This article describes all the reasons why dollar influence in trade is fading so rapidly, and further attempts to detail the whys and hows of this considerable problem.
The current financial war against the dollar is easy enough to track. No American economist -- not even Krugman, De Long or any New Keynesian will ever concede or dare mention that this is a major financial or economic problem for America. So let's look at the hows and whys as to the real reasons for this ongoing war against the US dollar.
As far as I can tell, the beginnings of the gross manipulations of the dollar really began in earnest just after the dollar was taken off the gold standard by Nixon in 1971. Then in 1974 The Kissinger Report (Implications of Worldwide Population Growth) was produced which was a completely selfish and protectionist document that identified the dangers of America's external dependencies on oil, food and other natural resources due to the rising problems of overpopulation. The policies that were advised in this memorable document were solely for the benefit of America and no other country.
Shortly after The Kissinger Report came out, the Washington Consensus rules were born in 1978. The Washington Consensus was thereafter rapidly adopted and absorbed as a set of rules for participation within the WTO club and also as rules in order to obtain loans from the IMF or World Bank and other such American influenced global entities. For more details on this aspect, have a glance at Michael Hudson's noble and honest book: "Super-Imperialism: The Economic Strategy of American Empire". There were two sets of rules for the Washington Consensus. One set of rules was for the media and their dumbed down readers, and the other set were the Real Rules. Rules like socialist governments would not be favoured or helped. Countries joining these clubs were not allowed to set import tariffs on foreign imported goods (but America could do this and still does), farming subsides were not allowed (unlike America) and utilities must always be privatised -- which would put these utilities out of financial reach of that country's population because they would be too expensive. These are some examples of the Real Rules and tenets of the old Washington Consensus.
To cut a long story short, both Bretton Woods and the Washington Consensus are now already dumped and in the bin. Asia and the rest of the world's mercantilist exporters are now fully cognizant of the truths and deceptions of the Washington Consensus and their current economic counter offensives against dollar policies openly reflect this. Led by China, using what I like to refer to as the Beijing Defence, these destructive counter-dollar policies over the last four years include:
* China and other world mercantilists exporters -- such as Russia and India -- are buying much larger quantities of hard gold. China has also suddenly become the largest gold miner and gold producing country in the world.
* China has opened up hard gold purchases for her population. Now, in China, anyone can go into a bank and easily trade in their renmimbi for hard gold. The Chinese can also now switch their renmimbi savings accounts directly into hard gold accounts and back again whenever they please. You cannot do this with such ease in America (ask yourself why).
* In September 2010, China initiated issuing her own Yuan Treasuries in direct competition to dollar Treasuries. Within the next year or two, after China fully opens up her forex markets, China's Yuan Treasuries will be auctioned to anyone who wants to buy them -- just like dollar.Treasuries. So which one will you buy -- US Treasuries -- backed by no asset whatsoever -- or Yuan Treasuries which are at least now partially backed by gold and, when compared to America, is further supported by a still roaring Chinese economy?
* China has, for some time now, initiated numerous currency swaps with other countries -- thus completely ignoring the dollar in intermediary trade. Even large economies like India, Russia, China and Japan have have arranged significant currency swaps in the billions earlier this year.
* In the last two weeks, Japan and China have started trading their yen and yuan directly on their own forex markets -- thus completely ignoring the intermediary dollar in their trades. Soon, other Asian countries are bound to follow this lead.
All the above economic actions greatly damage US dollar value, influence and power. This also means that, due to the mass dumping of the dollar in trade, less US Treasuries will be accumulated by these countries with a consequent and massive reduction in "Free Foreign Credit" for America (This aspect is the reason why the New Keynesians are all so quiet concerning these developments now -- they have always believed that this Free Credit Forever mechanism was always to be part of the global economic status quo). As well, this inevitable outcome also makes it that much harder for America to pay back her massive foreign debts in the future.
Perhaps we should ask the final question now -- What can America do to stop this trashing of her World Reserve dollar?
Well, as far as I can see, the dollar's sad course is now set in concrete and it's simply too late -- absolutely nothing can help or save the dollar's plunge from power now...
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com