Dollar Collapse Update: Obama Demands Pay in Euros

Linked with Mike Whitney – USA (the American writer). – Published on Global Research.ca, by Mike Whitney, Oct. 25, 2009.

The “dollar debate” on the Internet has been ferocious and emotionally-charged, but sadly lacking in logic. To oppose the “dollar will crash” theorists is like arguing a woman’s right to choose with the fist-waving throng assembled outside an abortion clinic. The results are equally disappointing. To say that “minds are already made up and the issue is settled”, is an understatement. For many, the dollar’s transition from the world’s reserve currency to a Wiemar era Deutschemark is not a question “if” but only of “when”. One reader summed up the distrust that’s felt for anyone who dares to challenge the prevailing dogma like this:

“Mike…..Your article on October 19th 2009 titled “The Dollar will NOT crash,” made all of us in this part of the world who respected your views and opinions feel disturbed and appalled….Then my friend explicated and reminded me, “From the time of Chaim Weizmann’s solicitous and guile behavior towards the politicians, the media and the newspersons, the powerful Zionists lobby had perfected the art of falsity and misrepresentation.”
Uh, okay. So, now opposing the dominant theory not only proves that one is a fool, but also a tool of the “Zionist lobby”? 

This is why struggling writers always keep the refrigerator stocked with a hearty malt.

No one can deny that the dollar COULD crash or that it faces stiff headwinds in the years ahead as the fiscal deficits continue to pile up. But let’s not overreact. Japan’s deficits are twice the size of GDP and bond yields are still hovering below 2 percent. In other words, the Japanese are fighting deflation, so no one is particularly worried about inflation. That’s as it should be. In the US, deficits are a paltry 12 percent of GDP, and already people have their knickers-in-a-twist. Even deficits soar above 100 percent ($14 trillion) it’s unlikely that they’ll crush the dollar. But–on the other hand– if the government suddenly stops spending money and running huge deficits; unemployment will skyrocket, banks and businesses will default, foreclosures will rise, and the economy will slip back into a very severe recession. The myth that “You can’t solve a debt problem by creating more debt” is pure bunkum. That’s for people who want to balance the budget at all costs, regardless of its effect on working people. The goal should be to get the economy back on its feet and worry about the red ink later.

Here’s Paul Krugman explaining why the Fed is engineering a weaker dollar: …

… Bernanke’s problem, is that all the tools at his disposal are blunt instruments. It’s like performing kidney surgery with a meat cleaver. Dropping interest rates and printing money can stave off deflation, but it also pushes stocks higher than anyone really wants. That leaves traders on the sidelines waiting for a market correction before they jump back in. The same is true of the dollar. Sure, Bernanke wants a cheap greenback to spark exports and reduce household debt, but when the dollar plunges to $1.60 per euro, then the sh** hits the fan and the public outcry forces him to change directions. If the dollar falls any further, the Fed will have to shut down the printing presses altogether and watch while the boat capsizes. The problem is more political than economic.

US policymakers should drop this nonsense about the dollar and deal with the underlying problem itself; lack of demand. That means the focus should be on wage growth and full employment. If that means printing up a couple more trillion; then get to it! Getting people back to work and paying them decently should be job one. (full text).

(Mike Whitney is a frequent contributor to Global Research. Global Research Articles by Mike Whitney).

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