Instead of isolating Americans from the fallout from Greek irresponsibility, U.S. leaders now underwrite the recklessness

WASHINGTON — The Federal Reserve late Sunday opened a program to ship U.S. dollars to Europe in a move to head off a broader financial crisis on the continent.
Other central banks, including the Bank of Canada, the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Japan also are involved in the dollar swap effort.

The move comes after the European Union and International Monetary Fund pledged a nearly $1 trillion defense package for the embattled euro, hoping to calm jittery markets and halt attacks on the eurozone's weakest members. The ECB also jumped into the bond market Sunday night, saying it is ready to buy eurozone bonds to shore up liquidity in "dysfunctional" markets.

Oil is pricey because the dollar is cheap

In short, oil is dear because the dollar in which it's priced is cheap.

For background, it's worth mentioning that not long after he was inaugurated as our 40th president, Ronald Reagan predicted a fall in the price of a barrel of oil. What made Reagan so confident?

Aware of the historical relationship between gold and oil, Reagan deduced that oil was due for a correction based on a 20% drop in the price of an ounce of gold since his election. Sure enough, by December of 1981 the price of a barrel of oil was nearly 20% lower than it had been one year before.

Looked at over a longer timeframe, from 1970 to 1981 the price of gold rose 1,219 percent, versus a rise in the price of oil 1,291 percent. This wasn't coincidental. With gold and oil both priced in dollars, and with gold serving as the best proxy for the latter's value, a jump in the gold price neatly foretold the oil "shocks" of the 1970s that were merely dollar shocks.

U.S. dollar buying less than Canadian dollar

Canadian dollar reaches parity with U.S. dollar

OTTAWA -- The Canadian dollar reached parity with its U.S. counterpart Tuesday morning, as investors looked to park their cash in the fundamentally-sound loonie amid troubles in Europe.

Also, another rate hike from Australia's central bank appeared to heighten expectations that the Bank of Canada will soon follow suit.

Parity was first achieved briefly at roughly 7 a.m. ET in London markets, hitting US$1.0001, achieving a level last hit in July 2008, before dipping down to the 99.70 US cents range. Yet, it catapulted toward parity again, reaching the US$1.0004 level as of roughly 9:45 ET.

"The Canadian dollar's underlying fundamentals are still a strong story and that's what's supporting it," said John Curran, senior vice-president of Canadian Forex.

Among the factors causing a ripple in foreign-exchange markets are Greece's fiscal problems. The euro sunk again – down roughly 200 basis points since Friday – on reports that Germany wants higher interest rates on loans to Greece. There are also suggestions Greece wants to change the proposed wording in the recently announce framework for assistance.

Debt-ridden U.S. remains the best of the bad; dollar's status as reserve currency intact

The U.S. will spend about $1.8 trillion more than it gets in revenue this year. Next year, it will add an estimated $1.2 trillion to the debt.

Expenses in the billions may not attract much attention these days, but when it gets to the trillions, people sit up and take notice. In a CNN/Opinion Research poll conducted in January, 83% of those polled thought the federal budget deficit was extremely important or very important. The debt and the deficit are enormous political issues and will likely play a big role in the 2012 elections.

But there's one big group that's singularly unimpressed by the size of the deficit: the world financial markets.

As big as the U.S. debt is, it's not as bad as many other countries' debt, relative to gross domestic product. No other country has a currency as strong or as well-regarded as the U.S. has, even with its current fiscal woes.

Could the debt eventually push the U.S. away from its status as a reserve currency and into second-tier status?

"It's very difficult for a reserve currency to lose that status," says Kristin Lindow, vice president at Moody's Investors Service. "It takes another nation to take its place, and right now, there isn't one."

An impertinent question for George Soros: Did you short the dollar while supporting Obama?

Through campaign contributions and public lobbying campaigns, George Soros made a big investment in Barack Obama.

Now he says he isn't satisfied with the results. He wanted the banks nationalized, but Obama “made the political decision that that is un-American, will not be accepted.”

Trouble is, CNN's Fareed Zakaria apparently asked the wrong questions. What he should have asked Soros is this: "Was your investment in Obama a political decision? Or, was it a business decision?"

If Soros had answered "business," he would have no reason to be dissatisfied. As president, Obama promptly laid out an agenda - government takeover of health care, cap and trade, government ownership of corporations - that were at odds with the founding spirit of America as well as the nation's history.

As the national deficit and cumulative debt mounted, and Americans began to protest, the dollar began a steady fall.

It was in unsettling circumstances like this that Soros began shorting the English pound, betting that its value would continue to fall. The result: headlines that said Soros had broken the Bank of England.

Now that Greece has become a potential failed state, because of its unpayable debt, Soros is shorting the Euro. He is betting on a default by Greece, and resulting chaos in the European currency.

What we don't know is this: If Soros is shorting the American dollar, when did he start doing it? Is he still shorting the dollar? How much has he made from shorting the dollar at a time when Obama was clearly pursuing an agenda opposed by most Americans, as shown by polls?

Let's assume that Soros shorted the dollar on Obama's inauguration day. The U.S. dollar was then worth $1.27 Canadian. Now, the U.S. dollar buys just $1.06 Canadian, a drop of 17 percent in little more than one year.

Here, the headlines use phrases such as "Death of the dollar."

Chattering about demoting the dollar is one thing; finding a substitute world currency is another

It is one thing to want to replace the dollar, quite another to find a suitable substitute. The renminbi cannot be the chosen currency so long as it is pegged to the dollar, for its value will move with the dollar. The rouble is not a candidate, since there is not enough of the currency around to handle the volume of world trade and, besides, it is not the sort of money on which you can rely to hold its value, especially if oil prices collapse. Which brings us to the euro.
As has been pointed out by Jean Pisani-Ferry, director of the Brussels-based Bruegel think tank, and Adam Posen, a fellow at the Peterson Institute for International Economics in Washington: “There is no sign of a move to the euro as a global currency. The share of dollars in global reserves remains almost three times that of the euro.”

Central banks stepping up dollar dump

Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

Attack on dollar mirrors tactics of Saul Alinsky and Cloward-Pivin; White House has no answer

                       U.S. dollar versus euro                 

A strategy similar to one conceived by radical pathfinders such as Saul Alinsky to defeat American institutions that stood in their way is now being deployed by foreign governments against the United States.

At stake is the value of the dollar, the extent of American power and influence and whatever remains of America's claim to exceptionalism.

No weapons are necessary. Rival governments, some of them allies and some adversaries, can talk the dollar down any time they want, as China, France, japan, Russia and the Gulf oil states did last week by suggesting that they might end dollar-denominated oil dealings.

Those oil deallings are a constant source of demand for dollars, which helps the dollar to maintain its value. If that demand goes away, the value of the dollar will drop even further than it has.

A lasting drop in the dollar's value would register with American consumers as an increase in the price of imports.

Saul Alinsky's Rule 3: "Whenever possible, go outside the expertise of the enemy." Look for ways to increase insecurity, anxiety and uncertainty. (This happens all the time. Watch how many organizations under attack are blind-sided by seemingly irrelevant arguments that they are then forced to address.)

RULE 8: "Keep the pressure on. Never let up." Keep trying new things to keep the opposition off balance. As the opposition masters one approach, hit them from the flank with something new. (Attack, attack, attack from all sides, never giving the reeling organization a chance to rest, regroup, recover and re-strategize.)

Radical professors Richard Cloward and Frances Pivin refined Alinsky's rules into a strategy: attack a target institutions repeatedly with more and more demands, eventually overwhelming it.

How far America's competitors and adversaries pursue their current course remains to be seen. What seems to be clear is that the Obama administration is without weapons or will to effectively defend the dollar.

As a result, the challengers appear to be in position to hammer the dollar any time they want by recruiting new allies for an ever-widening attack.

"The US dollar is being hurt by the continued talk of a shift away from a dollar-centric world," Kit Juckes, an analyst at currency traders ECU Group, was quoted as saying.

"Three conclusions stand out very clearly. Firstly, the shift in economic power away from the G7 economies is continuing. "Secondly, there is a growing acceptance amongst those winners that one consequence of this power shift will be to strengthen their currencies.

"And, finally, as long as the US economy is not strong enough for any rise in interest rates to be conceivable for a long time, the dollar's underlying downtrend will remain in place."

To replace the dollar, the challengers would switch to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar," added Fisk, citing Gulf Arab and Chinese banking sources.

Somewhere, the ghosts of America's radical pioneers must be smiling.

Is the White House deliberately weakening the dollar to ease repayment of burgeoning debt

"If you want to know why the dollar has been falling this week and gold hit a new high, look no further than the weak jobs numbers last Friday and the weak communique issued over the weekend at the G-7 meeting in Istanbul. Deploring "excess volatility and disorderly movements in exchange rates" isn't exactly a ringing defense of the greenback. And 9.8% unemployment convinced markets that monetary policy will remain loose regardless of dollar weakness.

Bond buyer Bill Gross of the Pimco fund summed up the situation nicely in a recent CNBC interview. Asked whether low interest rates will weaken the dollar, the influential allocator of global capital said: "I think that's part of the administration's plan. It's obviously not announced—the 'strong dollar' is always the policy, so to speak. One of the ways a country gets out from under its debt burden is to devalue."

On the surface, the weak dollar may not look so bad, especially for Wall Street. Gold, oil, the euro and equities are all rising as much as the dollar declines. They stay even in value terms and create lots of trading volume. And high unemployment keeps the Fed on hold, so anyone with extra dollars or the connections to borrow dollars wins by buying nondollar assets."

(snip)

"The solution is a strong U.S. jobs and wealth program. It has to include stable money, a flatter, more competitive tax structure, spending restraint, and common-sense bank regulation so small business lending can restart. Treasury has to rapidly lengthen the maturity of the national debt and take steps to protect the Fed from market losses on its long-term debt holdings.

Instead, Washington's current economic program pushes capital away by weakening the dollar, threatening higher tax rates, borrowing short (the Fed's near trillion-dollar overnight debt, Treasury's mounds of bill and note issuance) to lend long (mortgages, student loans, entitlements), doubling down on government subsidies, and rechanneling bank loans to governments and big businesses instead of the small business job-growth engine."

Arab oil producers and Russia and China may adopt gold or nondollar currency for oil transactions

"In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years."

(snip)

"The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. "One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China's extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states."