What do China, India, Brazil, Russia, France and Germany have in common? These countries most often can’t agree on anything. But they are united in one strange—and ominous—way. They blame the United States for wrecking the global economy. And they think the dollar is the wrecking ball.
One rock-solid, foundational belief underpins almost all economic theory in America: faith in the dollar’s unassailable status as the world’s reserve currency. Foreigners hold so many dollars that they can’t afford to stop buying them, the theory goes. Therefore the dollar’s status as the world’s reserve currency is sound. But the dollar is now coming under a concentrated attack. Are American economists about to get schooled?
Angela Merkel summed up the dollar-skeptic viewpoint last year. “Excessively cheap money in the U.S. was a driver of today’s crisis,” she told the German parliament. And America’s solution—even more cheap money—was just setting the world up for another crisis, she said. It was just a matter of time.
The irony is that America is completely blind to the catastrophe heading its way. As the economic crisis unfolded at the end of last year, investors made a mad rush out of global stock markets and into other assets. The biggest beneficiary of the panic was the one market large enough and liquid enough to handle the trillions of dollars being moved: the U.S. dollar market. This caused the dollar to surge in value.
America grossly misdiagnosed the demand for dollars as a vote of confidence in the U.S. economic system. In fact, it was primarily a case of investors looking for a place they could quickly and easily get their money in—and out.
Now that the initial panic has subsided, the dollar’s international purchasing power has resumed its former downward trajectory. Since the post-crisis high in March, the dollar has fallen by a portfolio-shredding 10 percent.
America’s foreign creditors are again questioning the wisdom of holding so many U.S. dollars. And they’re looking for a way out.
“Leaders from Brazil, Russia, India and China are demanding a greater stake in the management of the global economy and challenging the dollar as the primary denomination for world reserves,” reported Bloomberg about the recent G-8 summit.
But is dumping the dollar just wishful thinking on the part of these nations? Or is there some tangible alternative? Well, how about this: Some think they’ve already minted a dollar-killer.
Russia’s president is pushing to remove the dollar and reinstate some version of a gold standard. Dmitry Medvedev unveiled a newly minted gold bullion coin that he said was a true “symbol of unity,” and “our desire to solve such issues.” It was a test sample of a new supranational currency referred to as the United Future World Currency. Samples were issued to each of the world leaders attending the G-8 summit.
“We are discussing the creation or, to be more correct, the appearance of new reserve currencies,” said Medvedev.
What is even more surprising is that the dollar assaults have come not only from perennial U.S. antagonists but also from its more democratic allies. At the G-8 summit, French President Nicolas Sarkozy called for a complete revamp of the global currency system, saying that the dollar’s supremacy is outdated. “[W]e’ve still got the Bretton Woods system of 1945,” Sarkozy stated on July 9. “Frankly, 60 years afterwards, we’ve got to ask: Shouldn’t a politically multipolar world correspond to an economically multi-currency world?”
Bretton Woods was the historic conference that laid the foundation for a postwar global economy centered on the dollar. “Even if it’s a difficult topic,” Sarkozy said, “There has to be a debate.” “Debate” about Bretton Woods is flowery code for an attack on the dollar.
India too seems to be moving into the anti-dollar camp. Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, is urging the government to diversify its foreign-exchange reserves and hold fewer dollars. India holds over $250 billion worth.
But the next blow to the dollar may come as a complete surprise to Washington policymakers. Since World War ii, Japan has been a stalwart dollar supporter and a close collaborator with Federal Reserve monetary policy. That may be about to end. For only the second time in 54 years, the opposition in Japan is close to taking over the government. Japan’s economy, like those of the rest of the world, is in severe contraction, and disgruntled voters are upsetting the balance of power and pushing for radical reforms.
Back in May, Masaharu Nakagawa, the chief finance spokesman for the opposition, told the bbc that he was worried about the future value of the dollar. He said that if his party were elected in the upcoming national elections, Japan would refuse to purchase any more U.S. treasuries unless they were denominated in Japanese yen instead of dollars.
Such a decision could break the U.S. dollar bond market.
Japan is America’s second-most important creditor nation—lending the U.S. billions of dollars each year. If Japan won’t lend unless America pays it back in yen, then China and other major lenders may quickly follow suit. This would eliminate America’s ability to use inflation to cheat on its debt payments. America’s debt burden would soar, interest rates would jump, and national default—Argentina-style—could be staring America in the face within months instead of years.
“America is making a terrible mistake which will result in the greatest fall in all of mankind’s history!” Tim Thompson wrote for the Trumpet in 2000. “As soon as America is no longer a safe place for foreign money, that money will be gone. And once the foreign money is gone, it will leave us with a mountain of debt that we cannot repay.”
What Japan is proposing could be the first steps of a great Exodus from the U.S. bond market and consequently the end of the dollar as the world’s reserve currency.
America’s leaders seem blind to the looming dollar revolt. Global economies are in crisis. Unemployment rolls are soaring. People want answers and solutions. The jobless will demand action, and culpable politicians will look for scapegoats and distractions. The first step, blaming the U.S. and its currency for the global recession, has already begun.
A new global currency—and leveraging it to knock the U.S. down—will be the solution.
The highly trained economic theorists who keep telling us that foreigners can’t afford to stop supporting the U.S. are about to get reeducated at Reality U. •
Robert Morley’s column appears every Tuesday.
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In order to successfully create the NWO, you have to dismantle the existing power structure, which cannot be allowed to compete with the new structure. Makes sense to me.
Apologies in advance for taking seriously something published in “The Trumpet”.
Using the U.S. dollar as a global reserve currency is the worst option available outside of all the other options.
Foreign nations holding massive amounts of U.S. dollars have chosen to do so, because they found it preferable to other options (such as substantial diversification away from dollar reserves, or policies favoring domestic consumption over exports).
There’s a huge difference between a situation where everybody has some reason to be unhappy about relying on the U.S. dollar and a situation where everybody agrees on a substitute.
If a crazy lunatic on drugs came up to you and said the sky is blue would you discredit him and his statement just because he was a nut job.
I’m not saying this is going to happen or that the writer is absolutely correct, but you must be willing to consider the value of this commentary despite what ever you may think of the The Trumpet.
If a crazy lunatic on drugs came up to you and said the sky is blue would you discredit him and his statement just because he was a nut job.
If a crazy lunatic on drugs came up to me and said that my nose was blue, as prophesized in the Bible, and then said that my dog was blue, as prophesized in the Bible, and then said that India was blue, as prophesized in the Bible, I’d be long gone before he got around to telling me that the sky was blue.
But this isn’t even a case of the crazy lunatic saying something that is obviously true. It is a case of a nutjob asserting that there is an “ominous” unity amongst China, India, Brazil, Russia, France and Germany, that there is an approaching catastrophe to which “America is completely blind”, that United Future World Currency could be taken seriously, all without anything approaching a solid argument based on either evidence or theory. It is just a collection of noise.
The same nutjob wrote a column a week earlier about healthcare reform, closing with: there is a solution to the health crisis. It is God’s solution, and it will revolutionize your life. If you are interested, request a free copy of Herbert W. Armstrong’s booklet The Plain Truth About Healing.
I’m afraid that I am completely unwilling to consider the value of the commentary, because the purpose of The Trumpet is to promote the teachings of Herbert W. Armstrong and the beliefs of his Church of God. It is, therefore, an unreliable source of either fact or commentary on other topics.
Taco,
Let’s not go there. While manipulation and direction is being openly fostered I doubt seriously that NWO will ever take hold. There are too many people who are free and intelligent to let something like this happen.