Mike Whitney: The Great Dollar Crash of ’07


Richard Moore

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The Great Dollar Crash of Œ07

Tuesday, 06 February 2007
By Mike Whitney

The massive equity bubbles which arose from artificially low interest rates and 
the deliberate destruction of the dollar by reckless increases in the money 
supply have shifted trillions of dollars from working class Americans to the 
predatory aristocrats at the top of the economic food chain.  The gulf between 
rich and poor has grown so wide that it now poses a direct threat to our 
increasingly fragile democracy.

³Whatever future developments may prove to be, my best guess is that the US will
continue to maintain a façade of Constitutional government and drift along until
financial bankruptcy overtakes it.² Chalmers Johnson, ³Empire V. Democracy: Why 
Nemesis is at our Door²

02/06/07 "ICHBlog" -- - Every time a US Dollar is traded, a check is issued on 
an account that is overdrawn by $8.6 trillion. (That is the present size of the 
national debt) It is, without question, the biggest swindle in history. Flimsy 
sheets of faded-green scrip are eagerly exchanged for costly goods and services 
without any regard for the real value of the currency.

And, the real value of the currency is absolutely nothing!

How is it that this scam persists when people appear to be aware of the massive 
debt and deficits which underwrite the dollar? Do they still believe in that 
puerile fairy tale about ³the full faith and credit² of the United States 
backing up every greenback? Or are they pacified by the wizened graybeards, like
Alan Greenspan and Hank Paulson, who soothingly bray about the ³strong dollar 

What gibberish.

In truth, the dollar rests on the crumbling foundation of consumerism and oil. 
The American consumer¹s gluttonous appetite for spending has kept the greenback 
flying high for decades. Economists marvel at America¹s lust for electronic 
gadgetry, the latest fashions, and useless knick-knacks. They call our 
profligate spending ³the engine for global growth²; and indeed it is. No other 
country in the world is nearly as addicted to binge-spending as the US consumer.
As long as he can beg, borrow or steal his way into the shopping mall; the orgy 
of spending is bound to continue. (Consumer spending is 70% of GDP)

Regrettably, there are signs that the US consumer is beginning to buckle from 
the weight of personal debt.  The Associated Press reported just this week that 
³people are saving at the slowest rate since the Great DepressionŠ and the 
Commerce Dept stated that the nation¹s personal savings rate for 2006 was a 
negative 1%, the worst showing in 73 years.²

Additionally, credit card debt has skyrocketed, which is an indication that 
homeowners are no longer able to siphon easy-money from their home-equity.  The 
nose-diving real estate market has slowed refinancing to a dribble; cutting off 
the additional $825 billion of cash which was extracted from home-equity just 
last year.

Clearly, the well is running dry; the housing bubble is hang-gliding into the 
abyss and there¹s nothing Fed-master Bernanke can do to save it from its 
inevitable crash-landing.

The central banks around the world are now watching for any sign that the 
American consumer is about to give up the ghost. As soon as that happens, bank 
managers everywhere will swing into action, ditch their U.S.Dollars and head for
the exits. When the ³global engine² sputters to a halt; it¹ll be curtains for 
the greenback.

The Oil-extortion Racket

The dollar¹s link to oil has helped to keep it afloat but, in truth, it¹s just 
another dismal rip-off. More than 70% of the world¹s oil is denominated in USD; 
a virtual monopoly for the USA. Until last year, even Russia was using dollars 
in its oil transactions with Germany. Imagine a comparable deal, like the US 
purchasing oil from Canada in rubles?!?

It¹s lunacy; and yet this is the system the US hopes to preserve so it can 
maintain its unique status as the world¹s ³reserve currency² and keep expanding 
its debt into perpetuity. It explains why the Federal Reserve has been able to 
increase the money supply by a whopping 15% for the last 6 years! Trillions of 
dollars are now circulating in the oil trade keeping the value of the dollar 
high by creating artificial demand.

The other reason the dollar hasn¹t succumbed to hyperinflation is because the 
current account deficit is running at roughly $800 billion per year. The Asian 
giants (China and Japan) and the oil exporting countries are mopping up more 
than $700 billion of our red ink every year!

The dollar¹s link to oil forces central banks to maintain humongous stockpiles 
of USD to pay the steadily rising price of oil that keeps their industries and 
vehicles running. Otherwise they would have chucked the flaccid greenback years 
ago and converted to the more steadfast euro.

The so-called Œglobal economic system¹ has nothing to do with competition, free 
markets or private enterprise; that¹s just public relations gobbledygook. In 
practice, it is the world¹s biggest extortion racket, wherein, the ³Godfather²--
Uncle Sam-- holds a gun to the heads of his subjects and forces them to use our 
fiat-paper to purchase the oil that lubricates their economies.

Why would anyone accept a personal check from a nation that owes the bank more 
than $8.6 trillion dollars?

Why, indeed?

It¹s blackmail, pure and simple; and yet, the Chinese, Japanese etc. continue to
play along knowing full-well that we neither have the inclination nor the 
resources to pay them back in kind?

It¹s madness.

Every so often, a rebel nation will try to break the shackle of 
greenback-tyranny and operate outside the US-run system?

For example, Saddam Hussein switched to euros 6 months before he was 
carpet-bombed in Shock and Awe. His defiance only hastened his ultimate 

Now Iran and Venezuela are threatening to convert to euros. Is it any surprise 
that they are both on Bush¹s axis-of-evil hit list?

Russia has already made the conversion to euros and rubles (and has considerably
depleted his supplies of USD) but, of course, regime change is more difficult 
when a state has nuclear weapons. Instead, the mainstream media is conducting an
impressive ³Swift Boat² campaign against Putin, smearing him as a ³Russian 
autocrat² who is ³rolling back democracy². At the same time, the Bush 
administration is threatening to deploy missile systems in Eastern Europe and 
ratcheting up the pressure in the former Soviet republics.

Bush would rather restart the Cold War than abandon the supremacy of the 

But, why? Is Dollar-primacy really that crucial to our economy?

The greenback is the baling wire that keeps the global economy in the hands of 
the doddering old misers at the Federal Reserve. It¹s the cornerstone of the 
whole wretched  system; a system which now includes torture, extraordinary 
rendition, and myriad other war crimes.

The young Muslim men who are abducted off the streets of Europe and Asia and 
taken to CIA Black Sites where they are waterboarded or stacked in naked 
pyramids; are tortured in defense of the crumpled piece of green paper we carry 
in our pants pockets.

Think I¹m kidding?

Just look at Bush¹s budget for 2007-2008; $700 billion for foreign wars?!? 
There¹s no way the US can pay off that debt through the normal means of 
increasing exports. In fact, Bush has already said that he plans to preserve his
unfunded tax cuts whether they produce massive deficits or not.

What Bush plans to do is force the foreign central banks to hold more 
dollar-based assets, thus, thrusting our gigantic debt onto our trading 
partners. According to Bob Chapman of The International Forecaster, ³US debt was
up 10.1% to $4.085 trillion and accounts for 58.8% OF ALL THE CREDIT ISSUED 
GLOBALLY LAST YEAR. The US is producing more debt than the rest of the world 

As long as foreign lenders are willing to take our paper, Bush will keep 
expanding our debt. As Chalmers Johnson opined, ³We are dependent on Œthe 
kindness of strangers¹². (The Blanche Dubois economy)

Of course, if the central banks grow tired of this pyramid-scheme and dump the 
dollar; the world can get on with the business of addressing global warming, 
poverty, AIDs, Peak Oil, nuclear proliferation etc. That won¹t happen as long as
the dollar reigns supreme and a small cadre of unelected racketeers at the Fed 
continue Gerry-rig the system.

Economic justice and equitable distribution of wealth begin with greater parity 
among the currencies. That requires ³regime change² for the greenback and a 
loosening of its tyrannical grip on the system.

Sleepwalking in the Weimar U.S.A.

The good news is that the Bush administration is pushing the dollar towards 
extinction anyway. Another few years of $800 billion trade deficits, lavish 
unfunded tax cuts for the mega-rich, and a Pentagon budget of $700 billion-plus;
and the old greenback will be going the way of the Dodo. Jim Willie of 
GoldenJackass.com summarized it this way:

³Never in the history of central bankers has the hidden coordination, influenced
pressure, gargantuan money creation, doctored statistics, and interference with 
financial markets been so broad, so deep, and so profound. My allegation is 
clear, that we now live in Weimar times, as has been warned for two years worth 
of scribbles. Collectively, they have abused the privilege of printing money, 
and in doing so, have guaranteed a gold bull market. Š The more heavily the 
counterfeit press dispenses electronic dollars, devoted to operations, to 
credit, to consumer spending, to military adventures, to good old fashioned 
fraud, the gold bull benefits from ample new oxygen and blood flow².

Willie is right; the system is rotten to the core. Once the dollar crashes, 
other currencies rush in to fill the void generating greater competition between
the energy and manufacturing giants. A new paradigm will emerge distributing 
power more equitably among the states. It¹s a way to resuscitate a system that 
is currently held together through force of arms.

Besides, how long will China and Japan continue to abet Washington¹s 
war-mongering adventurism? My guess is that the daggers have already been 
sharpened in Beijing, Caracas, Delhi and Moscow. Everyone is just waiting for 
Bush to cross that invisible line in the sand before they fling their greenbacks
into the jet-stream and wait for Goliath to tumble.

That ³invisible line in the sand² is Iran.

The world is at a crossroads and everyone who can fog a mirror knows it. The 
superpower model of global governance has failed miserably. We need more 
responsible stewardship of the planet and its resources.

How can we build our economies when a handful of western plutocrats control the 
spigot for quickly dwindling oil reserves? How can we attack climate change when
those same blinkered  reprobates employ pseudo-scientists to dispute global 
warming? How can we address nuclear proliferation when neocon militarists 
believe in ³useable² low-yield, bunker-busting warheads?

The model is hopelessly shattered. We¹d be better off boarding-up the White 
House and the Federal Reserve and starting from Square One.

The world needs a break from Washington¹s wasteful spending and unprovoked wars.
At the same time, foreign creditors are increasingly reluctant to keep financing
America¹s extravagant consumption. And, no one is hoodwinked by Bush¹s ³war on 
terror² scam; a conflict that was clearly concocted to assert control over the 
world¹s remaining resources.

The world is realigning according to mutual interests and a shared vision of the
future. The rise of energy alliances in Latin America and Asia (particularly the
Shanghai Cooperation Organization (SCO) which now controls most new oil deposits
and output) signals the waning of western influence and the ascendancy of a new 
energy paradigm. Power is progressively shifting away from Washington.

That¹s bad news for the greenback which depends on its linkage to oil to sustain
its enormous debt.

The dollar now faces challenges from all directions. Western elites have savaged
the country¹s economic base by hollowing out our manufacturing base in order to 
destroy the American labor movement.

Free trade has transformed the US into the biggest creditor nation in history. 
The country exports nothing but bombs and misery.

Also, as Congressman Ron Paul notes, ³Most knowledgeable people assume that 
inflation of the money supply is not only going to continue, but accelerate. 
This anticipation, plus the fact that many new dollars have been created over 
the past 15 years that have not been fully discounted, guarantees the further 
depreciation of the dollar.²

Eventually, the markets will catch on, foreign lenders will stop buying our 
Treasuries, and the dollar will fall through the floor.

The laws of gravity apply to economics as well as science.

Red flags are going up everywhere. China¹s central bank issued a warning in 
December about the risks of the weakening dollar:

³If external capital stops flowing into the US, a significant drop in the dollar
may occur with consumption and investment shrinking, interest rates rising, and 
financial markets experiencing turbulence, endangering global financial and 
economic stability. There could be adjustments to how European private capital, 
Asian foreign exchange reserves and oil export proceeds are invested.²

Yes, of course, a complete economic meltdown with capital fleeing the United 
States to foreign countries and the American economy collapsing in a heap.

The Chinese central bank statement adds:

³If the US current account deficit continues to grow faster than GDP, then the 
investment value of US assets may be subject to doubts and challenges and the 
willingness of investors to continue holding and buying US financial products 
may weaken. This could cause changes in capital flows, the exchange rates of 
major currencies, and the value of foreign exchange assets.²

The Chinese bank is giving the Bush Team a chapter out of Econ. 101: ³If you 
keep spending more than you are taking in; the stock market will fall, the 
dollar will plummet, and the US economy will tank².

What could be clearer than that?

The administration, however, chooses to ignore the basic laws of economics and 
pursue a madcap plan to wage aggressive war across the planet and pilfer the 
world¹s oil reserves.

So far, the results have been less than reassuring.

The Decline of U.S. Sovereignty; blame it on the Fed

The United States set off on the road to perdition when it transferred the power
to create money to the privately-owned Federal Reserve. It¹s been downhill ever 

The man who can set interest rates and create money is more powerful than the 
man who can move armies and change laws.  By conferring that authority on the 
Federal Reserve we have assured that the policies that govern our economy are 
decided by unelected members of the ruling elite whose choices will naturally 
reflect the interests of their class.

The wealth gap that has opened up like a yawning chasm between rich and poor in 
America originated with the class-based policies of the Fed. The massive equity 
bubbles which arose from artificially low interest rates and the deliberate 
destruction of the dollar by reckless increases in the money supply have shifted
trillions of dollars from working class Americans to the predatory aristocrats 
at the top of the economic food chain.  The gulf between rich and poor has grown
so wide that it now poses a direct threat to our increasingly fragile democracy.
That¹s why Thomas Jefferson said:

³If the American people ever allow private banks to control the issue of our 
currency, first by inflation, then by deflation, the banks and the corporations 
that will grow up will deprive the people of all property until their children 
wake up homeless on the continent their fathers conquered. The issuing of power 
should be taken from the banks and restored to the people, to whom it properly 

Free people cannot control their own destiny unless they control their own 
currency. The Federal Reserve must be abolished.

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