In the last year, running parallel with the Subprime Mortgage Problems and the sharp price increases of Oil, we have heard a lot of news about the declining value of the Dollar against the World’s other currencies. What does that mean for the Dollar and The US in political and economic terms.
For the last 50 years the US has lead the way in the Geo-political arena due to its military strength, but mostly due to its financial position in the Global Economy. The strong steady value of the Dollar made it a safe investment for most countries as well as a secure currency to pay for and accept payment on goods and services, not only from the US, but other countries like China who trade globally with foreign currencies. Most oil producing countries have traditionally accepted Dollars.
These factors, in the past, have kept demand for the Dollar high and have allowed the US to charge huge deficits by borrowing in the form of Treasuries to foreign countries to pay their bills in Dollars. That may soon be coming to an end according to George Soros, Hedge Fund Billionaire. He has refferred to it as an “end of an era”.
The US wealth, through institutions like the World Bank and the IMF, has allowed the US to dictate many of the terms and conditions of the World’s economic climate via loan conditions and policy favoritisms, which often favor US Corporations and US trade policies, but these factors are beginning to shift.
There is a trend leaning toward commodities, as a safe haven as the Dollar continues to fall against the World’s currencies. International Business Vendors are beginning to require payment in Euro’s to prevent losses from long term conditions of contracts due to the Dollar’s possible decline over the duration of the agreements. Confidence in the Dollar, which once stood as an icon of strength, is waning.
The Change.
This week Korea announced the Asian Monetary Fund (AMF), an agreement between South Korea, China, Japan and the Association of Southeast Asian Nations (ASEAN). This fund, some $80 billion,will help member states cope with any liquidity crisis, a South Korean official said Sunday*. The fund will also allow member states to borrow without the terms and conditions often part of IMF loans. This will present a dramatic shift in the World’s economic political climate as other currencies vie for global influence.
Other changes that will effect the US more directly will be the waning of US Dollar demand forcing the government to run a balanced budget effecting its ability to finance its leviathan military force.
The United States spends 3.7% of its GDP on its military. This is historically low for the United States since it peaked in 1944 at 37.8% of GDP (it reached the lowest point of 3.0% in 1999-2001). Even during the peak of the Vietnam War the percentage reached a high of 9.4% in 1968.** In Dollars and Cents that equals $711 bil, or 48% of the entire World’s military budget. Total expenditures for 2008, for defense purposes, will exceed $1 Trillion.
This could have several different possible effects that may take some time to yield, but what is immediate will be the need for the US to rely more on cooperative efforts of other countries and their militaries if they wish to continue the war on terrorism. Currently other countries are far less adamant as the US when it comes to the military as a primary means to global security.
The Problems
The current global economic conditions are being stressed by many factors. Record oil prices are pushing up inflation around the World. Food shortages that may be the result of a combination of increased demand from countries like China and India with runaway growth, fuel stocks for ethanol from the US and Europe, that are shaping the worlds farming, shortages of fertilizers and the Global Climate changes we’ve seen in Australia, now suffering a 6 year drought, and UG99 Wheat Rust that has broken out in Africa and the Middle East.
The World’s banking and lending agencies are writing off billion of Dollars as the fallout of the Subprime Mortgage mess floods the globe. The banks are responding with tighter lending standards putting more pressure on businesses, and consumers. Bankruptcies that were once exploding mostly in the US are beginning to occur in Europe from similar loose lending practices, and the governments involved, mainly the US, are simply unwilling to do what it will take to put a dead stop to the foreclosures that are bring down the value of properties and collapsing home owners equity. Many home owners now owe more than the value of their own homes.
If these weren’t enough, the war on Iraq and the possible threat of attack over what the West considers to be nuclear violations on the part of Iran, are pushing up the speculation on oil which if taken too high could essentially put the breaks on the World’s Economic Growth and grind down global trade to a halt, but these aren’t the real issue that needs to be resolved.
The big issue is what will take the place of the Dollar? China is unwilling to use its currency in open trade, allowing it to keep control over its currencies value. The obvious choice would seem to be the Euro, but here’s why that won’t be the solution. Europe is currently headed into a similar cycle of foreclosures and the lending problems the US is currently in. Their inflated currency will have strong effects on exports that will eventually begin to effect their growth and inflation due to high oil prices may limit the European Central Bank from being able to respond, similarly to the US Fed ’s difficulties.
The Solution
The solutions are very simple for someone like me, who has little to loose when it comes to Global Economics. Either way I can still grow food and spear fish in an abundant ocean, while living in a bamboo hut.
The first thing to do is to pull the US Military out of foreign territories and restore control of the middle east to its sovereign. Cut military spending and divert those funds into alternative energy sources that won’t put a strain on the World’s food supplies, end US Farm subsidies, and stop promoting growth and capitalism as a right.
Promote conservation and energy self sufficiency through tax incentives and laws forcing major changes in technology. Stop the collapse of real estate values and bailout the home owners instead of the banks and the construction firms that lead to the bubble in the first place.
Learn to cooperate with the World’s Societies to build a harmonious relationship with the Earth, allowing indigenous life styles to share in the cultural cornucopia instead of forcing hunter gatherers to civilize into good consumers, which merely adds to the demand on the World’s already strained natural resources.
And lastly, let the rule of law no longer be a shroud of protection for the true criminals of the world. Let the courts hear the cases of crimes against humanity when the Union Carbide’s of the World fill communities with deadly gas, or the Bear Stearns’ create an economic mess that displaces families into bankruptcy and humiliation by the millions, instead of rewarding them for their failures.
The fact is that Consumer based Capitalism has put greed at the helm of our Global Ship and Supply and Demand, no matter how you dress it up, will always mean those who have and those who do not. The uncertainty of the Global Economy will not be solved by a shift of leadership if that leadership is based on similar principles, but will only compound it and historically these ideas have lead us into World Wars and Cold Wars to decide the fate and direction of our Global Paradigms.
*According to www.tradingmarkets.com
**According to www.Wikipedia.com
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