Uncle Sam, Your Banker Will See You Now
By Paul Craig Roberts
08/08/07 "ICH" --- - Early this morning China let the idiots in
Washington, and on Wall Street, know that it has them by the short
hairs. Two senior spokesmen for the Chinese government observed that
China’s considerable holdings of US dollars and Treasury bonds
“contributes a great deal to maintaining the position of the dollar
as a reserve currency.”
Should the US proceed with sanctions intended to cause the Chinese
currency to appreciate, “the Chinese central bank will be forced to
sell dollars, which might lead to a mass depreciation of the dollar.”
If Western financial markets are sufficiently intelligent to
comprehend the message, US interest rates will rise regardless of any
further action by China. At this point, China does not need to sell a
single bond. In an instant, China has made it clear that US interest
rates depend on China, not on the Federal Reserve.
The precarious position of the US dollar as reserve currency has been
thoroughly ignored and denied. The delusion that the US is “the
world’s sole superpower,” whose currency is desirable regardless of
its excess supply, reflects American hubris, not reality. This hubris
is so extreme that only 6 weeks ago McKinsey Global Institute
published a study that concluded that even a doubling of the US
current account deficit to $1.6 trillion would pose no problem.
Strategic thinkers, if any remain who have not been purged by
neocons, will quickly conclude that China’s power over the value of
the dollar and US interest rates also gives China power over US
foreign policy. The US was able to attack Afghanistan and Iraq only
because China provided the largest part of the financing for Bush’s
wars.
If China ceased to buy US Treasuries, Bush’s wars would end. The
savings rate of US consumers is essentially zero, and several million
are afflicted with mortgages that they cannot afford. With Bush’s
budget in deficit and with no room in the US consumer’s budget for a
tax increase, Bush’s wars can only be financed by foreigners.
No country on earth, except for Israel, supports the Bush regimes’
desire to attack Iran. It is China’s decision whether it calls in the
US ambassador, and delivers the message that there will be no attack
on Iran or further war unless the US is prepared to buy back $900
billion in US Treasury bonds and other dollar assets.
The US, of course, has no foreign reserves with which to make the
purchase. The impact of such a large sale on US interest rates would
wreck the US economy and effectively end Bush’s war-making
capability. Moreover, other governments would likely follow the
Chinese lead, as the main support for the US dollar has been China’s
willingness to accumulate them. If the largest holder dumped the
dollar, other countries would dump dollars, too.
The value and purchasing power of the US dollar would fall. When hard-
pressed Americans went to Wal-Mart to make their purchases, the new
prices would make them think they had wandered into Nieman Marcus.
Americans would not be able to maintain their current living standard.
Simultaneously, Americans would be hit either with tax increases in
order to close a budget deficit that foreigners will no longer
finance or with large cuts in income security programs. The only
other source of budgetary finance would be for the government to
print money to pay its bills. In this event, Americans would
experience inflation in addition to higher prices from dollar
devaluation.
This is a grim outlook. We got in this position because our leaders
are ignorant fools. So are our economists, many of whom are paid
shills for some interest group. So are our corporate leaders whose
greed gave China power over the US by offshoring the US production of
goods and services to China. It was the corporate fat cats who turned
US Gross Domestic Product into Chinese imports, and it was the “free
trade, free market economists” who egged it on.
How did a people as stupid as Americans get so full of hubris?
Paul Craig Roberts was Assistant Secretary of the Treasury in the
Reagan administration. He was Associate Editor of the Wall Street
Journal editorial page and Contributing Editor of National Review. He
is coauthor of The Tyranny of Good Intentions.
Dan Scanlan
[EMAIL PROTECTED]
www.coolhanduke.com
EPK: http://www.sonicbids.com/DanScanlan
http://willienelsonpri.com/arts/269/dan-scanlan-a-peaceful-solution.html
Electing is engineering.
Impeachment is quality control.
--Dan Ratherthan
