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Oct. 17, 2003 The truth IS out there.

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A NEXIALIST N+E+W+S Feature: The BIG One VI: The Dollar

from L. Reichard White


Do you like the "A-ha!" experience?

NEW FEATURE:
To save time, read only bolded text. If you remember, it is designed to make sense when read that way. To save even more time (and see the really important parts), read only the magenta text.

Here's the latest in NEXIALIST N+E+W+S's The BIG One series. First clips are a bit of a review, then the latest developments, and it isn't pretty for us Americans.

If you want a more complete review, you could start here: The BIG One! MASTER Menu

REVIEW:

N+N:Reprise: "This is the biggest financial challenge facing the world in the last half-century." -Bill Clinton to CFR, 14 Sep 1998
N+N:Reprise: Mr. [Albert] Friedberg [famed Austrian economist, currency specialist and head of Canada's Friedberg Mercantile Group] points to the monetary policy of the Federal Reserve as the fundamental cause of the currency debacle. He notes that since the early 1990s, the Fed has backed a credit expansion policy that it has exported abroad. He also predicts that "the crisis will widen. It will travel from Asia to Russia, Greece, Brazil. Eventually it will come back to the United States." -TORONTO GLOBE AND MAIL (January 10, 1998)
N+N:Reprise: "It's certainly the worst international monetary crisis since the founding of the system, the Bretton Woods [paper money] system in 1944. ... And I know that the authorities in Washington are most concerned about this spread, and properly so -- because it seems to be happening." -Roger Altman, EVERCORE PARTNERS CHAIRMAN, former Deputy Secretary of Treasury, CNBC, 14 Aug 1998, ~7:37:21 AM EDT
N+N:Reprise: "There is perhaps no empirical regularity among economic phenomena that is based on so much evidence for so wide a range of circumstances as the connection between substantial changes in the quantity of money and in the level of prices." ... "It follows ... that inflation is always and everwhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." -Milton Friedman, quoted in Judy Shelton, Money Meltdown (New York: The Free Press 1994), p. 176 & 177
Will anything actually come of all these excess dollars? Well, according to Andrew Dickson White in his classic Fiat Money Inflation in France, which chronicals the devastating results of large issues of unbacked currency in France:
Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature [gold and silver] and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.
Fiat Money Inflation in France, was last revised by Mr. White in 1912. At that time, he was 80 years old, the Federal Reserve Act hadn't been passed and The United States was safely on the gold standard. Perhaps Mr. White just didn't understand modern economics. Perhaps modern economists are just smarter than the Almighty -- or maybe He changed the rules. - L. Reichard White, BIG-FLOAT: The American Damocles

Reprise: It will travel from ASIA to RUSSIA, GREECE, BRAZIL. Eventually it will come back to the UNITED STATES." -Albert Friedberg (January 10, 1998)

ASIA: N+N:Reprise: Currencies and stockmarkets plunged across EAST ASIA while banks, builders and manufacturers went bust in their hundreds. Worst hit were Thailand, Indonesia and South Korea, whose currencies all fell by more than 40% against the dollar -The Economist, Wed, 31 Dec., 1997
- The World Bank reports that [as a result of the Asian currency crisis] the number of poor in Asia (Malaysia, Thailand, Indonesia, and the Philippines) may double to 90 million over the next three years, and there is a desperate need to reduce the prices of basic supplies [food, etc.]. -News World International, 30 Sep 1998
RUSSIA: Just one business day after Russian president, Boris Yeltsin, promised not to devalue the ruble, Russian banking officials moved the lower range for the ruble from 6.3 to the dollar to 9.5 to the dollar, effectively devaluing it about 50%. Over-night interest rates were raised to 250%. -CNBC, 17 Aug 1998, ~8:06:40 AM EDT
GREECE: N+N:Reprise: etc. Russia spillover has hit the Greek drachma, the Polish zloty, the Australian dollar, etc. -CNBC, 08 Sep 98, 11:37am EST
BRAZIL: N+N:Reprise: is suffering capital flight of over $1 billion/day. [With a foreign exchange "war chest" of about $52 billion, Brazil can withstand this rate of withdrawal for less than two months. -LRW] -Ron Insanna, CNBC, 10 Sep 1998, ~2:15:03 PM EDT
- N+N:Reprise: Even US Treasury and IMF were blindsided by Brazil's move. Sec. of Treasury Larry Summers had to cancel a trip. IMF agreements will have to be renegotiated. The Brazillian Governemnt will try to raise interest rates to defend it's currency [the "real"] for a few days or weeks, but it won't persist in this. 17% further devaluation is predicted within a few weeks, for a total of about a 25% devaluation. -Richard Medley, Medley Global Advisors, CNBC, 13 Jan 1999, ~2:14:23 PM EST
N+N:Reprise: Brazilian "real" falls to new low of 2.1 to the dollar. -Ron Insanna, CNBC, 29 Jan 1999, ~ 2:10:10 PM EST [The net result was about a 50% devaluation of the "real" vs. the dollar at this point. -LRW]
UNITED STATES: N+N:Reprise: "The reason we are able to do that [run a chronic current account deficit, that is, continually be a large net exporter of dollars] is a very significant demand for dollars in the world." -Federal Reserve Chair Alan Greenspan, to Senate Banking Committee, 25 February, 1998

N+N:Reprise: "The problem that we run into unfortunately, is that as our net foreign debt rises, that the amount of interest we must pay and indeed dividends as well, continues to rise, and that process itself creates a type of situation that if at some point foreigners stop wanting to continue to accumulate dollars, it creates a major reverberation back on the American economy ... -Federal Reserve Chair Alan Greenspan, Testimony to House Ways and Means Committee, 20 January, 1999
N+N:Reprise: What would happen if the Saudia Arabians said they didn't want to be paid [for oil] in dollars anymore, but wanted instead, to be paid, say in yen. There would be inflation that would make the 15 to 20 percent inflation in the early 80's look good. -Sen. Pete Domenici, R-NEW MEXICO, C-SPAN II, 18 May 1995 ~12:33:55 PM

NEW:

Asked to comment on remarks by President Vladimir Putin that he did not rule out switching Russia's oil pricing from dollars to euros, Duisenberg said this could particularly suit the nations currently lining up to join the common currency bloc.
+
Russia is the world's second-largest exporter of oil after Saudi Arabia and the world's top gas exporter. A switch would be a powerful symbolic victory for the euro and might accelerate its growing role as an international reserve currency to challenge the dominance of the dollar.
+
Analysts say such a move could prompt other oil exporters mulling a switch to follow Russia's lead. Iran, the world's No. 5 exporter, is openly considering a move to the euro and there is growing debate in Saudi Arabia on the issue. A move by oil exporters to the euro could spark massive inflation in the United States, economists say. , Reuters, Tuesday, Oct. 14, 2003.
N+N:Reprise: "We must [now] address not only a run on a bank or a firm, but also a run on nations." -American President William Jefferson Clinton to the World Bank and the IMF, October 6, 1998
The yen has surged through the psychological barrier of 110:US$1, creating a sense of crisis as the run on dollar assets gains momentum. ... According to one estimate, by Kyoto University Economics Professor Takamitsu Sawa, foreign investors have markedly improved the fundamentals of the Japanese economy by turning into huge net buyers of more than US$1.7 trillion in Japanese equities and assets and, by running away from their dollar positions, are thus generating a self-feeding cycle of further selling dollar assets and pushing up the Japanese markets even more.
+
The flight of global investors from the dollar has serious implications, not only for the health of markets such as Japan's, but because of the peril to the US economy and thus the global economy as well, for which the United States has acted as economic engine and importer of last the resort. [1]. The US must take in $1.3 billion per day in investment in government paper and securities to fund the enormous deficits in its fiscal budget and its current account ... The current account deficit is expected to hit more than $540 billion in 2003, with the fiscal deficit trending towards $600 billion when off-budget liabilities are factored in. Japan: The rapid run on dollar assets, Hussain Khan, Asia Times

The dollar faced renewed downward pressure on Tuesday, falling to fresh three-year lows against the yen and within sight of record lows against the euro, amid mounting concern over the scale of the US current account deficit. Dollar declines further amid fears on deficit, Jennifer Hughes in New York, Tony Major in Frankfurt and Christopher Swann in London, October 7 2003 21:43 [Linked from http://www.drudgereport.com ]
"The dollar is the currency of a country with a huge deficit on its balance of payments, close to 5 percent of its GDP [gross domestic product]," [outgoing European Central Bank president, Wim] Duisenberg told reporters. "You can afford this one year, two years, maybe five years, but sometime there has to be an adjustment of its currency," he said. "We hope and pray that this adjustment, which is unavoidable, will be slow and gradual." Japan: The rapid run on dollar assets, Hussain Khan, Asia Times
N+N:Reprise: A. Crockett [Managing director of the "Central Banker's Central Bank"]: All of these could be accomplished in a smooth manner with a smooth adjustment in exchange rates. All that we have said is that you cannot count on financial markets to make the adjustments smoothly. Some times abrupt changes can take place ... -PRESS BRIEFING - ANDREW CROCKETT, Managing Director of the Bank for International Settlements (BIS), June 2000
His [US Treasury Secretary John Snow's] remark was against the backdrop of Japan's dramatic intervention in the forex market last year, equivalent to Ireland's entire GDP in an effort to keep the yen below 115 to the US dollar. +
The new cabinet upped its interventions after the G-7 meeting. Nonetheless, the currency has broken through the key 110 level. It is starting to appear that the yen's rise cannot be curbed ... Japan: The rapid run on dollar assets, Hussain Khan, Asia Times
N+N:Reprise: History tells us that sharp reversals in confidence happen abruptly, most often with little advance notice. These reversals can be self-reinforcing processes that can compress sizable adjustments into a very short time period. Collapsing confidence is generally described as a bursting bubble, an event incontrovertibly evident only in retrospect. -Federal Reserve Chairman Alan Greenspan, "New challenges for monetary policy," Jackson Hole, Wyoming August 27, 1999

NOTES:

[1] N+N:Reprise: RICHARDSON, Texas The way [Dallas Federal Reserve Bank president] Robert McTeer sees it, there's nothing wrong with the economy that couldn't be fixed with a little more consumer spending. "If we all join hands together and buy a new SUV, everything will be OK," said the president of the Federal Reserve Bank of Dallas [Speaking to the Richardson chamber of commerce]. ... McTeer closed by telling the business leaders of a simpler plan to boost the economy: "Go out and buy something," he told them. -David Koenig, Dallas Fed President: Spend More, Associated Press, Friday, Feb. 2, 2001; 7:19 p.m. EST return

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