[Marxism] Mike Whitney response to Robert Fisk article on dollar demise

Louis Proyect lnp3 at panix.com
Tue Oct 6 10:38:48 MDT 2009


Counterpunch, October 6, 2009
Is the Sky Really Falling?
Dollar Hysteria

By MIKE WHITNEY

Robert Fisk lit the fuse with his hyperventilating narrative which 
appears in Tuesday's UK Independent which went  viral overnight 
spreading to every musty corner of the Internet and sending gold 
skyrocketing to $1,026 per oz.  Now every doomsday website in 
cyber-world has headlined Fisk's "shocker" and the blogs are clogged 
with the frenzied commentary of bunker-dwelling survivalists and 
goldbugs who're certain that the world as we know it is about to end.

 From Fisk's article:

     "In the most profound financial change in recent Middle East 
history, Gulf Arabs are planning – along with China, Russia, Japan and 
France – to end dollar dealings for oil, moving instead to a basket of 
currencies including the Japanese yen and Chinese yuan, the euro, gold 
and a new, unified currency planned for nations in the Gulf Co-operation 
Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

     “Secret meetings have already been held by finance ministers and 
central bank governors in Russia, China, Japan and Brazil to work on the 
scheme, which will mean that oil will no longer be priced in dollars.

     “The Americans, who are aware the meetings have taken place – 
although they have not discovered the details – are sure to fight this 
international cabal which will include hitherto loyal allies Japan and 
the Gulf Arabs. Against the background to these currency meetings, Sun 
Bigan, China's former special envoy to the Middle East, has warned there 
is a risk of deepening divisions between China and the US over influence 
and oil in the Middle East. ‘Bilateral quarrels and clashes are 
unavoidable,’ he told the Asia and Africa Review. ‘We cannot lower 
vigilance against hostility in the Middle East over energy interests and 
security.’”

"International cabal"? C'mon, Fisk, you're better than that.

Reports of the dollar's demise are greatly exaggerated. The dollar may 
fall, but it won't crash. And, in the short-term, it's bound to 
strengthen as the equities market reenters the earth's gravitational 
field after a 6 month-long ride through outer-space. The relationship 
between falling stocks and a stronger buck is well established and, when 
the market corrects, the dollar will bounce back once again. Bet on it. 
So why all this bilge about Middle Eastern men huddled in "secret 
meetings" stroking their beards while plotting against the empire?

Isn't that the gist of Fisk's article?

Yes, the dollar will fall, (eventually) but not for the reasons that 
most people think. It's true that the surge in deficit spending has 
foreign dollar-holders worried. But they're more concerned about the 
Fed's quantitative easing (QE) program which adds to the money supply by 
purchasing mortgage-backed securities and US Treasuries. Bernanke is 
simply printing money and pouring it into the financial system to keep 
rigor mortis from setting in. Naturally, the Fed has had to quantify 
exactly how much money it intends to "create from thin air" to placate 
its creditors. And, it has. (The program is scheduled to end by the 
beginning of 2010) That said, China and Japan are still buying US 
Treasuries, which indicates they have not yet "jumped ship".

The real reason the dollar will lose its role as the world's reserve 
currency is because US markets, which until recently provided up to 25 
percent of global demand, are in sharp decline. Export-dependent 
nations--like Japan, China, Germany, South Korea--already see the 
handwriting on the wall.  US consumers are buried under a mountain of 
debt, which means that their spending-spree won't resume anytime soon. 
On top of that, unemployment is soaring, personal wealth is falling, 
savings are rising, and Washington's anti-labor bias assures that wages 
will continue to stagnate for the foreseeable future. Thus, the American 
middle class will no longer be the driving force behind global 
consumption/demand that it was before the crisis.  Once consumers are 
less able to buy new Toyota Prius's or load up on the latest China-made 
widgets at Walmart, there will be less incentive for foreign governments 
and central banks to stockpile greenbacks or trade exclusively in dollars.

Here's a clip from the Globe and Mail cited on Washington's Blog:

     "A UBS Investment Research report says that while it would be wrong 
to write off the U.S. dollar as the global reserve currency, its roughly 
90-year iron grip on that position is loosening. ‘The use of the U.S. 
dollar as an international reserve currency is in decline,’ said UBS 
economist Paul Donovan.

     “’The market share of the dollar in international transactions is 
likely to decline over the coming months and years, but only persistent 
policy error – or considerable fiscal strain – is likely to cause the 
dollar to lose reserve currency status entirely.’

     "The UBS report maintains that the gradual slide of the U.S. dollar 
is being driven not by the world’s central banks, but by the private 
sector, as individual companies increasingly abandon the greenback as 
their international currency of choice.

     “’The private sector’s use of reserves is more important than 
official, central bank reserves – anything up to 20 times the 
significance, depending on interpretation,’” Mr. Donovan said. “There is 
evidence that the move away from the dollar as a private-sector reserve 
currency has been accelerating since 2000.’”

As private industry veers away from the dollar, governments, investors 
and central banks will follow. The soft tyranny of dollar dominance will 
erode and parity between currencies and governments will grow. This will 
be create better opportunities for consensus on issues of mutual 
interest. One nation will no longer be able to dictate international policy.

So-called "dollar hegemony" has added greatly to the gross imbalance of 
power in the world today. It has put global decision-making in the hands 
of a handful of Washington warlords whose narrow vision never extends 
beyond the material interests of themselves and their constituents. As 
the dollar weakens and consumer demand declines, the United States will 
be forced to curtail its wars and adjust its behavior to conform to 
international standards. Either that, or be banished into the political 
wilderness.

So, what exactly is the downside?

Superpower status rests on the flimsy foundation of the dollar, and the 
dollar is beginning to crack. Fisk is right to this extent; big changes 
are on the way. Only not just yet.

Mike Whitney lives in Washington state. He can be reached at 
fergiewghitney at msn.com




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