Global Economic Crisis

The conspicuous decline in the American dollar these last few days, coinciding with the rise in gold prices to well above a thousand dollars per ounce, is apparently another nail being driven into the greenback’s monetary coffin. As I noted in an earlier post, the U.S. dollar is being used increasingly as the currency of choice in the carry trade. Just look at the current ratio of yen to dollar, a clear marker of fundamental weakness.

It is apparent to me and many others that the U.S. dollar is now living on borrowed time as the world’s predominant reserve currency. The Chinese, the Russians, the Gulf State Arab countries, the Europeans, even the United Nations, are all talking openly about the need for a new global reserve currency mechanism. When the dethronement of the American dollar as the world’s reserve currency occurs can only be guessed ; it could happen 5 years down the line, perhaps longer, but even more likely much sooner than anyone can imagine.

The rhetoric emanating from the mouth of U.S. Treasury Secretary Geithner on the Obama administration’s commitment to a strong dollar is beyond meaninglessness. Nobody takes anything Geithner says on behalf of a supposed strong dollar policy seriously. The die is cast. It is only a question of when and how the reign of the American greenback as the universal global currency is terminated.

On November 22, 1963, as a fateful motorcade headed into downtown Dallas, leaflets were circulated throughout the city featuring profiles of President John F. Kennedy and headlined, “Wanted for Treason.”  On the day JFK was assassinated, there were factions from within the extreme rightwing of the American political spectrum expressing the most violent hatred for President Kennedy, accusing him of being soft on communism, a betrayer of anti-Castro Cubans  and an ultra-liberal supporter of civil rights for African-Americans. Before the bullets ricocheted  in Dealey Plaza on that violent day, they were preceded by words of violence. It is that historical context that connects directly with the unprecedented verbal venom being projected at the 44th President of the United States.

Even before the historic election that placed Barack Obama in the White House, crowds at several of John McCain’s rallies openly called for Barack Obama to be “killed.” Since Obama’s inauguration, the rhetoric has far from dissipated. If anything, the vitriolic contempt stemming from rightwing extremists in America has grown more strident. There are the “bithers,” who are convinced that Barack Obama is not a native-born American citizen, and therefore his presidency is inherently illegitimate. Far more ominously, there are those who are not content with just denouncing the “foreign occupier,” as some extremists refer to Obama; at rallies and on talk radio, a noisy contingent has talked about Obama representing tyranny, and have engaged in language that approaches the level of incitement towards violence.

President Barack Obama is not above criticism, as is the case with any politician. However, those who are pouring out hate and contempt towards Barack Obama, on a scale that approaches irrationality, actually drown out and delegitimize those who have genuine, thoughtful criticism of the policies of the Obama administration, especially with regards to the economic crisis and America’s exploding national debt and rampaging deficits.  While wrapping their vituperation in the American flag, these extremists masquerading  as patriots are actually damaging the heart and soul of the conservative movement in the United States, while stoking the flames of violence within America that can prove more destructive to the national interest than the threat posed by any external foe.

While listening to the joyous celebrations that erupted among many forums connected with the Republican Party when Chicago lost its bid to host the 2016 Olympic games, despite the personal intervention of President Obama, I had a feeling of déjà vu. Imagine, supporters of a U.S. political party that claims to be patriotic erupting in paroxysms of ecstasy over the defeat of an American Olympic bid, only because this somehow denigrates Obama. Where have I seen this before?

In France, just before World War II. For a brief period, a left-wing coalition government came to power in France, and for the first time a French Jew, Leon Blum, was that nation’s Premier. The rightwing went ballistic. Under no circumstances would they cooperate with Blum and his government. When Blum’s coalition, known as the Popular Front, reached out to conservative circles in France, they were rebuffed at every opportunity. Extremists attacked the Jewish Premier with violent verbosity, even when Leon Blum went against his own party’s agenda, and actually supported conservative policies on foreign affairs and military expenditures. The rightwing in France chanted in response, “better Adolf Hitler than Leon Blum.” In 1940, thanks in large part to the disunity and political polarization they had sowed, they got their wish, when the nation they claimed to love collapsed in a humiliating defeat.

Before the anti-Obama pathology that has gripped America’s rightwing has gone past the point of no return, are there any conservatives of conscience and civic courage willing to speak out? If not, their collective silence may prove more destructive to the United States than any plot being hatched by Al-Qaeda.

The Department of Labor’s report on unemployment for September was just released, and it came as a dismal surprise to those proclaiming an end to the recession. Instead of a further reduction in lost jobs, the number actually increased in September.

According to the Department of Labor, a net total of 263,000 Americans jobs disappeared in September, taking the official U.S. unemployment rate to 9.8%, its highest level since 1983. In addition, the average workweek was reduced to 33 hours, the worst showing since the end of World War II. Those are the official numbers.

However, when one looks at the real  unemployment numbers, factoring in discouraged workers and the underemployed, the numbers are in excess of 17%; some estimates rank as high as above 20%. While the government can manipulate the unemployment statistics all it wants to artificially deflate the actual rate of unemployment, there is one number that cannot be played with; tax receipts. Fewer employed Americans mean less tax revenue for Washington. The U.S. federal government’s tax receipts are down by more than 20%, while spending is soaring to record levels. If this is an economic recovery, it is heavily disguised.

For the past several months, CIT, one of the most important commercial lenders to small and medium sized businesses in the United States, has been teetering on the edge of bankruptcy. Already the recipient of one U.S. government bailout, and $3 billion in emergency financing from bondholders provided in August after Uncle Sam cut off its lifeline, CIT now stands on the brink.

After suffering $5 billion in losses over a period of nearly two years, CIT management is now seeking to exchange its debt, and if that fails, having a ready-made bankruptcy plan set for filing. If CIT is left with no alternative but to seek bankruptcy protection, what will be the impact on the U.S. financial system?

When the U.S. Treasury and Federal Reserve determined that CIT was not a “too big to fail” institution, they made a calculation that its failure would not create the systemic disaster that occurred when Lehman Brothers went bankrupt. We may soon learn if the geniuses in Washington are right about CIT being expendable.