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September 1st 2005

Dollar Plummets in the wake of Hurricane

The USD has taken a nosedive, as investors and traders continue to assess the economic impact of Hurricane Katrina. There is the direct effect of lost productivity in the affected regions, as well as the peripheral consequence of higher commodity prices. Short term energy futures have soared in the last week, as markets brace for shortages. Bond traders have already priced an expected rate increase out of bonds, meaning they no longer expect Alan Greenspan to raise interest rates at the next Fed meeting. Currency traders responded to the news of a weaker economy by punishing the USD, which has fallen 2% in as many days. The Financial Times reports:

Worries about the US economy had been reinforced earlier by data that showed the US economy was already under the pressure of rising energy prices even before Katrina struck.

Read More: Dollar hit by US growth fears

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Posted by Adam Kritzer | in Economic Indicators, US Dollar | 5 Comments »

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5 Comments of “Dollar Plummets in the wake of Hurricane”

  1. Dr. Pangloss Says:

    America Quo Vadis? (Part 1)
    At the end of the cold war dawned a new century which was supposed to usher in an unprecedented era of prosperity referred to a “growth “by economists and technocrats, in addition to peace and democratization. However, what we are witnessing now is the rise of global militarism, greed -driven corrupt- ridden globalization (coded terminology for neoliberalism) huge social disparities and the curtailment of basic civil rights and liberties in the world’s preeminent and well established “liberal democracies”. How did we get to this? And where are we headed? When one looks at America or its superpower supremacy it is patently evident that its unrivalled status is being challenged by new and rising regional great powers: China and to a lesser degree India. Frustrated by new power blocs such as Russia -China tandem hooking up with India, the U.S has yet to devise a policy to deal with these new competitors. America has so far sought to maintain its global hegemonic dominance by means of a foreign policy whose corner stone is the “war on terror”.
    This war is based on the premise incompatible with the much vaunted and lofty premise of “conflict- resolution”: that by bombing, occupying very poor and weak states it can keep alive the fading myth of a beneficent “Pax Americana” stabilizing and subduing what Washington perceives as the world’s unruly barbaric and backward masses. This policy doctrine of “pre emptive “strikes is a post modern version of naked aggression or brute force not unlike the state sanctioned violence used during the crusades in the Middle Ages or from the times of Rome’s imperial conquests . This power worst of all, is being used in a most reckless, inefficient and costly manner (to the US treasury and taxpayer that is) possible. There is no post war planning , as in the case of Iraq. As a result the on going “war on terror” the U.S has become a source of instability and a target of scornful vilification in both the Northern and Southern Hemispheres. Instead of a benighted “good guy “or a pillar of strength and stability in a highly unstable international arena it is seen as an agent of instability and destruction operating in a highly unstable international arena. Yet more humiliating is how “the richest nation on earth” conducts the “war on terror”. An emasculated and effeminate military force relies on either high -tech gadgetry or mercenaries to fight the ground wars which it can’t prosecute alone. Often an ill –equipped army untrained for guerilla warfare is sent to the “theatre of operations” or conflict zones without a “game plan” while on the home front military bases, hospitals are shut down. Due to domestic electoral reason the U.S is unable to make the sacrifices in manpower and troops to properly “pacify” its outer spheres of influence. Instead it relies primarily on air power is reluctant allies and the 21st century version of “gunboat “diplomacy to subdue those nations unwilling to do business with it. Examples come to mind such as Serbia, Iraq, North Korea or Libya which in order to avoid an air war with the U.S renounced plans to stockpile WMD and opened up just in time its rich oil industry to U.S oil companies.
    When the cold war ended the U.S was blessed with a “peace dividend”. Yet instead of capitalizing on this ‘surplus of good will “ generated by the Fall of Communism and the triumphant emergency of freedom and fast food , it squandered this wealth on massive defense spending, over- consumption , fastidious space programs and tax cuts to the wealthy elite at the helm of corporate run America. The domestic economy driven by consumption replaced production as the main engine for economic growth in the world’s largest economy has resulted in a 600 billion trade deficit with China, now the main exporter of goods to the U.S. The Wal Martisation of America has seen massive displacement of the manufacturing sector to the Far East and China. The traditional American worker has been replaced by an underpaid coolie slaving away for pittance wage in sweat shops located in what the Chinese euphemistically refer to as “free zones”: estentially giant mass labor camps.
    Hurricane Katrina has exposed the fault lines of class, race and income in the U.S. A huge underclass surfaced for all too see to the horror of the new American under taxed “White over class” as the analyst and author Michael Lind calls Bush’s corporate buddies. It has also called into the question the relentless and merciless on- going dismantling of the welfare state at a time when government is needed more than ever in crisis such as these. The state actor is called on to disburse Federal hand outs in the form of disaster relief to the Gulf states, bankruptcy protections is sought to save a collapsing domestic airline industry, or policing the murky and opaque world of corporate fraud and tax evasion and other crimes against shareholders are some examples of much needed “intrusiveness” by government and its agencies in the life of its citizens. Right wing republican ideologues bulk at the mention of state intervention and trumpet the glories of the free marker and deregulation instead. However, it was deregulation in the energy sectors which led to Enron’s collapse and resulted in thousands of American shareholders losing 100 billion investments savings. This same deregulations dogma has brought North West and Delta Airlines down to their knees and groveling in front of the Federal government for state funds to stay alive.

  2. Dr.Pangloss Says:

    America: Quo Vadis (Part II)
    In Part 1 of this essay on American so called “supremacy” we examined some domestic and foreign factors which can be attributed to this sole superpower’s slow yet irreversible it seems , drift into an abyss. Let us use historical “projection models” from the past comparing U.S global domination to other imperial declines to better grasp the current context. Rome extended the borders of its vast imperial in conquest after conquest then exacted a “tribute” or tax on its subjected citizens. It was a reasonable trade off: the subjected peoples in return for a paying “head tax” to their imperial overlords enjoyed the privileges of Roman civil rights and protection from barbarians thanks to the mighty Empire’s legions. Rome also exported it s cultural grandeur, great verse, literature and arts, which enriched the outer peripheries of the imperium. By contrast the U.S exports only “freedom”. Decoded this word usually associated with liberty really means tutelage by the World Bank and the IMF in the form of debt repayments coupled with relinquishing all rights to domestic industry over to multinationals. The U.S also exports video games and instant gratification in the form of fast food. This resembles a much cruder version of Rome’s panem et circenses or bread and circuses which distracted both the citizens and conquered masses. At home America offers its illiterate, incarcerated or homeless masses a brief reprieve from their pitiful existence by means of a computer generated “virtual reality” show.
    Y Pluribus Unum?
    The universality of Roman codes laws led to the modern day Republic we call the united state of America. Yet America (unlike the glorious Roman Imperial republic) today is unable or unwilling to extend “universal principles” abroad as it did after the Second World War so successfully in with the Marshall plan to Europe.The greatest example of a “stabilization force” in history. It only can project its military might in what appear to its rivals like China and Russia a hap hazard “on the cheap” bombing campaign. Hence its power is derided as being simply imperialistic aggression as the leftist might say and not an extension of empire . The U.S is unable to win the “hearts and minds” of unruly peoples around the globe because it has lost that battle in the minds of public opinion at home. In fact a deeply divided nation cannot even maintain a binding commonality of national purpose within its own borders. By that I mean invest in public education for its poorest nor provide universal health care for its oldest citizens, or secure its own borders. Or as well have seen with Katrina secure its coastlines from nature’s invaders. This is compounded by a Presidency restricted to promoting a corporate agenda at the expense of the greater good of the nation. A presidency willing and able to wage war but not pay for it with higher taxes. A presidency able to ask it’s youngest to make the “ultimate sacrifice” on the war while unable to provide housing or decent pension for its “war heroes” on the home front. In ancient times, this led to uprisings among the armed legions of Rome; by the way and triggered the revolts within the Roman imperial armies. Perhaps the Pentagon should do more to keep it troops happy before its too late…
    Barbarians at the Gates:
    Implementing any national policy to stop the rot and appease discontent within the Republic is hampered as well by the political chasms splitting up the U.S. The American “heartland”, “the Bible belt”, “the rust belt”, and “the Northeast” as they are called are almost separate entities; disparate regions seeming to be insular foreign lands within an increasingly dissolute and divided federation. Then there are the “ethic mixtures” which make up the citizenry. However, the melting pot simmering with migrants is now boiling over. An increasing Latino American population seeking their fair share of the shrinking American pie is increasing demanding more political clout that’s represtative of their increasing demographic weight. At the same time, distant relatives on the Mexican side of the border are heading North, in search of an ever elusive “American Dream”. One poor Mexican’s dream is another Arizona cattle rancher’s nightmare. Border States mount a patriotic resistance to this this mass influx by keeping armed militia on patrol to search, find and destroy undocumented day laborers with the benign consent of overworked and underpaid U.S border guards . How does one accommodate these growing internal –external border pressures while at the same time engaging in an endless “war on terror” overseas?
    The longer this question remains unanswered the faster America will slip into the abyss.
    Let such switch to the foreign front of the Global in scale American- state. In Afghanistan an air war is being fought without the proper amount of ground troops. The same is true in Iraq. The U.S uses flying fortresses like B-52 combined with aero naval operation as a lethal strike force against a primitively armed but much better trained warlords whose iron will cannot be bent by lobbing fancy weaponry or “daisy cutters” into mountain- sides, any more than it is possible for U.S Special Forces to win the “war on terror” anywhere by terrorizing local villagers who shelter their own “freedom fighters”. Wielding a big stick without dangling a carrot to Afghan resistance or any other opponent is unlikely to quell the ongoing uprisings in poor and backward states who are subjected to American incompetent imperial rule. The same is true for Iraq, where one of the most costly wars in U.S history is being fought. This unwinnable war is draining the U.S treasury to the tune of 100 billion per year. Beating up bullies , thugs , tinpot dictators the like of Saddam Hussein or Milosvic or stomping on ‘military midgets’ in the Middle east or cnetral Asia will neither win the U.S friends nor honor in the region nor cower the growing insurgency. On the contrary bombing semi feudal societies “back other stone age” is a futile military goal and mindless utter folly if the bombing does not lead quickly to reconstruction and stabilization and political engagement of the defeated enemy in post war talks. This takes lots of money, it can’t be done as a quick and cheap fix. In the case of Iraq a far more advanced society than in Afghanistan , the U.S sought to pacify the nation with “shock and awe” , and fancy military pyrotechnics. Now stumbling in the dark it has put the ox before the cart by drafting a constitution during the a state of war and under occupation . With the impressive military wizardry George W. (as in warlock perhaps?) now over, it turns out there no post war plan to stabilize Iraq. How much longer can the U.S finance such counter produce conflicts even if it is for sake of gaining access to oil in the Persian Gulf. We all know the oil is running out yet Pentagon strategists are obsessed with fighting oil wars just as we enter the post oil era…..madness!
    Furthermore, America gets most of its imported oil from the Western Hemisphere from three client states Mexico, Canada and Venezuela. This does not take billions of dollars of funding a massive intelligence agency to surmise this. The third in South America is becoming an increasingly troublesome and unreliable source to be sure. But trying to overthrow its leader is not likely to pacify a demoractically elected leader either. The other two, Canada and Mexico are profiting from a boom of oil and gas exports to their American oil starved neighbor. A continental trade bloc within the NAFTA context is key to American energy self sufficiency. Ironically the U.S as it is heavily dependent on close economic ties to its North American trading partners is witnessing the deteriorating of bilateral ties with these indispensable allies. Trade friction, differences over the Iraq war, militarization of the U.S borders to the North and South has split apart the “Three Amigos”. .
    Canada and Mexico have one big advantage over their oilaholic neighbor: they are both relatively speaking to the U.S energy self sufficient. This strategic resource although nationalized in the case of Mexico can be shared provided the U.S takes steps to accomdedate and not alienate those allies. NAFTA can be taken further and integrated into an EU style union. With a common currency, a common immigration policy and labor movement flexibility. But perhaps in the current state of affairs this is only a distant pipedream. Instead of courting its allies in North America and France and Germany in Europe, the U.S have hooked up with a diplomatic midget or “non actor” on the international scene as Dr. Brezinki refers to it: Great Britain. Mind you, I love foggy old England its selection of warm ales and cricket matches. But why has America chosen the U.K as its deputy in fighting the “war on terror”. Britain, no matter how charming it may seem from Washington is suffering from post imperial syndrome. It is a major base in Europe for terrorists’ cells and terror networks. Furthermore, Britain neither has the economic resources (it refuses to join the world’s new reserve currency the Euro) nor the military muscle to support America’s military theatrics as impressive as they may be to some spectators watching CNN. Like America, Britain goes to war with third rate “military midgets” such as Serbia or in a more farcical fashion against Argentina to protect a few dozen grazing sheep on a windswept barren island called the Falklands. Britain hopes some of its lost imperial glory may rub off on America. And maybe America identifies with the old and dowdy “mother country” which it spurned back in revolutionary war. But such nostalgia is not worth much militarily nor diplomatically in terms of winning imperial wars in the name of freedom and democracy.

  3. EURO MAN Says:

    It will be interesting to see for how much longer the the brave Brits can remain outside the Eurozone. Their economy is slowing down and the UK’s main trading partner is NOT the U.S but the EU . Using the pound is going to marginalise the UK as a world trader in the not too distant future. How long before the City becomes the next global center for EURO traders and investors? to the Americans anguish of course.
    PS: Dear Tony B: In the best rhetorical spirit of your overseas buddy G.W.B here is a EURO for your thoughts: You are either with us, the world’s largest trading bloc i.e the Europeans, or you are with the debt ridden , zero production , all consumption oilaholics Americans running on empty …. if you are with the Americans then get out of the EU and stop mucking about in Brussles and grovelling for rebates. take your rebates use them to lower gas taxes in your magic kingdom and get out of the EU !!

  4. Dr.Pangloss Says:

    “All is best, in the best of all possible worlds”. Dr.Pangloss
    Why the U.S. Must Stay in Iraq
    By Steven Moyer
    Candidate for the U.S. Senate
    There have been many reasons given for the war in Iraq, from weapons of mass destruction to the cause of freedom and democracy in the Middle East. But the one reason which continues to remain below the radar for most Americans is that the United States government is bankrupt.
    How’s that? The current federal debt is rapidly approaching eight trillion dollars. The current deficit forecast for this year was $333 billion before Katrina hit. Now the deficit estimates will have to be revised by $200-300 billion. The national debt will likely increase $600 billion within a year. That’s over half a trillion dollars! But the Republicans have repeatedly told Americans that “deficits don’t matter.”
    The Federal Reserve also is a significant source for this “debt money.” They can simply “pop” money into existence and loan it to the government. “Pop the magic money” should be engraved above the marble entrance to their Washington D.C. fortress. If you’re beginning to feel like all of this financial “hocus-pocus” is a bit tenuous then that means you’re waking up from the spell. It’s a hopeful sign.
    Right now the U.S. is borrowing $320 billion a year just to pay the interest on the national debt. ( 8 trillion times 4 percent ). When you find yourself borrowing just to pay the interest on your debt then you are bankrupt. If interest rates ( and bond rates ) rise one percent the government will need an additional $80 billion.
    Most Americans doubt that we will ever pay off that huge debt, which comes to more than $26,000 per man, woman and child or more than $60,000 per full-time worker. 1.7 trillion of this debt is held by the Social Security Trust fund. The fund is already gone. Current recipients are getting their checks from foreign nations’ purchase of U.S. bonds. At least that’s one potential way to “spin” the facts. Who’s paying for the war in Iraq? Japan and China. Who’s paying for your Katrina relief? Japan and China. Who’s paying for the highway bill? China and Japan. Take your pick of which “spin” you prefer.
    One or all of these statements are true, at least in some respect, depending on how you wish to “slice and dice” the national debt. It would be one thing if the Social Security Trust Fund had been invested in private sector companies, but instead it’s been spent on war in Iraq, tax cuts, and the Katrina disaster. It’s all the same “pot of money.”
    Regardless of how much “window dressing” America puts on the Iraq situation, other nations know that the United States is the real government of Iraq. Without the presence of the U.S. military the current regime would fall within a week.
    There’s another reason the U.S. must stay in Iraq which is related but more difficult to understand. When other nations purchase oil they use dollars. In the past decade there have been discussions among OPEC nations to switch to the Euro as the required currency. If that happened, the United States would no longer reap the benefit of all these “oil dollars” circulating in the global economy. America would have to compete for Euros and the dollar would plummet in value. America’s economy would collapse within a month.
    When other nations look at the United States and its behavior it is easy to understand how they might conclude that they will be the next target of U.S. aggression if they dare to challenge the American global hegemony. When they are asked to “pony up” a few more hundred billion dollars to cover deficit spending by the Americans they look towards the Middle East and realize that they might be “cut off” at some future date from oil they desperately need. So they appease the tyranny of the United States government with another payment.
    And that’s the main reason that the U.S. must stay in Iraq. We are terrorizing the world into giving us more money to cover our increasing debts. The United States government is the biggest financial terrorist on the planet.
    This is just an excerpt from a very good article. This is the reality that we are working with. And I would like to point out that the so-called budget surplus the dems keep touting as a clinton accomplishment was achieved through the looting of the Social Security fund. That bubble was about to burst when he left office. He did a lot of economic damage, especially where SS is concerned.
    According to statistics released in February, 1996 by Clinton’s own Office of Management and Budget, the gross federal debt for fiscal year 1992 was $4.002 trillion. By fiscal year 1995 it had “ballooned” to $4.921 trillion — an increase of 23 percent.
    [the United States] can’t be so fixed on our desire to preserve the
    rights of ordinary Americans…
    President Clinton, March 1, 1993: Boston Globe, 3/2/93, page 3
    We have been running on an increasing deficit for as long as you care to go back. clinton, like all the rest, is a thief and a liar, he just sports a different label.

  5. Candide Says:

    Dear. Dr Pangloss,
    American debt is indeed rising but is this not the natural course of events for a nation able only to consume and barely produce anything anymore? On the other hand, sure some of us see the Euro going through a rough patch with the referendum results in May and now the uncertainty about the German elections results. However, the EU remains the world’s largest and most populous trading bloc. It has a strong reserve currency in Franfurt which seems to have great seductive powers to currency traders and petro dollar states like Russia looking to go petro-Euro…. The U.S deficit look to many like a deep dark hole. Debt and war payments amounting to billions per day now make things look even bleaker for the dollar. Is this not so? And what happens dear Dr.Pangloss when China or maybe even Japan( miffed because the U.S denies it a permanent seat at the UN and maintains troops there too)in other words either of the two or both pull the plug and stop financing US double deficits with their purchases of treasury bonds?
    Then we might be headed for the worst of all possible worlds. Am I being too pessimistic?
    yours faithfully,

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