November 2004


usdeficit.jpeg  Recession Clouds Gather on the Horizon

The American economy is propped up by Asian central banks. In order to keep Americans spending their money on Asian goods, the central banks of Japan, China, Korea and others have purchased a stunning amount of dollar assets: $616 billion in 2003 alone, up from $351.9 billion the year before.

(But) American consumers have seen their real disposable income slowly turn downwards. In January the growth in disposable income was 5.7%. Then it began to fall, first to 4.6%, then 4.5%, 3.7%, 2.5% and down to 0.8% in July.

The fear of these Asian governments’ central banks is that if the American consumer stops purchasing, then the Asian economies investments will seem like the internet boom of the late 1990s. Much of it will go to the wall.

But this all comes on the back of an economy that is running record deficits at around $150 billion every quarter. It appears unsustainable. The most recent figures are a stunning monthly record deficit of $54 billion in August alone.

Oil Headway Will Fail to Meet Demand

“Essentially these figures say that the levels of demand growth are unsustainable. There will not be spare capacity to maintain either growth or prices at current levels. Prices would soar.

However, there is one possibility that could restrain demand, a recession.

The only thing that could really change the equation is some kind of global recession that would dampen demand. Of course, that could be catastrophic…

The Man Who Foresaw High Oil Prices

The idea behind “peak oil” is this. That, as the planet reaches the halfway point of consuming all its available oil, then a combination of bullish demand, slowing fields and insurmountable supply bottlenecks will create brutal price shocks. Almost certainly slicing the head clean off the world economy in the process.

This peak in oil supply will act as an economic guillotine. Yet the thread suspending the blade above our heads will be released without warning.

Politicians, producer countries, major oil companies and consumer states are not about to announce their own demise. It would not be good for business, or re-election, or both.

“I think the peak will arrive around 2006, 2007. But, this is only 15 months away. That is all. At that point, no one can say what is going to happen. Except the price is going to go up. And no one will be able to stop it.”

update: World Bank warns Asian dollar reserves could trigger crisis (April 7, 2005)

Accumulation of dollar reserves by some Asian countries could spark a systemic foreign exchange crisis, the chief economist of the World Bank said in an interview to be published today. Some countries, particularly Asian ones, have no interest in the parities of major currencies being modified. As a result, they are financing the enormous American current account deficit.

“Today, the danger is that some dealers are starting to think they must change the rules of the game, play dollar depreciation and move towards the yen and the euro. That would confront us with a real systemic risk. Too drastic a programme would plunge the United States into recession,” Francois Bourguignon said.

koizumibushapec.jpeg Bush puts focus on North Korea

Koizumi told Bush the six-way talks framework was key to resolving the North Korean problem, a Japanese government official told reporters. US-Asian economic relations were also at the heart of the talks amid concerns about the sliding dollar.

In his meeting with Koizumi, Bush insisted the United States was committed to a strong dollar despite its drop in value and would work with the US Congress on reducing the US budget deficit, a factor in the dollar’s fall. Koizumi said he agreed with Bush “a strong dollar has good impact on the US economy and is also important for the world economy.”

Bush and Hu also talked about foreign exchange issues and senior US officials said Hu told Bush that China was committed to freeing up the Chinese currency. Washington has been pressing China to adopt a more flexible exchange rate as a way to boost exports and help US manufacturers.

The communique is something of a compromise as some of the 21 members of the Asia-Pacific Economic Co-operation forum have voiced dismay at a United States drive to push security and the war against terrorism on an equal footing with Apec’s original goal of fostering prosperity and free trade.

But United States President George W. Bush intensified his drive to put the war on terror at the heart of the summit.

North Korea Focus of Bush Talks with Asian Leaders at APEC

Greenspan issues new warning over US current account deficit

US Federal Reserve chairman Alan Greenspan warned Friday of the danger that foreign investors may become fed up with financing the United States’ huge current account deficit. Greenspan said in a speech to the European Banking Congress in Frankfurt that the deficit cannot be indefinitely supported by money from abroad.

The US current account deficit reached a record 166.2 billion dollars in the second quarter. Japan and China have been major buyers of US debt in recent years.

Economists worry that foreigners could suddenly lose their appetite for dollar-denominated investments and unload investments in US shares and bonds. That would hit stock market confidence and send interest rates soaring.

The Declining Dollar

The underlying problem is that deficits in America’s global transactions are at record levels, putting Americans at risk of either a slow deterioration in living standards or abrupt spikes in inflation and interest rates.

The dollar, which has declined nearly 30 percent against the euro since President George W. Bush took office in 2001, fell to a record low this week. The decline has not been as marked against other currencies, largely because China and Japan prop up the dollar by investing heavily in U.S. Treasury securities.

The Dollar Deluge

U.S. officials are exhorting the world to work in unison to achieve a more balanced and robust global economy. Snow’s plan, as outlined to an audience at London’s Royal Institute of International Affairs last Wednesday:

1) increase savings in the United States so it can reduce its foreign borrowing;
2) expand growth in Europe and Asia, so that these regions can import more from America and take pressure off U.S. trade deficits; and
3) ensure that Asian countries such as China, Japan and South Korea do not hold their currencies artificially low by selling them in massive amounts to purchase dollars.

Were Asian governments to allow their currencies to float upward, Snow’s reasoning goes, the dollar would become weaker against them and stimulate more American exports. “The [U.S.] current account is a shared responsibility,” Snow said. Translation: the U.S. wants others to clean up the mess it has made.

kevinsitesvideoclip_a-j-thumb.jpg Kevin Sites Blog

“The gun battle continues late into the night — eventually an AC-130 gunship is called in and strafes Elizabeth Street with its mini guns. With eight of their men wounded–it is a bloody and disappointing start for the Marines — and a reminder that to win the battle for Falluja — they will likely have to fight as they did today block by block, street by street.” — Kevin Sites

update: 11.16.2004 | US military probes shooting of Iraqi in Falluja (Kevin Sites captures on video a US marine shooting an injured and unarmed Iraqi in Falluja)

another update: 11.21.2004 | Kevin Sites explains on his blog, what happened in that mosque.

Were 5 Unarmed and Wounded Iraqi’s Murdered By U.S. Marines?

Why is America intentionally confusing the issues about the war on terrorism and during its time, the war on communism? Why all the propaganda and the disinformation? Why all the secrecy in the mainstream media on these issues? Here’s why:

Coilin Nunan: Oil, Currency and the War on Iraq: “The dollar is the de facto world reserve currency: the US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.

Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences. The most recently published figures, for example, show that in November of last year US imports were worth 48% more than US exports1. No other country can run such a large trade deficit with impunity. The financial media tell us the US is acting as the ‘consumer of last resort’ and the implication is that we should be thankful, but a more enlightening description of this state of affairs would be to say that it is getting a massive interest-free loan from the rest of the world.

Countries switching to euro reserves from dollar reserves would bring down the value of the US currency. Imports would start to cost Americans a lot more and as increasing numbers of those holding dollars began to spend them, the US would have to start paying its debts by supplying in goods and services to foreign countries, thus reducing American living standards. As countries and businesses converted their dollar assets into euro assets, the US property and stock market bubbles would, without doubt, burst. The Federal Reserve would no longer be able to print more money to reflate the bubble, as it is currently openly considering doing, because, without lots of eager foreigners prepared to mop them up, a serious inflation would result which, in turn, would make foreigners even more reluctant to hold the US currency and thus heighten the crisis.

There is one major obstacle to this happening: oil…”

What does this tell you? America’s economic stability is in peril. Nobody wants to talk about it because the American Administration thinks that distracting the public by confusing the issues–weapons of mass destruction, bombings, the lumping of anti-American Arabs under the Al-Qaeda umbrella, terror-mongering and war-mongering–the real problem might just go away.

The Civilised World shakes its head in disbelief. And we thought the American people were cheated in the last election. So whatever you get with this Presidency, you really asked for it… What good fortune for governments that the people do not think (Adolph Hitler).

The international community’s high regard of America has been so diminished by this Administration, it will be almost impossible for this country to regain the respect and the trust it once had.

The Web wonders if electronic voting machines stole the election: The AP’s rundown of problems nationwide includes Kerry voters who said they were asked on the final screen to verify that they had voted for President Bush. The Prospect also describes this phenomenon, which, a witness says, led to machines being unplugged and voters having to recast their ballots.

No Paper Trail
Machine Error Gives Bush Extra Ohio Votes
European Leaders in a State of Denial Over Bush Victory