Hold on to your wallet!
Dollar slides, war costs rise
By
Milt Neidenberg
Published Mar 2, 2005 11:10 AM
It was a troubling 24 hours for the empire.
Would there be a run on the dollar?
On Feb. 22, South Korea's central
bank, the fourth biggest holder of U.S. debt, announced it intended to sell off
dollars and diversify into other currencies. South Korea holds about $69 billion
in U.S. Treasury securities, and a total of $200 billion in all foreign
reserves.
The global currency markets feared that China, which holds $600
billion and Japan, with $800 billion in total foreign currency reserves, might
join in the sell-off. The dollar plunged against almost every currency--at least
30 of them.
The fallout sent shock waves throughout the global financial
markets.
The Dow Jones Industrial Average plunged 174.02 points. The
British stock exchange, FTSE, along with the European stock markets in Frankfurt
and Paris, also dropped significantly.
Gold, the safeguard against
plunging markets, rose $7.40 an ounce. Oil, which is priced in dollars, spiked
5.8 percent to $51.15, the highest level since October.
Alarm bells
ring worldwide
A Feb. 24 New York Times editorial warned: "The United
States' trade deficit has mushroomed to record levels, as has the United States'
need to borrow from abroad--some $2 billion a day just to balance its books. ...
As the Korean comment ping-ponged around the world, all hell broke loose, with
currency traders selling dollars, fearing the central banks of Japan and China,
which hold immense dollar reserves--a combined $900 billion or 46 percent of
foreign treasury holdings--might follow suit."
The editorial described a
scenario that "would be the United States' worst nightmare ... if it appeared
that the flow of investment was not enough to cover the nation's gargantuan
deficits, interest rates would rise sharply, the dollar would plunge further,
and the economy would stall. A fiscal crisis would result."
Within 24
hours, the South Korean central bank and other Asian banks said their comments
had been misinterpreted. They calmed the markets by stating they had no
intention of selling their dollars.
How much pressure--economic, military
and political--did the U.S. ruling class put on the Koreans to reverse their
earlier statement? The world may never know.
Oil and
inflation
Oil is king. The robber barons of the 19th century, like the
ruthless Rocke feller dynasty, are back on top with mega-mergers and new
names.
ExxonMobil has replaced General Electric as top dog among the blue-
chip players. ChevronTexaco and Conoco Phillips are right behind them. All three
stocks spearheaded the recent surge in the stock market. These three mega-mono
polies control the market and the pricing of oil, which hovers above $50 a
barrel.
George Soros, the multi-billionaire investor and speculator and a
major contributor to the John Kerry presidential campaign, described the link
between oil and the dollar. At a conference in Saudi Arabia he said, "The higher
the price of oil, the more the dollars there are to be switched to euros [so]
the strength of oil will reinforce the weakness of the dollar." (USA Today, Feb.
21)
Middle East oil exporters and Russia have already switched from
dollars to euros. A further rise in crude prices could prompt more withdrawals
from their dollar reserves, sending the dollar to all-time lows.
January
"core" prices, which exclude food and energy, rose a significant .08 percent.
Add the skyrocketing costs of food and energy, and the inconvertible truth is
that inflation is a fact of life here in this arrogant super-power. The global
markets are flooded with cheap dollars, and will be inundated with uncontrolled
inflation.
The Wall Street Journal editorialized on Feb. 23: "[This] taste
of dollar inflation removed any doubt that the long era of low interest rates
that we've been living through is over. ... Alan Greenspan broke this bad news
last week when he told Congress that while the economy was sound [the Gross
Domestic Product expanded during last quarter 2004, thanks to cheap
dollar-denominated exports-MN], the Fed may have to step up the pace of its
interest-rate increases."
This is a signal that interest rates will rise
to levels far beyond the Federal Reserve's own "measured rate." This will raise
the cost of borrowing money for the purpose of attracting dollars to cover the
intractable U.S. debt.
Previously, Greenspan was asked at what point there
would be a global sell-off of dollars that sustain the humongous debt, and what
the Fed's target range for the next rate increase is. Greenspan said these
questions were like a "conundrum"--his fancy way of saying, "How the hell do I
know?"
Is another run on the dollar on the horizon? Central banks have
already shifted their reserves away from the dollar and toward the euro. About
65 central banks controlling assets worth $1.7 trillion took part. The dollar
has dropped over 30 percent against the euro.
What lies
ahead?
In the Feb. 24 New York Times Tho mas L. Friedman quoted Robert
Hor mats, vice chair of Goldman Sachs International: "These countries don't have
to dump dollars--they just have to reduce their purchases of them for the dollar
to be severely affected. ... Remember the October 1987 stock market crash began
with a currency crisis."
Is this what faces the labor movement, the
unorganized, the oppressed nationalities and the poor? Wages and benefits have
dropped significantly. Inflation has driven up prices of goods and services and
wiped out whatever meager wage increases have been won. Social services and
programs for low-paid workers have been drastically cut to pay for imperialist
wars and Bush's tax giveaways to the 1-percenters.
The cheaper dollar has
enriched U.S. corporations, which have flooded global markets with goods and
services at the expense of the European Union, primarily France and Germany. A
global trade war is in the making.
France, Europe's third largest economy,
has 10 percent unemployment. That's a five-year high. Street protests have
mounted.
There have also been many protests in Germany, suffering from
similar double-digit unemployment and deficits.
A Feb. 25 Wall Street
Journal article headlined, "CEO Bonuses Rose 46.4% at 100 Big Firms in 2004,"
cited a survey by the New York firm of Mercer Human Resource Consulting. Mercer
has been retained by the Wall Street Journal to track the financial statements
of 100 biggest corporations.
"CEOs in the Mercer study enjoyed med ian
total direct compensation of $4,419,300--about 160 times what the average U.S.
production worker made last year. The Mercer study also revealed that the median
2004 bonus equaled 141 percent of annual salaries, another record. Clerical and
technical support staff received an average bonus of 5 percent of
salary."
Most of these companies are applying the principles of "lean
manufacturing"--keeping inventories as low as possible and reacting to
short-term demand--while using temporary or part-time workers from non-union,
low-paying sub-contractors and outsourcing agencies.
"The number of
Americans without a job for more than six months has more than doubled over the
past three years to 1.6 million. The share of the unemployed without work for
more than six months has stayed above 20 percent for the past year and a half.
Never before has the rate been so high for so long." (Financial Times, Feb. 18,
2005)
Only a mass mobilization--independent and class-wide--can eliminate
the gross inequities between the billionaires and the workers, whose labor power
produces the wealth that maintains these parasites in obscene
luxury.
History has confirmed over and over that political and social
change, organized from below, is the only antidote to the ruthless
imperialist/monopoly capitalist system of wars, plunder and profit.
Articles copyright 1995-2012 Workers World.
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