eattherich
02-17-2008, 01:59 AM
The fall of the Dollar Empire
Fri, 15 Feb 2008 22:19:47
An interview with Hamid Varzi by Monavar Khalaj, Press TV, Tehran
The following is an interview with Hamid Varzi an economist and banker based in Tehran about the US economic crisis:
Q.Please tell us more about the 2007 subprime mortgage financial crisis and why, how and when it began?
A.The crisis began in 2000 with Bush Jr.'s election that re-established the irresponsible “Supply Side” and “trickle-down” economic policies of the Reagan years. We are wrong to focus only on the subprime crisis, which has been conveniently blown out of all proportion in order to create the convenient and comforting impression that this is a manageable problem solvable through a simple reduction in interest rates and a 90-day government mandated delay on foreclosures (Hillary's recommendation). The subprime crisis presages far greater problems down the road. It is already spreading to other forms of commercial paper, and even if the damage can be contained the relief will be only temporary because a much larger danger is looming on the horizon: The US economy has grown largely on the back of speculative credit derivatives that have risen exponentially to $ 35 trillion, which is more than double the size of the entire US economy! This is an approaching iceberg, and all you've seen (in the sub-prime scandal) is the tip. To return to your question, the first chart below proves that speculative commercial lending received a major boost with Bush's election, and soared with his re-election.
<SNIP>
The real root cause of the subprime crisis began with Ronald Reagan. Wall Street 'wisdom' hails Ronald Reagan as the last great saviour of US Capitalism. However, supporters of Ronald Reagan seem unable to explain the unprecedented exponential growth of stocks, during Clinton's presidency, on the back of equally unprecedented (= exploding) budget surpluses, a major decline in the Federal Debt and a major strengthening of the Dollar.
<SNIP>
Q. Have the world weathered the crisis? If not what are your predictions and prescriptions?
A.Yes, the world has indeed weathered the crisis, because the US sold only about 20 % of its economic toxic waste to the rest of the world. Most importantly, the nations which bought America's toxic waste have suffered financial losses only among their financial institutions, not among the general population which, in most industrialized countries, has to make a 30 % mortgage cash down-payment and provide solid evidence of regular financial income before being granted a mortgage. Not one home-owner in Germany or France or England faced foreclosure because of what happened in the US.
This actually demonstrates how quickly global economies are decoupling from the US economy. The US has a $ 9 trillion National Debt and a net $ 3 trillion foreign debt, so obviously any crisis is going to hit indebted countries far harder than nations flush with cash (Russia, China, India, Japan, the 'Tigers' and Western Europe). The US is in deep fundamental, historical trouble.
Q.What is its impact on the world economy?
A.Greater controls will be imposed by governments across the globe to discourage financial speculation, which is a 'good thing'. Banks will refocus on trade and export finance rather than on gambling. The world economy will cool off (which will reduce some of the speculative excesses such as the current oil and gold prices).
Q.How will it influence the life of ordinary people across the globe, especially those at the bottom of the economic ladder in the US and Europe?
A.Those at the bottom of the economic ladder in Europe are about 10 rungs above their counterparts in the US, so the effect will be negligible compared with the economic hardships to be faced continually by those at the bottom of the US economic ladder. Even setting aside the subprime crisis for a moment, US households are more in debt, generally, than at any time since the 1930s Great Depression. The US Wealth Gap and the US Household Savings rate are both at Great Depression extremes despite an extended period of global economic growth:
<SNIP>
Q.Why has the US Dollar gone into a spiral of decline?
A.Mainly because it has to borrow $ 3 billions each and every day from foreigners to finance its massive current account deficit and its war machine. Foreign nations have become nervous at the annual 10 % deterioration in their Dollar holdings. Foreigners don't even need to reduce their Dollar reserves to precipitate a Dollar crisis; they can do so merely by refusing to increase their holdings, i.e., refrain from participating in further US Treasury auctions.
Q.There are two views about the impact of the dollar decline on the US economy: one holds that it would eventually benefit the US economy through boosting exports while others believe that it damage the US economy. What is your opinion?
A.The export view is sheer unadulterated nonsense. The Dollar has been in fundamental decline since the end of WWII, as has its trade deficit!!! A weak currency is not a panacea for economic health. It merely delays the inevitable drive to increase competitiveness, as demonstrated by Germany which has again become the world's No. 1 exporter despite an 80 % appreciation in the Euro since 2001! The drop in the Dollar has, on the contrary, caused only a minimal reduction of its annual $ 750 billion trade deficit, which proves that US lack of competitiveness is truly endemic and not a function of exchange rates.
A weak currency also boosts inflation as imports become more expensive. In America's case it represents a 'double whammy' because, while imports become more expensive they are unavoidable since the US doesn't produce many of the consumer goods it needs.
<SNIP>
If McCain wins, after a brief relapse the Euro will strengthen to $ 2.00 from its current rate of $ 1.48, because McCain will be just another Republican spendthrift unable to offload the party baggage (the “special interests”), no matter how 'fiscally responsible' he sounds on the surface. But I doubt he will win.
Q.Do you think the Iranian decision to cut its ties with the greenback and Tehran's call on its importers of crude to pay in non-dollar currencies have adversely contributed to the Dollar nosedive?
A.Definitely, because it was not so much the nominal sums involved, which are paltry by global comparison, but the psychological effect of the move which encouraged others to follow suit.
Q.Should one consider the US crisis as an opportunity for booming economies like India and China to assume a more important role in the world's markets?
A.They already have. The US is totally dependent on China's goodwill. If the US were to ban all imports from China tomorrow morning the US economy would suffer a heart attack as it would have to import those same goods more expensively from elsewhere. In retaliation, the Chinese would sell their surplus Dollar mountain and precipitate a global economic depression. The emerging economies would be better able to withstand such an Armageddon scenario because they are accustomed to hardship, while decadent US consumers are already bankrupt despite an environment of extended global economic growth. The US would probably suffer riots, internal conflict and starvation for the first time in 80 years. Emerging economies are used to economic hardship and even war. The US is much more fragile than its leaders and economic pundits admit. There is a huge fundamental and conceptual difference between a) going from recession to depression (the USA), and b) going from 10 % + economic growth to a more reasonable 3 % economic growth (Russia, India, China, ….).
http://www.presstv.ir/detail.aspx?id=43 ... id=3510302 (http://www.presstv.ir/detail.aspx?id=43253§ionid=3510302)
Fri, 15 Feb 2008 22:19:47
An interview with Hamid Varzi by Monavar Khalaj, Press TV, Tehran
The following is an interview with Hamid Varzi an economist and banker based in Tehran about the US economic crisis:
Q.Please tell us more about the 2007 subprime mortgage financial crisis and why, how and when it began?
A.The crisis began in 2000 with Bush Jr.'s election that re-established the irresponsible “Supply Side” and “trickle-down” economic policies of the Reagan years. We are wrong to focus only on the subprime crisis, which has been conveniently blown out of all proportion in order to create the convenient and comforting impression that this is a manageable problem solvable through a simple reduction in interest rates and a 90-day government mandated delay on foreclosures (Hillary's recommendation). The subprime crisis presages far greater problems down the road. It is already spreading to other forms of commercial paper, and even if the damage can be contained the relief will be only temporary because a much larger danger is looming on the horizon: The US economy has grown largely on the back of speculative credit derivatives that have risen exponentially to $ 35 trillion, which is more than double the size of the entire US economy! This is an approaching iceberg, and all you've seen (in the sub-prime scandal) is the tip. To return to your question, the first chart below proves that speculative commercial lending received a major boost with Bush's election, and soared with his re-election.
<SNIP>
The real root cause of the subprime crisis began with Ronald Reagan. Wall Street 'wisdom' hails Ronald Reagan as the last great saviour of US Capitalism. However, supporters of Ronald Reagan seem unable to explain the unprecedented exponential growth of stocks, during Clinton's presidency, on the back of equally unprecedented (= exploding) budget surpluses, a major decline in the Federal Debt and a major strengthening of the Dollar.
<SNIP>
Q. Have the world weathered the crisis? If not what are your predictions and prescriptions?
A.Yes, the world has indeed weathered the crisis, because the US sold only about 20 % of its economic toxic waste to the rest of the world. Most importantly, the nations which bought America's toxic waste have suffered financial losses only among their financial institutions, not among the general population which, in most industrialized countries, has to make a 30 % mortgage cash down-payment and provide solid evidence of regular financial income before being granted a mortgage. Not one home-owner in Germany or France or England faced foreclosure because of what happened in the US.
This actually demonstrates how quickly global economies are decoupling from the US economy. The US has a $ 9 trillion National Debt and a net $ 3 trillion foreign debt, so obviously any crisis is going to hit indebted countries far harder than nations flush with cash (Russia, China, India, Japan, the 'Tigers' and Western Europe). The US is in deep fundamental, historical trouble.
Q.What is its impact on the world economy?
A.Greater controls will be imposed by governments across the globe to discourage financial speculation, which is a 'good thing'. Banks will refocus on trade and export finance rather than on gambling. The world economy will cool off (which will reduce some of the speculative excesses such as the current oil and gold prices).
Q.How will it influence the life of ordinary people across the globe, especially those at the bottom of the economic ladder in the US and Europe?
A.Those at the bottom of the economic ladder in Europe are about 10 rungs above their counterparts in the US, so the effect will be negligible compared with the economic hardships to be faced continually by those at the bottom of the US economic ladder. Even setting aside the subprime crisis for a moment, US households are more in debt, generally, than at any time since the 1930s Great Depression. The US Wealth Gap and the US Household Savings rate are both at Great Depression extremes despite an extended period of global economic growth:
<SNIP>
Q.Why has the US Dollar gone into a spiral of decline?
A.Mainly because it has to borrow $ 3 billions each and every day from foreigners to finance its massive current account deficit and its war machine. Foreign nations have become nervous at the annual 10 % deterioration in their Dollar holdings. Foreigners don't even need to reduce their Dollar reserves to precipitate a Dollar crisis; they can do so merely by refusing to increase their holdings, i.e., refrain from participating in further US Treasury auctions.
Q.There are two views about the impact of the dollar decline on the US economy: one holds that it would eventually benefit the US economy through boosting exports while others believe that it damage the US economy. What is your opinion?
A.The export view is sheer unadulterated nonsense. The Dollar has been in fundamental decline since the end of WWII, as has its trade deficit!!! A weak currency is not a panacea for economic health. It merely delays the inevitable drive to increase competitiveness, as demonstrated by Germany which has again become the world's No. 1 exporter despite an 80 % appreciation in the Euro since 2001! The drop in the Dollar has, on the contrary, caused only a minimal reduction of its annual $ 750 billion trade deficit, which proves that US lack of competitiveness is truly endemic and not a function of exchange rates.
A weak currency also boosts inflation as imports become more expensive. In America's case it represents a 'double whammy' because, while imports become more expensive they are unavoidable since the US doesn't produce many of the consumer goods it needs.
<SNIP>
If McCain wins, after a brief relapse the Euro will strengthen to $ 2.00 from its current rate of $ 1.48, because McCain will be just another Republican spendthrift unable to offload the party baggage (the “special interests”), no matter how 'fiscally responsible' he sounds on the surface. But I doubt he will win.
Q.Do you think the Iranian decision to cut its ties with the greenback and Tehran's call on its importers of crude to pay in non-dollar currencies have adversely contributed to the Dollar nosedive?
A.Definitely, because it was not so much the nominal sums involved, which are paltry by global comparison, but the psychological effect of the move which encouraged others to follow suit.
Q.Should one consider the US crisis as an opportunity for booming economies like India and China to assume a more important role in the world's markets?
A.They already have. The US is totally dependent on China's goodwill. If the US were to ban all imports from China tomorrow morning the US economy would suffer a heart attack as it would have to import those same goods more expensively from elsewhere. In retaliation, the Chinese would sell their surplus Dollar mountain and precipitate a global economic depression. The emerging economies would be better able to withstand such an Armageddon scenario because they are accustomed to hardship, while decadent US consumers are already bankrupt despite an environment of extended global economic growth. The US would probably suffer riots, internal conflict and starvation for the first time in 80 years. Emerging economies are used to economic hardship and even war. The US is much more fragile than its leaders and economic pundits admit. There is a huge fundamental and conceptual difference between a) going from recession to depression (the USA), and b) going from 10 % + economic growth to a more reasonable 3 % economic growth (Russia, India, China, ….).
http://www.presstv.ir/detail.aspx?id=43 ... id=3510302 (http://www.presstv.ir/detail.aspx?id=43253§ionid=3510302)