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 DOLLAR TRAP

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gastaoss



Number of posts : 440
Registration date : 2007-07-01

PostSubject: DOLLAR TRAP   Sat Jan 26, 2008 11:46 am


DOLLAR TRAP





A
lot of things this week about Dollar collapse, yes BUSH made a new
"IDEA" to make the economy run again but its stupid yeah ur gone have
more TAX MONEY back but all that money would go 2 buy more and more
imported good so whats the big deal, FED cut interest rate again making
USA 1 of 3 countries in the world with lowest interest rate but its a
patch for a sinking ship (Alan Greenspan) if they keep cutting rate
down dollar would be no more attractive to foreigns, sooo whats next
mmm another Bush WAR

READ THIS ARTICLE

t
he
first government response to America's sinking economy was denial. We
were told as recently as a month ago by administration officials and
Wall Street charlatans that the economy was robust and that there would
not be a recession. Now we are told that the economy is in trouble, but
that the government is taking decisive action to shore it up.
We
saw how effective the first "decisive" proposal was. Bush announced a
plan to give every adult taxpayer (no poor people, thank you) $800 in a
tax rebate this April. The stock market responded to this idea by
dropping a few percent. The idea, as I wrote in my last column, was
stupid to begin with because, with the US no longer producing much of
anything, all that bonus borrowed cash would end up getting spent on
imported goods anyhow, doing next to nothing for the US economy.
So
now the Federal Reserve has weighed in with a 3/4 percent cut in the
Federal Funds rate. Even though commercial banks followed suit,
lowering the prime lending rate by a similar 3/4 percent, the stock
market showed how much good that move would do, dropping almost 300
points at the opening bell today--about what it had been expected to do
even without an interest-rate cut.
There
was one place where the Fed's action did have an impact though: the
exchange value of the dollar in foreign currency markets. No sooner was
word of the interest rate cut announced, than the dollar fell against
major currencies like the British Pound, the Euro and the Japanese Yen.
And
there's the rub. The Fed is in a trap. It cannot cut interest rates
much more without causing a collapse in the dollar, which, because of
the huge US trade imbalance, and all those consumer goods and raw
materials--especially oil--that are imported--would lead to serious and
politically dangerous inflation. And there is another constraint: with
the current rate cut, the US now has the third lowest interest rates in
the world. If the Fed makes another cut, as it has hinted it might in a
week or so, only Japan would have a lower interest rate environment
than the US. That makes the dollar a very undesirable currency for
foreigner investors, which means they won't want to hold dollars, and
they won't want to hold US stocks.
Yet
if the Fed doesn't cut interest rates even further, the stock market
will continue to plunge, which again discourages foreign investors from
pouring their money into the U.S., which in turn puts downward pressure
on the dollar.
This was all predictable. An
economy that is almost wholly dependent on consumer spending, which is
the case in the US, is in big trouble when consumers start to worry
about the security of their jobs, and when they see inflation eating
away at their disposable income. They naturally just stop spending. And
that is happening, too.
So
get ready for some hard economic times. The next step will be soaring
inflation, as strapped companies in China, India and elsewere start
raising their prices for goods shipped to the US and paid for in
dollars. Then the Fed will have to respond by raising interest rates
again, in an effort to shore up the currency. And with that will come
deeper recession and an even lower stock market.
The
Bush chickens--endless deficits as far as the eye can see, and a
$2-trillion military debacle that has no end in sight and that is
sucking money out of the country like a giant industrial vacuum
cleaner--are coming home to roost. The President and Vice President
clearly hoped that they could pass the wreckage of their eight years in
office on to the next president and run off to retirement and senior
stateeman status before it all blew up, but their luck ran out. The
economic shit has hit the fan. Chances are that the war that they have
tried to tuck away in the closet with a "surge" in troops and a brutal
campaign of aerial bombardment, will also blow up on them before the
year is out.
That's
small consolation for all of us who have to live with the ensuing
disasters, but at least--if we can't see them properly impeached and
indicted, and if the Democrats in Congress don't manage to screw things
up further so they can be blamed for the mess too--we'll have the
satisfaction of seeing Bush and Cheney run out of town next January on
a rail.

Dave Lindorff is the author of Killing Time: an Investigation into the Death Row Case of Mumia Abu-Jamal.
His n book of CounterPunch columns titled "This Can't be Happening!" is published by Common Courage Press. Lindorff's newest book is "The Case for Impeachment", co-authored by Barbara Olshansky.
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gastaoss



Number of posts : 440
Registration date : 2007-07-01

PostSubject: Re: DOLLAR TRAP   Sat Jan 26, 2008 11:46 am

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