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Global Economy SPEAKING FREELY Crisis towers over the dollar By W Joseph Stroupe Speaking Freely is an Asia Times Online feature that allows guest writers to have their say.
When analyzing such matters as the vulnerability of the US economy and th e chances of its collapse, it is vital to avoid the two extremes of "cal amity howling" on one hand and investing blind faith in the status quo o n the other. Unforeseen and unexpected attack-induced collapses of grand proportions can and do occur. The sudden collapse of both towers of New York's World Trade Center, for example, took everyone by surprise - who could have foreseen that the two towers, which survived the massive lat eral impact of two huge planes, would, only minutes later, collapse vert ically upon themselves, their own massive weight ensuring their demise? They had actually be en designed to take a lateral and direct impact of a Boeing 747 jumbo je t and survive without collapsing. Nonetheless, certain fundamental struc tural vulnerabilities did exist in the towers. These were not entirely e vident before September 11, 2001, but were hidden beneath their massive and stable outward appearance. When those vulnerabilities were carefully targeted and exploited, down the massive towers came within mere minute s of the attack. Do similar deep structural vulnerabilities exist within the US economy? A re these currently being exploited by the al-Qaeda and others to cause a US economic collapse? Are the apparent strength, stability and imposing size of the US economy deceptively masking an imminent collapse, as the Twin Towers did? Have the initial stages of an attack on the towering U S economy, which might bring about a vertical collapse, already begun? Faulty Towers The collapse of the Twin Towers was a harsh lesson in the realities of th e vulnerability of US infrastructure. In the case of the attack on the t owers, the planes struck near the top of the structures. Had they struck nearer to the street level, there might have been a chance to extinguis h the resulting fires before the primary steel structural beams weakened . Had they struck the top, the vertical collapses that ensued would have been highly unlikely as the primary steel structural beams wouldn't hav e been possible. Fundamental vulnerabilities exist in the US economy too. But there also e xists a widespread consensus that there is little real chance of a colla pse, no matter what the attack might be. Even most contrarian experts di smiss the possibility of an actual collapse. They generally speak only o f a prolonged "bear" period for the economy, not a collapse. The towers also enjoyed such widespread confidence before September 11. The previou s targeting of the towers in 1993 and their survival only reinforced thi s misplaced confidence. Vertical collapse Just before September 11, 2001, the US economy was also extremely unlikel y to be susceptible to a sideways hit. It did show its resilience in the immediate aftermath of the attacks on its economic infrastructure. But the key to the success of the attacks, from al-Qaeda's perspective, was the igniting of the jet fuel and its impact on the primary steel support girders. Hence it was not the immediate result of the impact itself, bu t rather the delayed result of the fire that counted. The steel girders were the actual framework of the towers, around which the structures wer e constructed. When the flames softened the framework, the whole structu re caved in. The US economy is also constructed around a fundamental framework - its c urrency, the almighty dollar, and the apparently firm and virtually unbr eakable international support it enjoys. Similar to the framework of the Twin Towers that supported their massive weight, the dollar supports a massive load of debt, now totaling well over US$7 trillion in the public sector alone. Much of this debt load is, in effect, tenuously suspended at the upper portions of the US economic structure, where it places an undue load upon the lower, traditionally more stable part of the economi c framework. Federal Reserve Board and government policies over the past 20 years or s o have been extremely shortsighted, leveraging the economy's future stab ility and strength by means of large and perpetual deficit spending. The US government, and its citizens as well, have acted as if there would n ever come a day of accounting for the immense debt being amassed, that s omehow the amassing of such debt didn't matter. And since the economic slowdown of 2000, Fed and admini strative policies have caused a pointed and massive ballooning of very r isky forms of public and private debt, all built upon the structural fra mework we call the dollar. One such form of debt is the massive selling of treasury notes to foreign central banks - most notably to the big Asi an economies. Another is the Fed policy of "prolonged monetary accommoda tion", meaning keeping interest rates at artificially low levels, printi ng new money at the rate of nearly $15 trillion per year and the massiv e creation of easy credit. In the past three to four years, debt encouraged by such policies has mus hroomed almost beyond imagination. So, in effect, there now exists a mou ntainous load of debt concentrated within the upper sections of the US e conomy, where it cannot easily be neutralized to the ground level in an orderly fashion. How much of such massive weight can the framework, the dollar, carry and support before the structure caves in? Is there already a fire in the immediate vicinity of that framework and a re the steel girders already beginning to soften? The traditional intern ational support for the dollar and the US government's foreign and econo mic policies is beginning to waver. Because al-Qaeda has lighted a fire of sorts in the vicinity of the dollar framework. It has succeeded in instigating the US to take economic and foreign policy measures that have resulted in a loosening of the firm "girders" of international supp ort for dollar and US policies. Al-Qaeda has indirectly lit the fires of controversy over the rightfulness and permanence, and even the desirabi lity, of continued US global dominance in the diplomatic, economic and m ilitary spheres. Now that fire is raging, and ferociously eating into the girders. Controv ersial and ill-advised unilateral US economic and foreign policies since September 11 are only fueling that fire. In the immediate aftermath of the re-election of President George W Bush, international support for th e dollar and for related US economic and foreign policies is noticeably weakening, at a time when it is most needed to support an unprecedented and mushrooming mountain load of debt. Recently, voices from within the government of Norway have called for a switch from the dollar toward the euro for international petro-transactions. The governor of the Bank of Japan has recently stated that having the dollar as the sole global curr ency is a marked disadvantage and danger, and recommended moving toward adopting the euro as a global currency alongside the dollar. The appetit e of the big Asian economies to continue buying dollar assets is waning - last month the US barely achieved the $60 billion of foreign cash infl ow required each month to keep it afloat. Hence the possibility of a Twi n Towers-like vertical collapse of the US economy is becoming greater, n ot lesser. The following highlight the extent of the mounting debt and the risk invo lved: The total US public national debt now exceeds $7 trillion. When Social Security, Medicare, Medicaid, military and government pensi ons are added in, the total national debt exceeds $51 trillion, accordin g to Fortune magazine - that's nearly five times the gross domestic prod uct (GDP) . The current year's deficit alone approaches $1 trillion when you add th e off-budget items. Derivatives (highly leveraged and enormously risky instruments such as interest-rate futures, options and swaps) now total $180 trillion, 17 ti mes the GDP. Warren Buffet calls derivatives "instruments of mass destru ction". Many financial institutions have become highly invested in deriv atives. Gover...
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