So Long, US Dollar
By Marin Katusa,
Casey Research
Currently, we are witnessing a significant transformation that is largely being overlooked by mainstream media. This shift threatens to thrust the United States into an economic storm and drastically diminish its global standing: the waning dominance of the US dollar as the world’s primary reserve currency.
For many years, the US dollar has held a commanding position in international trade, particularly in the oil sector. This status has generated substantial demand for dollars internationally, substantially contributing to the currency’s overall value. The dollar’s global importance not only bolstered its worth but also fostered almost unlimited demand for US Treasuries. Countries worldwide sought petrodollars, leading to an unprecedented capacity for the US government to borrow and spend freely.
Stocks faced a challenging day yesterday. After recovering from early losses, the DOW ultimately closed down by 102 points. Some headlines attributed this decline to Europe, while others pointed to bribery allegations involving Wal-Mart in Mexico.
At Economic Prism, we are uncertain about the exact cause of the downturn… our only hope is that no one suffered any serious consequences. Strange incidents can occur in times of financial distress.
Take, for example, Jerry Lee Ries from Los Angeles. On the night of April 11, Ries met another individual near Parking Structure 10 in Santa Monica to discuss a business matter. During the conversation regarding a debt owed, Ries pulled out a knife and sliced off the other man’s ear.
The victim owed Ries $400 but was able to pay only $360. In an unexpected turn, Ries discarded the severed ear in a nearby trash can rather than keeping it as collateral for the remaining $40.
Regrettably, the victim’s ear could not be reattached. Furthermore, Ries had to post $100,000 bail to secure his release after being charged with assault and mayhem.
Last month revealed that while some conditions seem to be improving, others are indeed deteriorating. For instance, borrowing by Spanish banks from the European Central Bank (ECB) reached unprecedented levels in March, totaling 227 billion euros. These banks subsequently provided loans to the Spanish government by purchasing bonds.
The source of the ECB’s funds remains unclear. Recognizing the tricks of a magician often diminishes the thrill of the performance. Nevertheless, this cash injection may provide short-term relief, ensuring banks remain viable and the government stays afloat—for now. However, this strategy will likely compound the issues down the line, ensnaring both banks and the government in an even deeper debt.
The situation is equally perplexing in the United States. After a minor scandal involving Secret Service agents and Colombian workers, President Obama took the opportunity to berate speculators for driving up oil prices at the gas pump. With an election around the corner, blaming oil traders for rising prices could be a clever strategy to gain votes.
Recent reports from the Labor Department indicated that consumer prices rose by 0.3 percent in March. More alarmingly, when adjusted for inflation, real worker earnings dropped by 0.4 percent during that same period. This trend translates to wage earners losing ground at an alarming annual rate of 4.8 percent.
Many workers today are simply grateful to have jobs amidst rising unemployment rates. Yet, as they rise early each Monday to tackle another week of labor, they may find it disheartening to realize that their hard work essentially propels them backward at nearly 5 percent annually.
The combination of increasing consumer prices and a weak job market reflects the economy’s sluggish recovery faced with rampant monetary expansion. Currently, the unemployment rate has dipped to 8.2 percent. At first glance, this appears to signify improvement. However, a closer look reveals a far more troubling reality beneath the surface.
In summary, the evolving financial landscape poses significant challenges to the US economy. As the dollar’s dominance wanes and economic hardships persist, it is crucial to remain informed and prepared for the implications of these changes. Through understanding the challenges ahead, individuals and policymakers can better navigate the complexities of this shifting economic environment.
