Americans still don’t have a clue what the consequences are of voting the bailout bill.
The current financial crisis is not what counts; the upcoming recession is not what counts. Eventually, the G7 all want to get ‘back to the old’. Well, the old will not come back, ever; that is what counts. The G7 simply cannot figure out what is going on themselves. Just look to Europe, they are screaming for a cheap Euro against the dollar. Of course, everyone wants their currency to be weak against the dollar, so that they can flood the US with imports. Just look at what Japan did the last years, keep the Yuan cheap against the dollar and create a huge trade surplus. Also Europe wants this status quo to continue. BUT IT CANNOT.
There is no way this can continue. All the Europeans are hoping the dollar can be talked up. It is simply absurd that the dollar rises just because Paulson announces the bailout plan; as if his words would contain some magic secret spell. It is a very simple rocksolid rule of economics that any country running huge trade deficits all the time will have a weakening currency. Expect some huge volatility in exchange rates for the coming weeks and months, but eventually the hocus-pocus will fail and the dollar will crash.
But don’t be fooled, the problem isn’t the value of the euro (against the dollar). The problem isn’t the value of the Yuan and even not the value of the Yen. The problem is the wild spending of the American Empire. The repairs that are needed will change the whole economic system and the world’s political systems. It’s simple: the world has a trade surplus with the US. This surplus has been growing since 1968. In 1968, the trade deficit of the US was 5 billion US$. Then it was over20 billion US$ each year in the 1970's then in the 1980's, it rose to over 50 billion US$ a year and then in the 1990's, it climbed ever steeper to 100 billion US$ a year and more and then...today, it is nearly a trillion US$ a year.
A DEFICIT OF A TRILLION US$ A YEAR !!
A number completely outside the laws of equal trade which will eventually crash the hocus-pocus and drive the dollar down and down and change the powers in this world drastically. You can feel the ground trembling as the volcano is setting to explode; it will happen in an eyeblink. The US is preparing for tax cuts and dropping interest rates. This is insane, it will only speeden up the explosion of the volcano. People seem to forget that China has more sovereign wealth than anyone on earth and unlike the second sovereign wealth nation, Japan, China doesn't have much sovereign debt. After the US, Japan is number 2 in soveriegn debt. Indeed, its sovereign debts are 9 times greater than Japan's Forex reserves while China's is 4 times smaller than their Forex reserves!
This simply means that China has a grip on the world banking systems for the simple reason that China IS the bank. And now the US would have to ask the Chinese to make their currency the strongest on earth while the US pretends to be the number 1 empire? China will only rise their currency when it can forma strong alliance with Japan, when Taiwan is reintegrated with China, when Korea is re-united and in a military/economical alliance with China, etc… But Japan won’t agree with this path, Japan dragged Asia into World War II and it will do it again. Meanwhile Europe is imitating Japan, Russia and China and swallowing all the freshly printed dollars in the hoop to keep pushing the rate of the dollar up. But the end is in sight, the US customer can simply not swallow more debt and the US industry is dying. This brings us to the conclusion of the current events: all the actions taken by the European, Japanese and US nations are driving us into the very problems we all claim, we want fixed. Which means we want this mess to continue and make the US look strong even when it dies. This is exactly what the bailout plan is about. Europe wants a strong dollar, no matter what! Meanwhile we tend to forget that for decades Europe joined the US in destroying Russia. After promising Russia, we wouldn't expand the EU, we did. After promises we wouldn't expand NATO, we did. Now we are trying to park ballistic missiles right on Russia's front doorsteps! Only this time, Europe is at the mercy of Russia. Europe has no energy and depends on Russia like a baby who needs its milk.
Do not underestimate the “new Russia” that is standing up. Anyone who follows the news in Brazil (which already had 12,5 billion barrels of oil reserves in the ground) is aware that Brazilian Petrobras has discovered significant deposits (up to 70 billion barrels) of oil plus natural gas off the coast of Brazil. This is major news for Brazil. 
The country its electricity is already for more than 90% auto-sufficient on hydro-electric, more than 40% of its cars already drive on ethanol and with these new gas and oil finds, the country could become completely energy-sufficient for the next century and beyond. Until…. the Americans decided to re-establish the US Navy 4th fleet and put its eyes on Brazil’s oil early September. After which Brazil reacted and is currently negotiation with France to build a nuclear-powered submarine to protect its oil. Brazil will also expand its Navy’s surface fleet and buy several more nuclear submarines to keep the Yanks away. But, eventually it will be Russia ruling the show, shortly after the US set off to Latin America, the Russians also set sea.
The world will never be the same.
Thank you very much for your excellent article. It provides very usefull information. Please, let me add some comments.In my opinion, what you describe has not finished yet, it is in progress, Currently, there is something that we could call an economic war between capital and commodities that, unfortunately has not much common ground to reach a fair agreement and keep economic peace and mutual beneficial deals. Some countries, both in the developed side and in the developing side of the battlefield, took extreme positions that makes agreements difficult. But, in my opinion, it is a non sense war, in hurst everybody and in the long term, we all know that commodities always win, or capital always fall (as capital grows and gorws while commodities are finite, supply and demand laws tells the result of the balance).
Also, developed economies insist to reinforce the old institutions such as IMF, that are clearly obsolele both regarding its balance of power, its functions and its double standard (i.e. how would the IMF would have behaved if the US banking crisis would happen in Brasil? would it keep silence as it did regarding the US crisis? or would have demand Brasil to avoid bailouts, to deregulate its domestic markets, as the IMF uses to do?), and its mission to sustain and devlop global development while it does not have and will never have resources to afford such mission. International institutions have to reflect what the world really is in 2008, not what it was in 1945. It includes a new curency and monetary system, not just a new financial order focussed on new regulations over banks, risk score agencies, etc. To keep a single currency as the standard tool was nice in 1945 but now it seems obsolete as well. Thank you very much for your article and for allowing me to add this comments
Posted 17 years ago