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.
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 $50 billion, in 1998 $245 billion and in 2004 $600 billion. $825 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 $140 billion. In contrast, Germany shows an annual surplus of $4 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 $40 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 $20 billion. In 1982 these claims reached their maximum at $231 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 $7.815 trillion. Including its own claims on foreign countries, a net indebtedness remains at $3.493 trillion. This foreign indebtedness is 35 percent of the GDP since the total annual output of the US is $10 trillion.
HUGE DEBT MOUNTAIN
The situation is worsening. Holdings of $11 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.