the coming dollar crisis


Beast of Burden
picking up where the "decline" thread left off, i thought i'd bring to people's attention the link to this site:

if you have the time and actually understand economics (unlike me), then perhaps read the articles by the people who run the site, Nouriel Roubini and Brad Setser:

(1) "Will the Bretton Woods 2 Regime Unravel Soon? The Risk of A Hard-Landing in 2005-2006"

(2) "US as Net Debtor: The Sustainability of US External Balances"

otherwise do as i did and skim through the articles -- intros, transistions, conclusions

the site also has links to articles in the financial press on the us current accounts defiict and looming dollar crisis (as a person who tends not to read financial news, the severity of the problem is "news" to me)

there's no shortage of articles, and i've only read a handful, but see in particular these articles:

-- on the prudent bear site -- "debt trap: time to think the unthinkable" -- which considers radical scenario of u.s. repudiating its debts -- a repudiation backed by military force --

-- in the economist -- "thrift is a foreign concept" -- a nice short piece about the basics -- i.e., how germany runs a responsible economy, and the u.s. an irresponsible one

-- on bloomberg site -- "greenspan humbled by asia's central bankers" -- kinda like the reverse scenario to "the unthinkable" article, hints of future development whereby asians cooperate to divest themselves of dollars --

see also the 2003 book by Richard Duncan, *The Dollar Crisis: Causes, Consequences, Cures* -- which is forthcoming in paperback this May

the upshot is that a deep & prolonged global recession is on the horizon, and that it'll be especially bad in the united states

if you buy the arguments (and i'm inclined to buy) then we're basically at the end of a world system dating back to the early 1970s in which american consumer profligacy allowed for the rapid expansion of export-led economies in asia

not sure how europe figures into all of this -- presumably european economies will fare better than u.s. and asian economies during the recession (depression?)

but if the entire global system has to be restructured, then who really knows . . . .
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Prodigal Son
One problem I have with the 'Asian cooperation to fuck America' theories is that it assumes an automatic sort of pan-Asian solidarity that I'm not sure really exists. For one thing, for such a thing to happen, it would absolutely require the cooperation of Japan and China, which at the moment would be a big surprise, as Japanese-Chinese political relations are getting worse. Which is partly due to the fact that the Chinese government has moved to nationalism as a basis of shoring up support (considering that China's 'communism' is these days an absolute fiction) and the biggest bone of nationalist contention is the events during Japan's colonial adventure in China (which were, for those of you who are unaware, astonishingly brutal). In response the Japanese have been quietly moving their armed forces in a more conventional direction from the very limited self-defence role they've played since the end of WWII. They are cooperating over North Korea (because North Korea scares the shit out of everyone in the region) but I am a bit sceptical that they would go further to explicitly destroy America's economy (which they certainly could do, if they wanted to).

I'm also unconvinced that the Chinese will kick out the legs of the American economy (which they could, given their dollar reserves). American money is driving their economic growth, and with the ending of tariffs that gave countries from Pakistan to El Salvador at least a semblance of competition with the Chinese in areas like textiles that is only going to grow. 10% of China's exports go to Wal-Mart alone...we've more or less dismantled most of our manufacturing base to China's advantage and I think they'd have to be crazy to rip the heart out of America's economy at the moment.

Another thing to remember is that the Chinese are in a race against time. Like the other East Asian countries, China has a rapidly aging population and the question is whether they can get rich like Japan and Singapore before they get old.


Beast of Burden
it's not a matter of the asians "cooperating to fuck us over" -- rather, it's a case of the asian central banks holding so many dollars that should they attempt to divest themselves of dollars, they risk the value of the dollar plummeting and suffering a massive fical loss

the only thing that keeps this situation going is the chinese/east asian calculation that they stand to gain more by financing u.s. consumption of goods produced in china/east asai than they'll lose if their already massive holdings of the $ collapse in value . . . .

and yet the current imbalances in the world system can likely not be sustained --

and while america may be free-riding on the asian banks, which have little choice other than to continue buying up u.s. dollars, the current system also warps investment patterns in the u.s., such that money is invested in property and the like rather than in "tradeables," and consumers have little incentive to save b/c of low interest rates (which is caused by easy credit, i.e., asians buying up dollar-denominated assets)

simply put, it is highly unlikely that u.s. can correct the current trade imbalances, which now amount to 6% of GDP --

so we're looking at a serious financial crisis on the near horizon -- perhaps culminating in u.s. repudiation of its debts

here's another article:

matt b

Indexing all opinion
i like the 'blame the asians' subtext, when in fact the USA has been over consuming/spending for a generation.
tighten your (XXXXL) waistbands folks, its a reality check ;)


Beast of Burden
i don't think there's any "blame the asians subtext" here -- maybe "fear" of the asians, but not blame

rather the problems are:

(1) inherent to the nature of global capitalism -- i.e., seems to me that you can make a good marxist argument that we have entered a stage of fully realized contradiction/breakdown -- i.e., the entire global capitalist economy since the early 70s has relied on the export of manufacturing to the low-cost labor markets of east asia, which have then been able to grow rapidly by exporting goods back to america; however, b/c so much manufacturing has been moved out of america, america literally has next to nothing to offer in return for the goods imported from east asia = massive external deficits; instead, of goods traded for goods, america pays (increasingly worthless) dollars; the result has been massive dollar liquidity, which has resulted in (1) periodic banking crises in east asia; (2) easy credit & low interest rates in america, which discourages savings & encourages investment in unproductive areas like real estate (as opposed to manufacturing); and (3) the decline of the dollar, a long and persistent decline which will soon turn precipitous

(2) inherent to the nature of constitutional democracy -- i.e., the failure of u.s. congress and successive presidents to take decisive action and impose austerity measures is the basis for an argument that what the u.s. most needs right now is enlightened dictatorship . . . .

and in a mad fantasy, get a dictator who will: (a) raise taxes, someway, somehow, to balance budget; (b) cut military spending drastically; (c) withdraw u.s. troops from europe & east asia; (d) repudiate u.s. external debts; (e) impose 20% tariff on all imported goods; (f) force u.s. corporations to build factories in america on a massive scale; (g) transform unprofitable capitalist enterprises into non-profit enterprises; (h) radically limit ability of u.s. investors to transfer capital overseas; (g) socialize american higher education, narrowing access but making it entirely free for students; (h) provide free vocational training for all others; (i) liquidate the endowments of all private colleges and universities; (j) force banks to forgive all existing student loans (and compensate banks w/ funds from liquidated endowments); (k) provide universal health insurance; (l) appropriate most of the profits of credit card companies; (m) limit credit card use to relatively few people, forcing all other consumers to pay as they go . . . . and as all of these measures would probably result in massive unemployment, then: (a) embark on massive public works projects to rebuild infrastructure of american cities, w/ emphasis on subway systems and commuter rail; (b) ban all automobiles except for hybrid cars; (c) impose high tax on gasoline; (d) demolish all housing in outer suburbs; (e) build & restore housing in urban cores

of course before all of the above could be done, you'd have to fight and win a world war & a civil war

AND OF COURSE the best argument against all of this is that somehow europe, the supposed crippled old man of the world scene, appears to be in reasonably sound condition (save for its demographic crisis -- or rather, despite its old age)

so this points to two questions:

(1) has europe avoided the contradictions of the capitalist system that entangle america & east asia? and if so, how?

(2) if constitutional democracy is irremediably irresponsible in the usa, has it in fact proven responsible in europe? and if so, why the difference?

Grievous Angel

Beast of Burden
I have no idea why anyone would want to boil the collapsing dollar issue down to "the asians want to screw us". That sounds completely wrong-headed to me, not to mention somewhat paranoid (and echoing a lot of distasteful racist ranting :)). Especially since it is far eastern demand for US bonds that is propping up this whole show.

Essentially, it's a fairly well established proposition (if not a universally accepted one) within banking circles that Bush's currency and fiscal policies have the effect of damaging the economic interests of most Americans (and all Mexicans, natch), including most businesses (especially anyone buying abroad but reporting in dollars) and most stock market investors, while supporting the interests of a very small group, principally oil firms.

There was quite cogent paper doing the rounds a while back about the Iraq war being about keeping the dollar the major currency even as it was being trashed by other Bush policies -- a classic case of having your cake and eating it.
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matt b

Indexing all opinion
despite the collapse of the dollar, the trade deficit is growing; bush is pump-priming the economy (by giving tax cuts to the rich- adam smith's vile maxim writ large); and other economies are propping the whole system up fearing that if the USA goes into a deep recession, we're all fcucked. the short term blinkered attitude of bush and the american public is alarming, particularly when you think of how much the US consumes already.

there are similarities here with what is happening in the UK at an individual level- personal debts have increased dramatically as people chase happiness through consumption, business loves it but it is unsustainable in the long-term (business pages here have been shitting themselves because the cold weather has stopped people going shopping- that's how fragile it is).

factor in bush's evangelical war on 'evil' and your head spins.

whilst not inevitable in a marxist sense, you do get a feeling of wondering how long this can go on for.


Spectres of Mark
Punctured bubble

i like the 'blame the asians' subtext, when in fact the USA has been over consuming/spending for a generation.
tighten your (XXXXL) waistbands folks, its a reality check
LOL. I'm still laughing.

But the one thing that the current American cultural regime cannot check is reality.

Republican saddoes like to pose as 'economic realists' but you only have to read the likes of Steyn to see that their position is a patchwork of ludicrous fantasies, most of them racist, none of them any more sustainable than those of the old Soviet bloc. The American economy is in fact the last vestiges of postmodernism, floating free from any referent, like a 1980s European poststructuralist signifier. 9/11 might have punctured the Bubble economy (cf Zizek, Baudrillard ) but the bubble of American hysterical complacency seems more robust; indeed, it might be constitutive of US Kapital as such.

There are discussions on other threads about 'limits' --- the limit that the US great car economy seems completely unable to process is the scarcity of the natural resources which it glugs like there's no tomorrow. Ensuring that, pretty soon, for the US, there won't be.

Soon, we really will witness the day that Babylon shall faaaaaaaaaallllllllllllllllllll......