Saturday, May 10, 2008
The Ship is Sinking
"As a number of other commentators have written in Asia Times Online, including Julian Delasantis and the Mogambo Guru, the problem with the US is that of excessive borrowing that has fueled a consumption boom. Almost three-quarters of the US economy is consumption, compared with the more usual 50-50 mix considered 'normal' in Economics 101 texbooks. ... What many of us on this website have been writing about is that this edifice is cracking and quite likely to fall over. On Thursday (May 1), the finance minister of Kuwait, Mustafa al-Shiwali, suggested that Gulf Cooperation Council (GCC) countries were considering an idea to abandon their long-standing US dollar pegs. This is a minor news item to be tucked away in page 20 of the financial press, which it has been--but rather emblematic of a systemic shift. ... These were the same countries that considered the same action in the 1970s, and indeeed it was the Kuwati finance minister of that time who famously asked, 'Why should we sell our black gold in exchange for unguaranteed currency notes [US dollars]'? ... Despite owing a debt of gratitude for getting their country back, it is interesting that Kuwait today is concerned more about domestic inflation that has run away to absurd levels, and less about kicking the US when it is down. Call that the new world if you will. ... I however think it is more likely we will see actual selling of ... US Treasury bonds that offer yields roughly in line with official inflation and less than half of unofficial inflation figures. ... The final consequence of the decline of US power is global in nature, namely a search for an absolute value reserve. That would be physical commodities, including oil, copper and whatever have you. The easiest though would be gold", Chan Akya (CA) at http://www.asiatimes.com/, 2 May 2008.
I agree with CA and keep wondering when the Kuwaitis will pull the plug on the dollar. They may just be waiting for the next administration to take office.