Full Version: American Currency Crisis?
Here's something for you to ponder over. This is an excerpt from an editorial in the Toronto Star which is focused on Canadian currency issues, but has some pretty alarming things to say about the greenback.
Now this is something that I hadn't even considered. My question is then, is a currency crisis (or even collapse) as possibility, and what does it mean for the American economy?
QUOTE
Within a year the Canadian dollar may climb to $0.80 U.S., according to Clement Gignac, the chief economist with the Quebec-based National Bank
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He may well not have been gutsy enough. A Canadian dollar worth almost the same as the U.S. dollar is by no means an impossibility within a few years.
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The other side — the larger one by far — appears on the other side of the border. There, there's a financial mess.
The U.S. has a budget deficit, a current account deficit, and a trade deficit. It also has the lowest savings rate in history and soaring consumer debt.
All that is the good news about the U.S. Within a few years, the financial mess there may grow from the huge to the humungous.
Some estimate the cumulative budget deficits over the next decade could total more than $4 trillion.
At some point, the humungous mess could become an uncontrollable one.
The uncontrollable is exactly what Paul Krugman, the highly regarded Princeton University economist and columnist for the New York Times, sees ahead. He's forecasting that a Latin American-style financial and currency crisis awaits the U.S.
The evidence to support Krugman and other critics keeps accumulating. It isn't so much the miscalculations and evasions as the outright lies that make for chilling reading.
Thus, President George W. Bush's recent tax cut was billed as causing a $350 billion drop in tax revenues. A loss of $800 billion is far more realistic.
Defence spending estimates omit $700 billion in planned additional expenditures. For America's current fiscal year, an originally forecast surplus of $383 billion is now expected to end up as a $500 billion deficit, a turnaround of an incredible near $1 trillion.
At some point, something has to give. It has already started to. In mid-week, the finance ministers of the G-7 leading industrial nations declared, almost incomprehensibly as is the style of these things, that "market mechanisms" should determine currency values.
For those in the know, the meaning was easy to decipher. Japan, which has been keeping its yen artificially low, was being told to stop playing games. It did. Promptly, the yen went up and the greenback came down. Simultaneously, the loonie inched up.
This was just a one-finger exercise. Wait until after next year's presidential election.
Bush will keep the dollar strong until then so as not to upset voters. But after that, from the 2004-5 winter on, no one should get into currency markets without wearing a seat belt and a crash helmet.
The quickest and easiest way for any government to reduce its debt is to reduce the value of its currency. Creditors will find themselves holding paper of shrunken value.
The hard way to eliminate deficits is by raising taxes and cutting spending. But tax raises are ideological poison to Bush; as well, his defence costs aren't going to diminish while much of his fiscal fakery will eventually catch up with him.
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Richard Gwyn's column appears Wednesday and Sunday. gwynR@sympatico.ca.
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He may well not have been gutsy enough. A Canadian dollar worth almost the same as the U.S. dollar is by no means an impossibility within a few years.
...
The other side — the larger one by far — appears on the other side of the border. There, there's a financial mess.
The U.S. has a budget deficit, a current account deficit, and a trade deficit. It also has the lowest savings rate in history and soaring consumer debt.
All that is the good news about the U.S. Within a few years, the financial mess there may grow from the huge to the humungous.
Some estimate the cumulative budget deficits over the next decade could total more than $4 trillion.
At some point, the humungous mess could become an uncontrollable one.
The uncontrollable is exactly what Paul Krugman, the highly regarded Princeton University economist and columnist for the New York Times, sees ahead. He's forecasting that a Latin American-style financial and currency crisis awaits the U.S.
The evidence to support Krugman and other critics keeps accumulating. It isn't so much the miscalculations and evasions as the outright lies that make for chilling reading.
Thus, President George W. Bush's recent tax cut was billed as causing a $350 billion drop in tax revenues. A loss of $800 billion is far more realistic.
Defence spending estimates omit $700 billion in planned additional expenditures. For America's current fiscal year, an originally forecast surplus of $383 billion is now expected to end up as a $500 billion deficit, a turnaround of an incredible near $1 trillion.
At some point, something has to give. It has already started to. In mid-week, the finance ministers of the G-7 leading industrial nations declared, almost incomprehensibly as is the style of these things, that "market mechanisms" should determine currency values.
For those in the know, the meaning was easy to decipher. Japan, which has been keeping its yen artificially low, was being told to stop playing games. It did. Promptly, the yen went up and the greenback came down. Simultaneously, the loonie inched up.
This was just a one-finger exercise. Wait until after next year's presidential election.
Bush will keep the dollar strong until then so as not to upset voters. But after that, from the 2004-5 winter on, no one should get into currency markets without wearing a seat belt and a crash helmet.
The quickest and easiest way for any government to reduce its debt is to reduce the value of its currency. Creditors will find themselves holding paper of shrunken value.
The hard way to eliminate deficits is by raising taxes and cutting spending. But tax raises are ideological poison to Bush; as well, his defence costs aren't going to diminish while much of his fiscal fakery will eventually catch up with him.
...
--------------------------------------------------------------------------------
Richard Gwyn's column appears Wednesday and Sunday. gwynR@sympatico.ca.
Now this is something that I hadn't even considered. My question is then, is a currency crisis (or even collapse) as possibility, and what does it mean for the American economy?
A US currency crisis is unlikely to be as bad as those in Latin America, for one very simple reason: most of our debt is denominated in our own dollars. This avoids the problem of the local-currency cost of that debt skyrocketing as the value of that local currency plummets. However, that doesn't mean it won't hurt when the rest of the world realizes how overvalued our currency is. Contracts will start to be written specifying payment in some other currency - probably the euro. Foreign investment will dry up. If we don't clean up our fiscal act, we'll still be (as we New Englanders like to say) scrod.
There is always a devaluing of the Dollar and of every currency. Sometimes, when a currency gets too popular, people think that maybe their luck is too good to be true and will start to bail before they lose money. Just like in stocks. The Euro will be popular for a while and then when investors think that their luck is about to turn, they will head to the Dollar again.
Nothing will happen to the dollar until the next election. After that who knows what will happen. I doubt a total collapse will occur. But, something though does have to give. You can't go deeper and deeper into debt without any consequences.
Maybe if we all would have listened to the knowledgable words of Thomas Jefferson, we wouldn't have this National Debt or Banking problem we all have to swallow our pride with and play it off like we're the "bestest" in the world... Blowing off expensive items, which would be considered "weapons of mass destruction" in the hands of a arabs, but merely a defense weapon for us Americans! Maybe if we gain control of our money, rather then having these banks (which aren't controlled by the citizens) AND currency (neither is that...) being produced by the very same 4 (very rich, i might add) British families that began the cycle of hell, we wouldn't have to worry about the crisis. As long as we remain ignorant to the fact that our government hasn't separated from British ties, they'll keep robbing us with insane interest rates just like "taking candy from a baby" if you would. Oh and how I LOVE knowing that the gold & silver system was plugged off. Therefore, lets hope to GOD our currency doesn't flop, because if it does.. Well then, my great fellow friends, America is definitely going to be very #######, excuse my french. (I love how bad words are "french" derived, too! It's great to be a narrow-minded and blind to reality!!)Neno
PS - And you wonder why people smoke cigarettes, drink way too much, and use many other drugs more in America then anywhere else in the world!
Gratuitous attempt at bypassing the profanity filter removed -Jaime
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