The Liberty Tree Lantern

This radical proposal is a reflection of a changing economic world

Tuesday, 6 October 2009

Last autumn’s global financial crisis set off an economic earthquake. And we are still feeling the tremors. The latest sign of the ground shifting beneath our feet is our report today of plans by Gulf states, China, Russia, France and Japan to end their practice of conducting oil deals in US dollars, switching instead to a diverse basket of currencies.

It is not hard to see the motivation for oil exporters to move away from the dollar. The value of the US currency has fallen sharply since last year’s meltdown. And fears are growing, in the light of a spiraling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future.

It is also easy to see why China would like a world trading system that is underpinned by other currencies as well as the dollar. For the past decade Beijing has been recycling the proceeds of its giant national trade surplus into purchases of US government bonds and other dollar-denominated assets. China too stands to make a significant loss if the value of the dollar falls. For China, however, the timing is much more sensitive. Beijing needs to reduce its dollar holdings, but if it does so too quickly it will bring about the very devaluation it fears. This explains why Chinese officials appear to want this transition to take place gradually over the next decade.

But the significance of this development goes much further. Since the end of the Second World War the dollar has been the bedrock of world trade. The pre-eminence of the American currency flowed naturally from the economic dominance of the US. Virtually everyone traded with America so it made sense to use their currency.

But the US is not the dominant power that it once was. The financial crisis has left it hobbled with significant government and household debts and sharply reduced prospects for growth. Developing nations such as China, Brazil and India, on the other hand, have weathered the economic storm significantly better. So while this latest proposal is born of financial calculation, it is also a reflection of a new economic world order.

We should not be sentimental for the dollar. It makes economic sense for world trade to be conducted in a variety of currencies. Relying on one only has the advantage of clarity, but it also creates instability if the economy that underpins it faces uncertain prospects.

Yet we need to understand that exchange rate volatility is a symptom, rather than a cause, of what truly ails the world economy. The biggest driver of global economic instability in recent years has been the determination of China to boost its export sector at all costs. Beijing’s persistently large trade surpluses and manipulation to prevent its own currency from appreciating have effectively forced Western nations into running persistently large trade deficits. It was this pressure that blew up various asset bubbles that burst with such disastrous effect last year.

A gradual move away from the dollar makes sense. But without a commitment from world governments – both in the rich and developing world – to reduce these destabilizing global trade imbalances we will enter an uncertain new era; and one that could yet make us pine for the days of the dominant greenback.

Now a comment on the above article by The Liberty Tree Lantern:

Folks, this is just the first attempt to program your MATRIX dominated mind to accept a one world currency.  But remember, if you do you will be permanently be giving away your freedom, liberty and individual prosperity in exchange for human slavery, oppression, and tyranny with nowhere on Earth to run from the IRS and endless massive taxation of almost everything you ever earn and work for.  If we accept a one world currency, that they will try to push on us, eventually soon after, we will be forced into a One World Government / a New World Order. 

Do not fall for this.  They will tell half-truths and they will seem to make all kinds of sense just like when the bankers spoke about the importance of the Federal Reserve “System” central bank back in 1912-13 resulting in “The MATrix” our economy that only exists in our minds based on an almost worthless dollar.  Don’t accept a little bit of security at the expense of the true freedom and liberty that we can recapture only after the complete collapse of The MATRIX (our economy), when we can rebuild it with REAL money and create individual wealth for the common working man as well as small businesses that will then flourish.