Thank you for visiting our website

Featuring breaking political news and commentary on local, state, and national issues.

Saturday, January 26, 2008

The Dollar Bubble

Jack Lynch

It used to be that the dollar was worth an equal value in real gold or silver. But that standard was dropped long ago and replaced with a system that represented products and services.

That worked well back when Americans still produced value added commodities, but today, as reported in Lou Dobbs recent commentary on the economic crisis, “…
Imports, for example, account for 92 percent of our non-athletic footwear, 92 percent of audio video equipment, 89 percent of our luggage and 73 percent of power tools. In fact, between 1997 and 2006, only five of the 114 industries examined in a U.S. Business and Industry Council report gained market share against import competition.”

Even worse, the value of the dollar today depends less on actual commodities, much of its supposed valuation, (grown from $380 Billion in circulation in 1995 to $760 Billion in 2005 (
link), and much of it in foreign hands, nearly two thirds) is now based on the iterations of the housing bubble in the U.S., grossly inflated home values and the debt and mortgage feeding frenzy that created them, with compliance from the Federal government regulators and politicians – Let the Good Times Roll, and forgotten is "They’ll be Hell to Pay One Day!"

With an aging population, house rich, while better than homeless - except for rising taxes, means much less than the investment returns supporting retirements. The stock market drops and granny has to eat more beans and less fish down in Florida.

Those foreign held dollars, both from our import frenzy at Walmarts around the country, and from petroleum costs, can be either invested back in our real estate, or diverted to economies and industries elsewhere – much to our continued economic distress.

So throwing a few dollars back to taxpayers, an intervention of about 1% of
GDP, means we’ll either buy more imports, or given the economic fear factor, pay off the credit cards and second mortgages – neither grossly effective.

It’s not hard to see the recession coming. It’s here now.

For the cadre of skilled workers unemployed for long terms, it’s a depression! They’re sitting in home offices, emailing resumes and managing social networks for leads – who knows what to say to the friend who’s unemployed that’s more than a mere palliative?

What can be done? Wait it out. It is, after all, just a market adjustment, right? Wrong, not this time. All that useless paper being written off by big banks cannot be spun back into gold. The jobs exported, the goods no longer produced, will not return.

Our economy is nearly $14 Trillion a year, national debt $9 Trillion, and trade deficits consume $6 Trillion. Producing $150 Billion a year means we can pay everything off in about 60 years. Could we get back the $500 Billion or so spent on our Iraq fiasco please?

But that’s an overly simplistic and darkly decadent view of the facts, even the gloomy, humorless economists feel much better than that about the reality and the effects of the problems – small changes in inputs create great economic values over time, like the effect of compound interest.

Let’s hope that it works this time around.

1 comment:

Anonymous said...

Given the condition of our oceans, Granny (and the rest of us) are probably better off eating more beans and less fish. We're in a bad way all around.