ECONOMIC CATASTROPHE
The Coming Currency Shock

And you can blame this one on both the Democrats and the Republicans. From CounterPunch courtesy of J. Orlin Grabbe, economist Paul Craig Roberts on the high potential for a massive collapse of the dollar, and its catastrophic consequences:

As a reserve currency fulfills world needs in addition to the functions of a domestic currency, the favored country can hemorrhage debt for a protracted period on a scale that would promptly wreck any other country's currency.

This advantage is a two-edged sword, because it permits the reserve country to behave irresponsibly by running large trade and budget deficits. When the tide turns against the reserve currency, its exchange value collapses.

The reason for the collapse is the huge stock of reserve currency held by foreigners. When other countries conclude that their hoards of dollars represent claims that the US cannot meet, dollar dumping begins. Financing for US debt dries up; interest rates rise; imported goods become unaffordable and living standards fall.

Flight from the dollar is already underway.

And this could get much, much worse very quickly, because China, which has recently surpassed Japan as being the nation with whom the US has its largest trade deficit, has pegged it's currency value to the dollar:

Sooner or later the peg will come to an end--perhaps when China fulfills its WTO obligation to let its currency float. When the peg ends, it will deliver a severe shock to US living standards. Suddenly, Chinese manufactured goods--including advanced technology products--on which the US is now dependent will cost much more. Overnight, shopping at Wal-Mart will be like shopping in high-end department stores.

Click here for the rest (and be sure to scroll down past the fundraising message to get to the story).

The article also talks about how outsourcing has also contributed to this potential disaster: sending virtually all US manufacturing overseas is the same thing as sending virtually all real value overseas. That is, the dollar only holds international value because it is perceived as being valuable. Once that perception vanishes and the dollar is seen as basically worthless, the US would have no real assets on which to fall back; the corporations have moved them elsewhere. We're in big fucking trouble, and as Roberts points out:

Overcome by hubris and superpower delusion, US policymakers are unaware of America's peril. Economists and pundits are equally in the dark.

Like I said, big fucking trouble. No one in power will even understand what's happening until it's too late.

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