"The past month’s political bickering over the debt ceiling resulted in a huge loss of confidence in the United States. ... How long can it continue to cover its debts by printing dollars? Yesterday's market panic reveals that the answer is: not much longer. … It is the end of the debt-based American dream - it's time to wake up."
One day before the deadline
in Washington, a deal was successfully made to raise the American debt ceiling
yet again, allowing for a further $900 billion in borrowing for the budget - but
this nothing to celebrate. The agreement appears to have saved America
from bankruptcy, but the short-term deal failed to convince the markets. The momentary
good mood evaporated quickly and a negative U.S. industrial index sufficed to dominate
stock exchanges with panic.
By afternoon, the exchange
rate of the Swiss franc, a currency of refuge, was already above 244 forints
[about $1.3]. Its rapid appreciation is a central indicator of distrust toward
the dollar. The judgment of the market is clear: The past month’s political bickering over the debt ceiling resulted in a huge loss of confidence in the United States. Republicans and Democrats, having found $2.5 trillion in cuts, with
the same stroke of a pen will raise the debt limit by another $2.1 trillion.
The high-stakes wagering didn't even touch on a long-term solution. Rather, it was all about which party would be able to pass on responsibility for taking tough new austerity measures after the 2012 presidential election. The Republicans won this battle of the war ... not that it will preserve
the country's fortune's one iota. The budget cuts were a political loss for the
Democrats, impeding President Obama's attempt to raise taxes on the rich. So as
of yesterday, America's debt counter can officially continue to spin, as more
dollars are circulated to pay it. Sunday's agreement was only meant to win
time, but it didn't even survive an afternoon.
Posted by WORLDMEETS.US
That being said, the U.S. currency
absolutely cannot collapse: the foreign exchange reserves in the world's
central banks are for the most part in dollars, and the majority are held by
America's largest creditors, i.e.: China and Japan, neither of which have any
interest in seeing the greenback depreciate. As long as markets only allow oil
purchases in dollars, this game can continue. The question is: How long can the
U.S. continue to cover its debts by printing dollars? Yesterday's market panic
reveals that the answer is: not much longer.
Between 1945 and 1971, the price
of the dollar was pegged to gold, so bull or bear, one ounce of gold cost $35.
Since the United States unilaterally terminated the gold standard, the continuous
depreciation of the dollar has been a weight borne by the entire world - and it
will be so for as long as the dollar is considered the global currency. Today,
one ounce of gold costs more than $1,600, i.e.: the central bank's dollar
reserves are worth less and less every day. Meanwhile, holders of U.S.
government debt are barely earning interest. As the world's superpower, the
United States has been able to get the rest of the world carry the burden of its debts. Now the U.S. must pick up part of the burden. Since
the 2008 economic crisis, it has become clear that not even America's debt
limit could be raised indefinitely. The debt ceiling in its present form was
introduced in 1939, and since then it has been raised nearly 100 times - 35
times in the last 30 years and most recently last February.
That is why this new credit debt
ceiling deal offers no relief to stock markets. No one in America dares address
the real economic problem. Profits in the manufacturing sector are being
generated in ever-smaller amounts while more and more money is dedicated to
pure financial speculation. The economic stimulus package raised the debt by
$100 billion, but failed to spark much-anticipated growth. The economy is virtually
stagnant, unemployment is slightly lower, and no one knows how $15 trillion in
loans will ever be repaid. It is the end of the debt-based American dream - it's
time to wake up.
