Elaine Meinel Supkis
As our demented dictator dreams of expanding his wars, the dollar continues to slide off the cliff. Democrats begin to barely worry about this impending disaster. Americans planning for retirements move more to risky investments and away from safer bonds. Meanwhile, China uses its new-found economic power to increase its military reach.
NEW YORK (MarketWatch) - The dollar fell against other major currencies early Wednesday, after the United Arab Emirates said it's looking to diversify its foreign-exchange reserves away from the U.S. currency. Sultan Bin Nasser al-Suwaidi, UAE's central bank governor, said the bank plans to raise the share of euro holdings in its reserves to 10% from 2% over the next six to nine months. The bank said it has started to do so in a limited way and will buy euros on pullbacks. UAE's reserves stand at about $25 billion. The new home sales report is due at 10 a.m. Eastern. Sales of new homes probably rose to 1.02 million in annual seasonally adjusted sales compared to 1.004 million in October. The euro was last up 0.4% at $1.3156, while the dollar was down 0.5% at 118.55 yen.
This will drive up the euro even more. The Europeans want a trade surplus with the USA but they probably will be the first to recognize, this isn't possible anymore. If all currency regimes depress their currencies simultaneously, we get a global depression. Many countries don't want this so they are playing a fiscal musical chairs game. We are the elephant sitting on a broken chair.
The USA has done a fatal thing: it parked more currency abroad than at home. Using our currency world-wide in the wake of WWII was neccessity. In a time of 'plenty' it is plenty stupid. The tsunami of depreciating dollars washing over the world's economies is due 100% to the USA running a chronic trade imbalance with the entire planet.
This is because we suck in 23% of the world's output and resources while being only 2% of the population. If we had some sort of resource like oil, we could do this. But we had only one resource: debts.
I saw in the news today the reason the dollar didn't drop further was because new home sales increased. This is all due to not understanding declining housing markets: new home builders need to unload properties fast as possible when a downer market begins. So they offer price cuts and incentives to sell. This usually does the trick. The thing to look at is future houses being planned: this looks bad indeed. So the slide of the dollar was stopped only due to global misapprehensions of how our housing market operates. This is due to the media hiring writers who deliberately hide information like this because the media exists only to sell the stuff they advertise. This is why they cannot call any downturns accurately.
Websites peddling gold futures are the same in the opposite direction: they see unnecessary bad news in order to boost interest in their products.
&hearts Our hideously expensive war for oil is bankrupting the USA.
But with the costs of those military operations rising and President Bush considering an expansion of forces, the incoming chairmen, Rep. John M. Spratt Jr. (S.C.) and Sen. Kent Conrad (N.D.), said they will have little room in their budget blueprints for significant new domestic spending, such as closing a much-criticized gap in the new Medicare prescription-drug benefit that forces millions of seniors to pay 100 percent of drug costs for a few weeks or months each year.They said they will press Bush to help finance a war that is costing the nation as much as $8 billion a month.
"Raising taxes would certainly be an option," Conrad said in an interview. "The president, this is his policy. He's got an obligation to pay for it."
Raising taxes to pay for a war? How quaint! Ever since Reagan, the USA electorate has been addicted to debt. Across the board. On every level. Anyone suggesting we pay as we go gets hammered. The GOP has been particularily obnoxious about this. All democracies end up in this fix: the free ride to hell. Namely, if one candidate suggests we cut back or pay more, they get hammered by the Santa Claus party which yells, 'What me worry?'
Responsible Democrats forced Bush Sr. to raise taxes. After twisting his arm, they got the tax hikes and the electorate revolted. Totally. They put into power the GOP Congress which had to wrestle with Clinton balancing the budget but once that was finally achieved, they went wild with fury. Along with the American people. Insane with lust, half of the nation decided spending like fiends and never paying for anything was the road to riches.
This ruinous road is the same one all empires choose in the bitter end which is why none of them can last for more than 200 years and be solvent.
&hearts Not only is China gaining on us on every level, they are militarizing rapidly.
BEIJING, Dec. 27 (Xinhua) -- Chinese President Hu Jintao on Wednesday called for the building of a strong and modern navy force."The navy force should be strengthened and modernized under the guidance of the Deng Xiaoping Theory and the 'Three Represents' to serve the country and its people more effectively," said Hu when meeting representatives of the navy Party's 10th national congress.
China's territory boasts a large sea area and the navy is of vital importance in defending state interests and safeguarding national sovereignty and security, stressed Hu.
This is an important move. The most expensive part of any military system remains the navy. Any nation that can field a strong navy can take down other empires. The nuclear ballistic missile forces are purely for defense: MAD means no one can attack.
But navies are used to project power and we are using ours in the Middle East for that purpose, for example. The days of shy China hiding at home are now over.
BOSTON (MarketWatch) -- Investors are increasingly relying on stocks over bonds and other traditional income sources to support them in retirement, a trend one mutual-fund company executive says is still in an early stage."Equity income is replacing bond income," said Duncan Richardson, chief equity investment officer at fund giant Eaton Vance Corp. (EV :
32.36, +0.18, +0.6% ) . "We're only in the third or fourth inning of the dividend-investing cycle."
Boston-based Eaton Vance has seen about $16 billion flow into its equity-income funds since the tax rate on qualified dividends was cut to 15% in 2003, he added. Widening demand for equity-income products, which favor dividend-paying stocks, dovetails with a growing sense among financial advisers that investors should keep a larger part of their portfolios in stocks throughout their lifetimes.
The need for risk is due to a destabilizing system. As the dollar collapses in purchasing power, as inflation rages (masked by cheap imports) a sure sign interest rates are too low is when people take on ever-greater risks because saving money the old fashioned way means losing money.
In other words, this is an alarm bell going off. It means the system is very much out of whack. This means something is going to give. It is like watching subduction zones for earthquakes: the ground creaks and groans before blowing out. The refusal of our political leaders to take responsiblity for this huge mess isn't surprising.
People universally want to have every day be Xmas morning. They want to unwrap goodies and then have a childishly fun time. This urge is dangerous. It is unrealistic.
The USA is running a series of very reckless foreign actions which are not only very expensive but also very violent. The neocons running this mess fear China yet every move they make renders the USA weaker and more vulnerable. Unable to see this, they continue. The political establishment is in denial which is why virtually no one in DC is very worried about the future of our IOUs with the whole planet. This reckless disregard is fatal. I see no sign of anyone taking all this very seriously.
Eventually the Germans will send someone here with a warning. They won't tolerate the USA forcing the euro to the stratosphere. They will demand something in return. And the Chinese will kneecap us.
Elaine, I posted a relevant comment on your last entry. Now it looks like I probably should have put it here. Well, anyway, that's where it is.
Posted by: Rosemary | December 27, 2006 at 07:38 PM
Thanks, Rosemary. Will go look there.
Posted by: Elaine Meinel Supkis | December 27, 2006 at 10:38 PM