The Bush Euro-junket is taking place just as the economic storm clouds are thickening over the Fatherland. On Tuesday the market plummeted another 175 points mainly due to soaring oil prices (tipping the $50 mark) and a surging Euro headed for the stratosphere. While Bush ambles around Europe waxing on about Camus and Voltaire (I kid you not), America’s tenuous economic plight is becoming alarmingly more apparent. The world has taken stock of the administration’s profligate spending and, now, Central Banks across the globe are shunning the dollar for the more stable Euro. The BBC says that a “poll carried out by Central Banking Publications found that 39 of the 65 banks surveyed were raising their Euro holdings, with 29 cutting back on the US dollar.” Banks are voting with their feet, and the results may spell doom for the Bush plutocracy. As Paul Craig Roberts so aptly put it, “The world is tired of mopping up America’s red ink.”
At this point, it looks as though nothing short of an economic meltdown in America will deter from the administration from its war mongering Middle East. Barring economic catastrophe, the neocon juggernaut will blunder forward destroying everything its path; toppling both Syria and Iran and adding tens of thousands to the mounting death toll. It’s better for the world that the 400 lb American Albatross dip below the waves on its way to Davy Jones Locker.
Presently, Mr. Bush is doing a first-rate job at seeing that we achieve that dubious objective. By running $400 billion deficits with such astonishing predictability, it’s plain to see that this is all part of some twisted scheme for dismantling domestic programs and delivering publicly owned assets to Bush cronies. However, in the process the lunatic binge that runs the ship-of-state has savaged the dollar, threatening its status as the world’s reserve currency by chalking up another $3 trillion dollars worth of debt.
Are you surprised that no one wants our worthless greenbacks?
By the time Bush is finished walloping the dollar will be dead even with the peso. Russia is leading the way by no longer pegging the ruble’s value to the dollar. This has increased speculation that others will follow. The Financial Times reports that, “with 81% of Russia’s oil exports currently sold to Europe, the move also provoked fresh speculation that Russia could decide to denominate its oil in Euros.”
This move would put more pressure on Saudi Arabia (and the other OPEC nations), which still trades in the volatile and steadily declining dollar. If the oil producing states switch to the Euro, the dollar is finis.
The sensible strategy for the Bush Administration would be to demonstrate fiscal responsibility by increasing taxes and cutting spending. That would build confidence in the markets that Bush can be trusted as a reliable steward of the global economic system. Instead, Bush has signaled that he wants the tax cuts to be made permanent, indicating to the world that the reckless spending will continue unabated. Tragedy is only a certainty because the men in the wheelhouse insist on steering towards the reef. The impending disaster is entirely avoidable.
Stephen Roach, chief economist for Morgan Stanley summarizes the growing sense of apprehension on Wall Street. He recently told a group of fund managers that “America has no better than a 10% chance of avoiding economic Armageddon” (From Michael Ruppert’s From the Wilderness) Roach emphasized that it takes a hefty $2.8 billion dollars a day in foreign investment to service America’s “bubble economy”; a fact that will figure prominently in the nation’s certain decline. The burgeoning deficits ensure that foreign investors will back away from American bonds and currency and pursue a more stable venture.
We’re already seeing the very scenario that Roach anticipated with a few notable additions. Currently, the market is falling, the country is flat-broke, the dollar is losing ground, the Euro is climbing, interest rates and inflation are going up, personal and business debt are at historic highs and the gluttonous military is sucking every available (borrowed) nickel into a black hole. By all accounts, we’re chugging blindly into the perfect storm.
The American economy (which produces virtually nothing anymore) is buoyed by artificially low interest rates, cheap oil and $400 billion of blood money borrowed on our children’s credit card to keep the wheels greased in Washington. That’s all about to change. Economic upheaval is an equal opportunity employer, inflicting pain on Republican and Democrat alike.
Much of the blame for our current malaise can be placed at the feet of Alan Greenspan and his rapacious coterie at the Federal Reserve. Thomas Jefferson must have had Greenspan in mind when he averred, “Banks are more dangerous than standing armies.” Greenspan has adroitly manipulated interest rates to ensure that the politicos in Washington could loot the US Treasury with impunity and dragoon the nation into a phony war while Americans nodded placidly in front of their television sets. Soon, the Fed-master will mosey up to Capital Hill to issue somber warnings about the crushing deficits that are propelling America towards the economic ash-heap. He’ll pretend he never saw the tragedy materializing, while offering his prescription for austerity measures, structural readjustment and selling off of public assets that will have to take place to salvage what little is left of America’s future. Meanwhile, his own shadowy institution will have netted more and more of the lavish wealth extracted at gunpoint from America’s new “free market”: Iraq. (Already, the Federal Reserve holds a whopping $5 billion worth of Iraqi oil receipts; money that was never intended to leave Iraq. At the same time, desperate Iraqis struggle with 70% unemployment, surviving on the meager food rations provided by the invaders.)
The oil dilemma facing the world may be more catastrophic than the tumbling dollar. Dan Ackman’s prescient “The Coming Oil Crisis” in Forbes anticipates oil in the $150 range per barrel within five years. Ackman’s prognosis eschews far-fetched theories and sticks with the hard facts related to supply and demand. With 2.3 billion more people coming online in China and India, there’s simply no way to meet the growing demand. Even now, oil production is operating at 95% to 99% capacity, leaving very little wiggle room for miscalculation or regional disturbances. This means that prices can only go up.
Ackman cites Stephen Leeb, president of Leeb Capital Management and author of The Oil Factor. Leeb says:
At the end of 1999, oil was trading for around $10 a barrel. Since then, it has risen by about 29% per year. Simply extending the trend line means that oil will be at $100 a barrel in about three years and at $160 in five years. If prices rise the way they have in the last year, the resulting levels will be even higher, and that's without any major geopolitical crisis in the Persian Gulf or anywhere else.
“$160 in five years!”... And, that’s without a “major geopolitical crisis” in the Persian Gulf! If Leeb’s predictions are even partially accurate, we can expect to see the world economy crashing to earth in the very near future.
Leeb’s projections should motivate us to figure out what economic and conservation measures need to be taken to soften the blow. Clearly, Cheney and Co. are operating off the same spread-sheet as Leeb; only they’ve decided to corner the global oil market rather than devising a collective strategy to face the inevitable shortages. It will be interesting to see if the Bush-Cheney’s Doctrine of permanent war and domestic repression can successfully navigate the crises of the new century.
The Bush resource wars will do nothing to stave off the approaching tragedy. It will be years before the Iraqi pipelines are secure, and the incessant violence will only hasten the dollars downfall. America’s prestige has been battered, its military overextended, and its once-mighty dollar is down for the count. The plan to maintain global dominance through military force has alienated allies and divided the country. As the smell of defeat gets stronger in Iraq, the desperate behavior of those in charge is bound to increase. The empire is teetering, but the administration is still resolved to lead us lemming-like over the nearest cliff.
Mike Whitney lives in Washington state, and can be reached at: email@example.com.
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