HARD LANDING OF THE DOLLAR

The Decline of the US Dollar Signals the Economic Weakness of the Superpower and the Structural Crisis of Capitalism

By Jurgen Elsasser

[This article originally published in: junge Welt, 12/27/2004 is translated from the German on the World Wide Web, http://www.jungewelt.de/2004/12-27/009.php,]




Alarm on the currency exchanges. The fall of the dollar has begun. In the last three years the US currency has lost 35 percent of its value against the euro and 24 percent against the Japanese yen. Since October 2004 alone, the loss has amounted to seven percent. If one continues the historical comparison and uses the German mark instead of the euro, the money of the Yankees is devalued two-thirds since 1960 against the money of Germans. At that time one had to pay four DM (German marks) for the greenback. Now one would only pay 1.30 DM.

BALANCE DEFICIT

The main reason for this development is the weakness of the American economy. Products manufactured by the US are so poor or expensive that they cannot hold their ground on the world market. An ever-larger hole in the balance of trade opens since US exports can hardly be sold abroad and foreign products are increasingly preferred on its domestic market.

Since the beginning of the 1980s, the US trade balance has skidded into the red. The deficit’s growth is exponential. In 1992 it amounted to billion, in 1998 5 billion and in 2004 0 billion. 5 billion are even forecast for 2006. This equals eight percent of the gross domestic product (GDP) or of the whole annual economic output of the US. In comparison, eight percent of the GDP for Germany would amount to a trade deficit of 0 billion. In contrast, Germany shows an annual surplus of billion (2001 statistic, the surplus has increased since then).

A country living in deficits above its means would normally scare off international investors as the devil is scared off by holy water. Who would lend money to someone in private life known for increasingly spending more than he earns for years? One would never see one’s money again with such a dubious debtor. Why does more and more foreign capital stream into the US – now billion per month? The daily influx of foreign capital is unbroken although the deficit becomes ever larger. Investment- and pension funds from Europe, central banks from Asia and billionaires from the Arab world buy US government bonds and stocks. With the money collected for government bonds, Bush like his predecessor Clinton finances state consumption and buys new high tech armaments.

Borrowed foreign capital made the US indebtedness explode. At the end of the seventies, the US was a net creditor with claims on foreign countries amounting to billion. In 1982 these claims reached their maximum at 1 billion. The turn to red numbers occurred shortly after. Since 1985 the US – the state, economy and private households – has been heavily indebted to foreign countries. In September 2001 the gross debt amounted to .815 trillion. Including its own claims on foreign countries, a net indebtedness remains at .493 trillion. This foreign indebtedness is 35 percent of the GDP since the total annual output of the US is trillion.

HUGE DEBT MOUNTAIN

The situation is worsening. Holdings of trillion have accumulated outside the US. This sum grew by a trillion in the last 18 months alone. The preceding trillion had taken ten years. The reason for this development is the increasing takeover of dollars by central banks in Tokyo and Peking. Through this policy, Japan and the People’s Republic of China want to keep the US currency high and their own low – so their exports are competitive in the dollar realm. What will happen when the Asian central banks stop buying dollars? The point could be reached when the advantages of cheaper dollars for Japanese and Chinese – their improved world market chances – are outweighed by the disadvantage – they receive less and less equivalent in buying greenbacks. The exchange rate that would prompt the Asian rejection of the dollar cannot be predicted. One thing is certain: When their banks begin selling, the devaluation spiral will turn ever more quickly: exchange losses, salvage sales, more exchange losses, panic sales, more exchange losses and suicide sales. The capitalist world economic system in its present form will collapse.

I just got back from Buenos Aires last month and the dollar was doing great down there. I was dining at the finest restaurants (complete with full bottles of wine) for roughly per person. Taxis are about for as far as you'd like to go. Before that, I was in Bolivia, and a week in the nicest hotel in La Paz was less than 0. And Ecuador was a blast. Did you know the whole country of Ecuador uses the dollar as local currency? South America is a really great place to vacation, and very very cheap. Plus, it's summertime there when it's winter here....

Jaggoff: "it's summertime there when it's winter here"

You're kidding...Really?!?!

Whodda thunk it! See how valuable this jaggoff's input is? He KNOWS things!

...wow, a cheerleading shrubsucker, how interesting....



....ZZZZzzzz.....

This from someone who can't find South America on a map....

...you mean Brazil is in South America!?!?!?

...I am SO impressed, but aren't you getting to be a little bit of a show-off?

but Buenos Aires is in Argentina ... not Brazil

.... biatch.

Sao Paulo is very nice this time of year also.

...whadda TOOL!

...I hope you enjoyed being used as much as I enjoyed using you...

...now hurry and post something or somebody may think yer stoopid!

Those two things drive each other, so you cannot easily disentangle the effects of the computer from the effects of capitalism. Technological changes lead to increases in productivity, that raises the net wealth of society, and enables loans to be paid off.

Unfortunately, as this paragraph notes:

"The main reason for this development is the weakness of the American economy. Products manufactured by the US are so poor or expensive that they cannot hold their ground on the world market. An ever-larger hole in the balance of trade opens since US exports can hardly be sold abroad and foreign products are increasingly preferred on its domestic market."

American corporations have been achieving productivity gains without necessarily improving products.

Productivity is calculated ITEMS_MADE / COST_OF_LABOR. You can increase it by increasing the number of items made, or by reducing the cost of labor.

Over the past 30 years or so, wages, particularly for manufacturing, have been dropping. The number of items made (and the quality) have increased too, but, when you gain productivy by lowering wages, or outsourcing to coutnries with far lower wages... you're not really increasing overall wealth. You're just increasing profits.

Also, the overall value of the American worker has declined. The educational system sucks. Adult education sucks. We have no industrial policy to influence workers to prepare for certain fields.

To shore up our overall productivity, we rely on immigration and H1B visas. We ignore our own people, and acquire skilled people who were trained in another country, at that country's expense, and employ them here. And for wages lower than Americans get paid.

Anyone who's gone to school with immigrants knows that they are often better educated. It rarely matters that they are from Hong Kong, Mexico, or Canada. They're often better educated than Americans. That's because other countries, lacking the immense capital of the US (or UK), are motivated to invest in their people, at great expense.

This state of affairs works great for capitalists, and for capitalism, but it's not doing much for the rest of the people.

The reason why the "hard" subjects are full of foreign and minority students and the "easy" ones are full of Americans is due to economics. For many of the people in these latter classes, college is just a formality before going on to law school, or entry into some management track position at some cushy job at daddy's company.

It's always been this way. The engineering students used to be Jews, and the lazy louts were WASPs. The oppressed do the hard work, and the owners kick back and reap the profits.

Maybe that's what Bush means by "the ownership society."

Where we're really failing is public education for the other 90% of the population that aren't in the "good" colleges. Education just isn't a high priority for the people in power. They have no incentive to pay for it: they can externalize the cost to another country.

Manufacturing isn't going offshore because of organized labor. There isn't much. It's going offshore because of "free trade" policies that dropped tariffs on imports. When unions are strong, tariffs are high; today, they are weak, and tariffs are low.

Tariffs work. Look at auto industry tariffs. They are high, and now, they make Japanese cars in America.

You're really an idiot about computers, BA. Look at the parts inside a Gateway or Apple computer, and the location of manufacture. They're not made in America. PCs aren't made here at all. We don't have a domestic PC industry at all. What we have is computer design and software development.

Cheap computers are a great benefit of globalization, but I wonder at what cost. First, you offshore production, then you offshore engineering. Then, how much longer before you shut down universities and move them offshore too?