The dollar has been too easy with her favors. And now, her best years are behind her. Her last beau, Alan Greenspan, took a lot out of her — reducing her street value by half. And yesterday, the end of the rate increases signaled the beginning of a new and tawdry chapter in the life of the floozy currency.
For the last two years, the Fed has been raising rates…in tiny, “baby steps” of one-fourth a point each time. And yesterday, the Fed did so again. But this time, let it be known that it had reached the end of the line. From here on out, future rate increases will be “data dependent,” meaning the Fed will raise or lower rates depending on which way it thinks the wind is blowing.
It is only these rate increases that have helped the dollar maintain a little dignity. The imperial currency has been getting a little shopworn; she has been showing signs of decay, degeneration, degradation, and corruption. But each quarter point from the pimps at the Fed has checked caddish speculators from dumping the old girl. They figured they’d hang around as long as rates were rising — why not?
Now, the dollar is tumbling. Everyone says so. And everyone approves. It is the only way to restore ‘balance’ in the world financial system, they say.
Besides, who cares? Neither the president, nor her current protector. Neither of the two seem interested in her anymore.
The rest of the world shows neither sympathy nor concern. Following yesterday’s Fed announcement, the dollar wobbled again — especially against her archrival, gold.
“She brought it on herself,” say insensitive investors. “She threw herself at every man who walked down the street, you know, practically giving herself away to anyone who asked. She just didn’t know how to say “no.” What do you expect?”
Meanwhile, gold hit a quarter-century high, with June contracts selling for $705 an ounce.
The yellow metal, buyers noticed, is everything the dollar is not. While the dollar could never say “no,” gold says nothing else: No to debt. No to new spending schemes. No to improving the world. No to re-electing scoundrels. No to bubbles. No to foreign wars. No to trade deficits. No, no, no, no, no.
While the dollar was a good-time girl for everyone, gold barely said a word; she never lost her head, never held a press conference, and never made any promises. Not surprisingly, it was Dame Dollar that crowds called for; it was she whose telephone rang. It was she who got invited out, and she who showed up at every party.
That was then; this is now. Martin Feldstein writes in the Wall Street Journal that the dollar can perfectly well fall down. And why should we care? We’ll be better off with a cheaper dollar. Ben Bernanke says he can manage without a strong dollar. And Larry Summers is going around the world telling small nations to get rid of their dollars before it is too late: “Do something with them,” he advises.
So now what? The poor dollar is like day-old bread…or yesterday’s dog-eared newspaper. Who wants her?
That, dear reader, is what we are about to find out. No longer sustained by rate increases, no longer supported by public officials, no longer in demand from central bankers and speculators — we are about to witness an important event in financial history. The great reserve currency is certainly going down — one way or another. The surprise will be that she won’t go down gently…or gracefully. Instead, like a brothel Madame with a good diary, she’ll take a lot of people with her.
u2022 A colleague wrote that he was shocked by the cronyism of the Bush Administration. As near as we can tell, the War on Terror and the Department of Homeland Security are little more than public works projects — designed chiefly to enrich favored industries and supply employment for the masses.
This is the way it is supposed to work. Government steals from its citizens; the citizens then steal from the government. It is all part of the great cycle of public life.
But in the advanced stage of an empire, the whole thing ceases being charmingly corrupt and becomes disagreeably corrupt. The amounts of money are larger. The corruption itself becomes less quaint and naïve— more nasty and vulgar. It is one thing to steal money from taxpayers to build inefficient and unnecessary schools; it is another thing to send young men to get their legs blown off.
From a financial point of view, the interesting thing about the present case is that the United States cannot afford its current level of corruption. It has to borrow — on an accrual basis — nearly $800 billion to make up the difference between what it steals from its citizens and what they steal from it. Meanwhile, the whole nation runs a similar deficit with the rest of the world, $800 billion is the difference between what the nation buys from overseas and what it sells. In other words, the nation must borrow from the rest of the world in order to pay for its own corruption. Who can doubt that this will end in misery?
But on the downward slope of civilization, the lumpen are ready to go along with anything — as long they have their bread and circuses. God lives in their hearts, but Mammon reigns in their lives. Their only culture is the celebrity culture of TV and Internet. The depth of their politics is measured by campaign slogans. Their wealth is nothing more than a promise made by elected public officials, to rip off future generations for the benefit of voters today.
At this stage of imperial development, there is nothing but misery for the public-spirited citizen. Only a philosopher with a perverse sense of humor can still find amusement in it.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.