The Great Dollar Crash of '07

Mike Whitney
Wednesday, February 7, 2007

The massive equity bubbles which arose from artificially low interest rates and the deliberate destruction of the dollar by reckless increases in the money supply have shifted trillions of dollars from working class Americans to the predatory aristocrats at the top of the economic food chain. The gulf between rich and poor has grown so wide that it now poses a direct threat to our increasingly fragile democracy.

"Whatever future developments may prove to be, my best guess is that the US will continue to maintain a façade of Constitutional government and drift along until financial bankruptcy overtakes it." Chalmers Johnson, "Empire V. Democracy: Why Nemesis is at our Door"

02/06/07 "ICHBlog" -- - Every time a US Dollar is traded, a check is issued on an account that is overdrawn by $8.6 trillion. (That is the present size of the national debt) It is, without question, the biggest swindle in history. Flimsy sheets of faded-green scrip are eagerly exchanged for costly goods and services without any regard for the real value of the currency.

And, the real value of the currency is absolutely nothing!

How is it that this scam persists when people appear to be aware of the massive debt and deficits which underwrite the dollar? Do they still believe in that puerile fairy tale about "the full faith and credit" of the United States backing up every greenback? Or are they pacified by the wizened graybeards, like Alan Greenspan and Hank Paulson, who soothingly bray about the "strong dollar policy"?

What gibberish.

In truth, the dollar rests on the crumbling foundation of consumerism and oil. The American consumer's gluttonous appetite for spending has kept the greenback flying high for decades. Economists marvel at America's lust for electronic gadgetry, the latest fashions, and useless knick-knacks. They call our profligate spending "the engine for global growth"; and indeed it is. No other country in the world is nearly as addicted to binge-spending as the US consumer. As long as he can beg, borrow or steal his way into the shopping mall; the orgy of spending is bound to continue. (Consumer spending is 70% of GDP)

Regrettably, there are signs that the US consumer is beginning to buckle from the weight of personal debt. The Associated Press reported just this week that "people are saving at the slowest rate since the Great Depression… and the Commerce Dept stated that the nation's personal savings rate for 2006 was a negative 1%, the worst showing in 73 years."

Additionally, credit card debt has skyrocketed, which is an indication that homeowners are no longer able to siphon easy-money from their home-equity. The nose-diving real estate market has slowed refinancing to a dribble; cutting off the additional $825 billion of cash which was extracted from home-equity just last year.

Clearly, the well is running dry; the housing bubble is hang-gliding into the abyss and there's nothing Fed-master Bernanke can do to save it from its inevitable crash-landing.

The central banks around the world are now watching for any sign that the American consumer is about to give up the ghost. As soon as that happens, bank managers everywhere will swing into action, ditch their U.S.Dollars and head for the exits. When the "global engine" sputters to a halt; it'll be curtains for the greenback.

The Oil-extortion Racket

The dollar's link to oil has helped to keep it afloat but, in truth, it's just another dismal rip-off. More than 70% of the world's oil is denominated in USD; a virtual monopoly for the USA. Until last year, even Russia was using dollars in its oil transactions with Germany. Imagine a comparable deal, like the US purchasing oil from Canada in rubles?!?

It's lunacy; and yet this is the system the US hopes to preserve so it can maintain its unique status as the world's "reserve currency" and keep expanding its debt into perpetuity. It explains why the Federal Reserve has been able to increase the money supply by a whopping 15% for the last 6 years! Trillions of dollars are now circulating in the oil trade keeping the value of the dollar high by creating artificial demand.

The other reason the dollar hasn't succumbed to hyperinflation is because the current account deficit is running at roughly $800 billion per year. The Asian giants (China and Japan) and the oil exporting countries are mopping up more than $700 billion of our red ink every year!

The dollar's link to oil forces central banks to maintain humongous stockpiles of USD to pay the steadily rising price of oil that keeps their industries and vehicles running. Otherwise they would have chucked the flaccid greenback years ago and converted to the more steadfast euro.


The so-called 'global economic system' has nothing to do with competition, free markets or private enterprise; that's just public relations gobbledygook. In practice, it is the world's biggest extortion racket, wherein, the "Godfather"-- Uncle Sam-- holds a gun to the heads of his subjects and forces them to use our fiat-paper to purchase the oil that lubricates their economies.

Why would anyone accept a personal check from a nation that owes the bank more than $8.6 trillion dollars?

Why, indeed?

It's blackmail, pure and simple; and yet, the Chinese, Japanese etc. continue to play along knowing full-well that we neither have the inclination nor the resources to pay them back in kind?

It's madness.

Every so often, a rebel nation will try to break the shackle of greenback-tyranny and operate outside the US-run system?

For example, Saddam Hussein switched to euros 6 months before he was carpet-bombed in Shock and Awe. His defiance only hastened his ultimate downfall.

Now Iran and Venezuela are threatening to convert to euros. Is it any surprise that they are both on Bush's axis-of-evil hit list?

Russia has already made the conversion to euros and rubles (and has considerably depleted his supplies of USD) but, of course, regime change is more difficult when a state has nuclear weapons. Instead, the mainstream media is conducting an impressive "Swift Boat" campaign against Putin, smearing him as a "Russian autocrat" who is "rolling back democracy". At the same time, the Bush administration is threatening to deploy missile systems in Eastern Europe and ratcheting up the pressure in the former Soviet republics.

Bush would rather restart the Cold War than abandon the supremacy of the greenback.

But, why? Is Dollar-primacy really that crucial to our economy?

The greenback is the baling wire that keeps the global economy in the hands of the doddering old misers at the Federal Reserve. It's the cornerstone of the whole wretched system; a system which now includes torture, extraordinary rendition, and myriad other war crimes.

The young Muslim men who are abducted off the streets of Europe and Asia and taken to CIA Black Sites where they are waterboarded or stacked in naked pyramids; are tortured in defense of the crumpled piece of green paper we carry in our pants pockets.

Think I'm kidding?

Just look at Bush's budget for 2007-2008; $700 billion for foreign wars?!? There's no way the US can pay off that debt through the normal means of increasing exports. In fact, Bush has already said that he plans to preserve his unfunded tax cuts whether they produce massive deficits or not.

What Bush plans to do is force the foreign central banks to hold more dollar-based assets, thus, thrusting our gigantic debt onto our trading partners. According to Bob Chapman of The International Forecaster, "US debt was up 10.1% to $4.085 trillion and accounts for 58.8% OF ALL THE CREDIT ISSUED GLOBALLY LAST YEAR. The US is producing more debt than the rest of the world combined.

As long as foreign lenders are willing to take our paper, Bush will keep expanding our debt. As Chalmers Johnson opined, "We are dependent on 'the kindness of strangers'". (The Blanche Dubois economy)

Of course, if the central banks grow tired of this pyramid-scheme and dump the dollar; the world can get on with the business of addressing global warming, poverty, AIDs, Peak Oil, nuclear proliferation etc. That won't happen as long as the dollar reigns supreme and a small cadre of unelected racketeers at the Fed continue Gerry-rig the system.

Economic justice and equitable distribution of wealth begin with greater parity among the currencies. That requires "regime change" for the greenback and a loosening of its tyrannical grip on the system.

Sleepwalking in the Weimar U.S.A.

The good news is that the Bush administration is pushing the dollar towards extinction anyway. Another few years of $800 billion trade deficits, lavish unfunded tax cuts for the mega-rich, and a Pentagon budget of $700 billion-plus; and the old greenback will be going the way of the Dodo. Jim Willie of GoldenJackass.com summarized it this way:

"Never in the history of central bankers has the hidden coordination, influenced pressure, gargantuan money creation, doctored statistics, and interference with financial markets been so broad, so deep, and so profound. My allegation is clear, that we now live in Weimar times, as has been warned for two years worth of scribbles. Collectively, they have abused the privilege of printing money, and in doing so, have guaranteed a gold bull market. … The more heavily the counterfeit press dispenses electronic dollars, devoted to operations, to credit, to consumer spending, to military adventures, to good old fashioned fraud, the gold bull benefits from ample new oxygen and blood flow".

Willie is right; the system is rotten to the core. Once the dollar crashes, other currencies rush in to fill the void generating greater competition between the energy and manufacturing giants. A new paradigm will emerge distributing power more equitably among the states. It's a way to resuscitate a system that is currently held together through force of arms.

Besides, how long will China and Japan continue to abet Washington's war-mongering adventurism? My guess is that the daggers have already been sharpened in Beijing, Caracas, Delhi and Moscow. Everyone is just waiting for Bush to cross that invisible line in the sand before they fling their greenbacks into the jet-stream and wait for Goliath to tumble.

That "invisible line in the sand" is Iran.

The world is at a crossroads and everyone who can fog a mirror knows it. The superpower model of global governance has failed miserably. We need more responsible stewardship of the planet and its resources.

How can we build our economies when a handful of western plutocrats control the spigot for quickly dwindling oil reserves? How can we attack climate change when those same blinkered reprobates employ pseudo-scientists to dispute global warming? How can we address nuclear proliferation when neocon militarists believe in "useable" low-yield, bunker-busting warheads?

The model is hopelessly shattered. We'd be better off boarding-up the White House and the Federal Reserve and starting from Square One.

The world needs a break from Washington's wasteful spending and unprovoked wars. At the same time, foreign creditors are increasingly reluctant to keep financing America's extravagant consumption. And, no one is hoodwinked by Bush's "war on terror" scam; a conflict that was clearly concocted to assert control over the world's remaining resources.

The world is realigning according to mutual interests and a shared vision of the future. The rise of energy alliances in Latin America and Asia (particularly the Shanghai Cooperation Organization (SCO) which now controls most new oil deposits and output) signals the waning of western influence and the ascendancy of a new energy paradigm. Power is progressively shifting away from Washington.

That's bad news for the greenback which depends on its linkage to oil to sustain its enormous debt.

The dollar now faces challenges from all directions. Western elites have savaged the country's economic base by hollowing out our manufacturing base in order to destroy the American labor movement.

Free trade has transformed the US into the biggest creditor nation in history. The country exports nothing but bombs and misery.

Also, as Congressman Ron Paul notes, "Most knowledgeable people assume that inflation of the money supply is not only going to continue, but accelerate. This anticipation, plus the fact that many new dollars have been created over the past 15 years that have not been fully discounted, guarantees the further depreciation of the dollar."

Eventually, the markets will catch on, foreign lenders will stop buying our Treasuries, and the dollar will fall through the floor.

The laws of gravity apply to economics as well as science.

Red flags are going up everywhere. China's central bank issued a warning in December about the risks of the weakening dollar:

"If external capital stops flowing into the US, a significant drop in the dollar may occur with consumption and investment shrinking, interest rates rising, and financial markets experiencing turbulence, endangering global financial and economic stability. There could be adjustments to how European private capital, Asian foreign exchange reserves and oil export proceeds are invested."

Yes, of course, a complete economic meltdown with capital fleeing the United States to foreign countries and the American economy collapsing in a heap.

The Chinese central bank statement adds:

"If the US current account deficit continues to grow faster than GDP, then the investment value of US assets may be subject to doubts and challenges and the willingness of investors to continue holding and buying US financial products may weaken. This could cause changes in capital flows, the exchange rates of major currencies, and the value of foreign exchange assets."

The Chinese bank is giving the Bush Team a chapter out of Econ. 101: "If you keep spending more than you are taking in; the stock market will fall, the dollar will plummet, and the US economy will tank".

What could be clearer than that?

The administration, however, chooses to ignore the basic laws of economics and pursue a madcap plan to wage aggressive war across the planet and pilfer the world's oil reserves.

So far, the results have been less than reassuring.

The Decline of U.S. Sovereignty; blame it on the Fed

The United States set off on the road to perdition when it transferred the power to create money to the privately-owned Federal Reserve. It's been downhill ever since.

The man who can set interest rates and create money is more powerful than the man who can move armies and change laws. By conferring that authority on the Federal Reserve we have assured that the policies that govern our economy are decided by unelected members of the ruling elite whose choices will naturally reflect the interests of their class.

The wealth gap that has opened up like a yawning chasm between rich and poor in America originated with the class-based policies of the Fed. The massive equity bubbles which arose from artificially low interest rates and the deliberate destruction of the dollar by reckless increases in the money supply have shifted trillions of dollars from working class Americans to the predatory aristocrats at the top of the economic food chain. The gulf between rich and poor has grown so wide that it now poses a direct threat to our increasingly fragile democracy. That's why Thomas Jefferson said:

"If the American people ever allow private banks to control the issue of our currency, first by inflation, then by deflation, the banks and the corporations that will grow up will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing of power should be taken from the banks and restored to the people, to whom it properly belongs."

Free people cannot control their own destiny unless they control their own currency. The Federal Reserve must be abolished.

Mmmmmmm .... long articles about economics. Watch me eat that up.

Can someone compress this into a debatable soundbyte?

Why bother. It's a bunch of hocus pocus garbage. Really. That article is garbage. It goes alllllllll over the place, it's not unified, and it really skirts the real reason why the dollar might dissolve, and that's that there is no gold standard behind it anymore.

i dunno, the article makes some good points. Like at some point oil trading will be based on the euro and not the US dollar. and at some point an 8.6 trillion dollar debt will affect the dollar as well.

These are very valid economic concerns and why we as individual investors should be diversifying away from just dollar based investments.


The rest of that rant shows a very shallow understanding of the global currency market.

How so?

Is this a valid point if the world is moving away from oil dependance? In an ever greening world, albeit very slowly greening world, I have no concerns that oil may one day be pegged in Euros. Sellers will still gladly accept American dollars.

"The American consumer's gluttonous appetite for spending has kept the greenback flying high for decades"

And has generated almost of all of the industry in the developing world.

I agree with the author that much of the international backing of the US dollar is based on oil trading, but not all. China's and Japan's purchasing of US bonds has to do with their own currency manipulations and their dependence on US over-consumption to maintain their economies. China, Japan, and Saudi Arabia have as much to lose from a dollar collapse as the US does. There is little chance of 'sell off' until a market equal in strength to the US appears somehwere else.

Saddam's switch to the Euro was an attempt to solidify himself with those oppose to the US invasion, the troops didn't magically appear there after the switch. I feel it's not necessary to address the rest fo the conspiracy crap that fills out the article.

The article has some valid points, the msot important of which is that the federal deficit is the single most important problem facing America. Not global warming. Not health care for the poor. Not Islamic radicalism. Federal spending must be reduced to pay off the debt and during teh enxt election cycle the people we vote in must make this their top priority.

Good Luck B,

http://video.google.com/videoplay?docid ... IAT+EMPIRE

What exactly do you consider "conspiracy crap?" Are you referring to the Federal Reserve being a cartel of 12 international banks and is no more Federal then Federal Express? That every penny of income tax you pay on your daily wages simply goes to paying the interest on the debt, never the debt itself? That our money is no longer backed by a gold standard and is really worth 4 cents? Conspiracy stuff like not knowing who runs those 12 international banks?



Thanks for the link have never seen this. Check out The Money Masters and America: From Freedom to Facism. Also lays out a lot of the same information. I enjoy seeing Ron Paul (R-Tx) speaking out about this. He's been saying the Federal Reserve is unconstitutional for quite some time. Found a site with a ton of great quotes on the Federal Reserve:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." -Woodrow Wilson

"We have, in this country, one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board. This evil institution has impoverished the people of the United States and has practically bankrupted our government. It has done this through the corrupt practices of the moneyed vultures who control it". -- Congressman Louis T. McFadden in 1932 (Rep. Pa)

http://www.freedomdomain.com/bankquot.html

Mike Whitney thinks that the bomb at the Golden Dome was a US black-op.
Mike Whitney is a regular op-ed writer for al-jazeera.

The article? A couple of salient points surrounded by some serious left-wing nut-jobery.

(...and I love the irony of lefties promoting Ron Paul)

:yawn:

The dollar has been overvalued for several years. It won't be "collapsing" anytime soon.

I mean the "swift boating" Putin claim or this gem: "Bush would rather restart the Cold War than abandon the supremacy of the greenback." I don't know enough about the global credit market to understand the alleged implications of governments wasteful spending.

Just more evidence that the goverment has too much influence in our lives and should be shrunk to it's pre-new deal size.

Most of you probably think the Fed is a government run institution. For those who know that is not, you probably already know about the history of money in this country. If the United States is in control of the Fed and therefore in control of our money, then why did they change the fine print on the Money when the Fed took control in 1913?

Pre Fed


Post Fed



If you think that the Government backs every dollar, then why did they take off the fine print saying they would?

Yeah, that stuff.

Bant, you have made the best N&D post so far this year.

I wish Economics for the working poor or demographically disadvantaged could be taught early in school.

We could call it how not to fuck up your economic life and live in the projects or "don't ever go to Titlemax" or "the idiots guide on how not to give boatloads of money to predatory lenders, or even How to move out of the trailer and into a better life.....(use birthcontrol etc..)


Note to America. Live within your means and you will NEVER outside of some great catastrophe live paycheck to paycheck in this country.


The current deficit is a direct casualty of turning too much power and control over to a federal government. Sure a war here or a depression there it's good to give them some more power and economic control....but then they never give it back..... titanic debt is the result. Politicans have no real reason to change the system... it's keeping them in power.

Here is a speech Ron Paul made in 2002, obviously it didn't get anywhere.



Congressman Ron Paul
U.S. House of Representatives
September 10, 2002

ABOLISH THE FEDERAL RESERVE

Mr. Speaker, I rise to introduce legislation to restore financial stability to America's economy by abolishing the Federal Reserve. I also ask unanimous consent to insert the attached article by Lew Rockwell, president of the Ludwig Von Mises Institute, which explains the benefits of abolishing the Fed and restoring the gold standard, into the record.

Since the creation of the Federal Reserve, middle and working-class Americans have been victimized by a boom-and-bust monetary policy. In addition, most Americans have suffered a steadily eroding purchasing power because of the Federal Reserve's inflationary policies. This represents a real, if hidden, tax imposed on the American people.

From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.

With a stable currency, American exporters will no longer be held hostage to an erratic monetary policy. Stabilizing the currency will also give Americans new incentives to save as they will no longer have to fear inflation eroding their savings. Those members concerned about increasing America's exports or the low rate of savings should be enthusiastic supporters of this legislation.

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress' constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.

In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans' standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

Why did the Fed go off of the Gold/Silver standard? From what I recalled from U.S. History, the wealthy lenders were in favor of a stable currency like the gold or silver standard, and it was the farmers who tended to want an expanded money supply. When did it become in the interest of the elites to go off the gold standard?