble over rising petrol prices (all of 30p a litre
right now). But most of what they consume comes from home. Foreign trade
accounts for only a quarter of gross domestic product, compared with up
to half in the case of France or Germany. Many big American regional
papers do not bother to quote exchange rates; across swaths of the US,
foreign currencies (and foreign countries) might as well not exist.

And ditto for dollar crises. In the early 1970s, the currency was
devalued twice. The world might have trembled. But for the average
American the upheaval had no more impact than a worthy piece in Foreign
Affairs magazine.

Today, a political drama to match Labour's agony in 1976 over the IMF
loan, or John Major's humiliation when Britain crashed out of the
European exchange rate mechanism in 1992, is inconceivable in the US.

To history-scarred Britons of a certain age, nonetheless, today's events
have a familiar ring. I would be the first to admit that the pound has
had its moments: as a university student in the mid-1960s studying
modern Greek, for instance, I would write to my mother from Greece
asking her to send me a £5 note, from the drachma proceeds of which I
could easily live for a week.

But for most of my life, at least until the late 1980s, the pound seemed
in almost permanent free-fall. Before the First World War, when Britain
was indisputable top nation, it bought about $5. Sterling was devalued
to $4.03 when we left the gold standard in 1931. In 1949, it was
devalued to $2.80, and then again in 1967 to $2.41. At one point in 1985
the pound withered to virtual parity with the dollar.

The passing of the baton of world power from the Old World to the New
was mirrored in the currency markets. "If the English pound is not to be
the standard which everyone knows and can trust," Winston Churchill
mused in 1925, "the business not only of the British Empire but of
Europe as well might have to be transacted in dollars". For
Depression-battered and imperially over-stretched Britain, the Second
World War was the last straw. When the US and Britain negotiated the
IMF, the Bretton Woods agreement and other financial arrangements for
the post-war world, our clever diplomats whiled away dull moments by
composing condescending doggerel:

"In Washington Lord Halifax [the British Ambassador] once whispered to J
M Keynes, 'It's true they have all the money bags, but we have all the
brains.'" The reality however was that by 1945, Britain had been reduced
to beggar at America's abundant table. The pound - before 1914 our
proudest global brand, when a letter of credit issued by a London bank
was as good as gold - was so diminished that acquiring foreign currency
for an overseas trip was a bureaucratic nightmare.

The greatest financial brand on earth was now the dollar, a more potent
ambassador for America than even Coca-Cola, Disney, or McDonald's. The
greenback was prized the world over, as means of exchange, store of
value and symbol of the freedom, wealth and promise of the US. Even
physically, it never seemed to change.

Several efforts have been made to get rid of the $1 bill, but every one
has failed - despite studies showing many millions of dollars would be
saved by a switch to more durable dollar coins, and irrespective of the
fact that in Europe and Britain, the lowest denomination bank notes are
now worth almost $7 and $10 respectively.

Innovations like the $2 bill and, more recently, the copper/zinc dollar
coin introduced in 2000, have flopped.

Scorn and amazement were etched on the face of the man in front of us at
St Louis airport in the heartland last month when he received one of the
latter in change at a vending machine selling Metrorail tickets into
town. "What the hell is this?" he asked, peering at the offending object
in his palm as if it were a hand grenade.

Until some mid-1990s tweaks with design to deter counterfeiters, dollar
bills had looked exactly the same for some 70 years. The marked $10 bill
that cracked the Lindbergh baby kidnapping case and sent Bruno Hauptmann
to the electric chair in 1936 would have been as familiar in 1996.
Fickle francs, perfidious pounds and lightweight lire might change their
shape and colour every few years. Not so the trusty dollar bill, black
and white on the front, dull green on the back, a visibly unchanging
store of value cherished by a deeply conservative country.

But for how much longer? Just possibly, the dollar as global brand is
now going the same way as our pound half a century earlier. The
parallels should not be exaggerated, for the relative clout of the US is
far greater than that of Britain, even in its imperial heyday. But the
implications for America's global dominance are ominous nonetheless.

In weighty turn-of-the-millennium pieces in 1999 and 2000, commentators
to a man saw US dominance, underpinned by its swelling population, its
vast resources and its unparalleled military might, stretching as far as
the eye could see. But throughout history great powers - be they ancient
Rome, Spain, Britain or the Soviet Union - have been brought down not on
the battlefield, but by economic weakness. And now perhaps, the US.

Right now the world's greatest power is the world's greatest debtor. If
and when American power crumbles, the reasons will be found within. As
threats to the American way of life, Osama bin Laden, Iranian ayatollahs
and North Korean crackpots with their nuclear bombs are nothing compared
to the stockpiles of dollar-denominated assets held by the central banks
of China and Japan.

The US is like a shopper on a credit card binge, living beyond his or
her means. In this case the cards are issued by the foreign central
banks, mostly in Asia, who use the dollars generated by their huge
bilateral trade surpluses to buy US government securities. In effect,
they are lending the money to keep the binge going. But what if the
lenders tire of the depreciating dollar, and switch into more rewarding
currencies? The stakes are enormously high. To finance its deficits, the
US needs to attract around $2bn a day of investment from abroad. The
federal budget deficit exceeds $400bn annually, while the current
account is in the red to the tune of $650bn (almost 6 per cent of
America's $11 trillion GDP). Just last week, Congress quietly raised the
national debt ceiling from $7.4 trillion to $8.2 trillion, to
accommodate the budget deficit.

Few economists doubt that the dollar has further to fall. If we are
lucky, the decline will continue on its present steady, relatively
undisruptive course (though that will be of scant comfort to American
visitors to Oxford Street). Financial market adjustments, however, tend
to overshoot. And if matters should get out of hand, US interest rates
would have to rise sharply to protect the dollar. Both Wall Street and
house prices would tumble, and the result would be a recession, probably
a deep one.

Now America is in a special position. Not only does it account for a
quarter of the entire world economy. For all its problems, the dollar
remains the unchallenged reserve currency, meaning that the US can
simply print its own currency to pay international debts.

For years too, the US consumer has been the world's buyer of last
resort, whose profligacy has kept the factories humming in Asia, and to
a lesser extent Europe. Their trade surpluses will be no protection if
the dollar goes through the floor. A sharp recession in the US would
damage everyone - West End store-owners, European car-makers and Chinese
textile mills alike. But these momentous matters are barely examined on
television newscasts and talk shows. When they are, the tone is usually
accusatory, against foreigners who bite the hand that feeds them. The
deficits, it is argued, are a sign of American strength, a favour by a
generous power that permits the rest of the world to buy a little slice
of economic heaven. Occasionally, with greater justification, blame is
laid at the door of China and the other countries which keep their
currencies artificially cheap.

President Bush meanwhile recites his usual mantra about seeking "a
strong dollar", while pursuing policies that achieve the opposite. Nor
is the US deterred from lecturing other countries about fiscal
irresponsibility. Hypocrisy is not a sentiment that occurs to its
policymakers.

In reality, Mr Bush is determined to go on cutting taxes. He also wants
to part-privatise social security, allowing Americans to invest part of
their contributions in special investment accounts - a change that could
add trillions to the budget deficit, just as the great wave of
baby-boomer retirement is about to break over the system. Barring
serious spending cuts or tax increases, the public finances of the US
will be a mess for decades.

Maybe the worst won't happen. Maybe Mr Bush will finally choose between
guns and butter, maybe Americans will discover the virtues of saving.
Maybe China will revalue its currency, maybe Europe's sclerotic
economies will reform their over-padded welfare systems. Maybe pigs will
fly. Only one thing is sure. To borrow the immortal line of the late
Herbert Stein, chairman of President Nixon's council of economic
advisers, the last time the dollar was officially devalued: "If
something cannot go on forever, it won't." 
       


_______________________________________________
Marxism mailing list
Marxism@xxxxxxxxxxxxxxxxxxx
http://lists.econ.utah.edu/mailman/listinfo/marxism