Monday, June 04, 2007

US debt could trigger dollar collapse, UN warns

GLOBAL PRESS

The United States dollar is facing imminent collapse in the face of an unsustainable debt, the United Nations warned today.

United States debt, which had now deepened to well over $3 trillion, might turn out to be unsustainable in the rest of 2007 or next, putting further downward pressure on the United States dollar, Rob Vos, the Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs (DESA), told correspondents at a Headquarters press conference.

He pointed out that since its peak in 2002, the dollar had depreciated vis-à-vis the major currencies by some 35 per cent and by 25 per cent against a broader range of other currencies.

Vos made these comments at the launch of the 2007 World Economic Situation and Prospects report midyear update.

With that increased debt the risk of a sharp depreciation of the dollar continued, he warned. If countries willing to invest in United States dollar assets expected further depreciation, they might be less willing to hold dollar assets, triggering a much sharper fall in the United States dollar. The risk of disorderly adjustment and the steep fall of the dollar existed. The policy challenge was how to prevent a hard landing of the United States dollar and forge a benign adjustment of the global imbalance.

In terms of the United States housing sector, he noted that a recession in the housing sector had continued in 2007, with a slowdown in activity and a large number of unsold homes. While house prices had not fallen, that might happen in the months and years to come if the recession continued as expected. A decline in prices would affect the domestic market, particularly household consumption in the United States, resulting in the risk of a serious recession in its economy, slowing growth from 2.1 per cent to 0.5 per cent in 2007 and 2008. That would then significantly slow the world economy and transmit the recession into the rest of the world.

The United States deficit had increased to $860 billion at the end of 2006, and was expected to fall to $800 billion in 2007. That deficit was basically being financed by surpluses in the developing and oil exporting countries, as well as some major developed countries, in particular Japan and Germany. The European Union,at large, was projected to continue to have a slight deficit on its current account.

Continuing, he said the current tendency in macroeconomic policy was not all in the right direction, particularly in the surplus countries where there had been a tightening of monetary and fiscal policies, particularly in Germany and Japan, making it more difficult for the United States to lower its external deficits by export growth. The United States would also need to adopt some contractionary policies to slow down its deficit, he recommended.

Is the dollar facing collapse?

MONEYWEEK
‘Dollar bills are looking rather scrunched up,’ says John Authers in the FT. The greenback posted a marginal recovery last week after hitting an all-time low of almost $1.37 against the euro a fortnight ago, and it also recently touched a 26-year low of more than $2 to the pound. On a trade-weighted basis - against a basket of its major trading partners’ currencies - it has fallen by around 27% over the past five years.

There are several influences on currencies and, as Edward Hadas points out on Breakingviews.com, ‘all of them are pointing to a lower dollar’. A key factor over the short to medium term is interest rates; high rates boost the yield on a currency’s assets. With US growth disappointing - the IMF expects it to marginally underperform Europe in 2007 - many analysts are pencilling in US rate cuts later this year; in Europe and the UK, they are set to rise. Stronger growth outside the US means ‘there’s a depreciation bias in the dollar’, Kenneth Rogoff of Harvard University told Bloomberg.com. Meanwhile, US inflation is uncomfortably high, which undermines the dollar’s appeal as a store of value, notes Hadas.

Then there’s the key long-term influence on currencies, the current-account balance. The US current-account deficit appears to have stabilised of late, but it still comprises a ‘scary’ 6% of GDP, says Hadas. Given all this, it’s no wonder BNP Paribas is expecting the dollar to fall to $1.40 amid a hard landing in the US, while Rogoff foresees another 10% drop in the trade-weighted index by the end of 2008.

And a dollar collapse ‘cannot be ruled out’, says the FT. The hole in the current-account deficit is being plugged by purchases of US government bonds by oil-producing nations and, crucially, Asian central banks determined to keep their currencies low against the greenback to bolster their exports. China’s reserves alone amount to about $1.2trn. A further decline in the dollar could ‘push forward the day on which the world’s dollar holders begin to worry that they have a trillion or two too many’, says Dailyreckoning.co.uk. The FT highlights IMF worries that investors appear increasingly willing to dump their underperforming dollar holdings. So the dollar looks set to either keep drifting lower - or plummet. The latter, says Dailyreckoning.co.uk, should cause ‘real excitement’ in world markets.

Hong Kong Monetary Chief Fears a U.S. Dollar Collapse, and Hedge-Fund Destabilization

May 29, 2007 (EIRNS)—The Hong Kong Monetary Authority (HKMA) has warned about the dangers posed to the world financial system by the vulnerabilities of the U.S. economy, in a statement yesterday, the Hong Kong Standard reported. "A sudden and sharp depreciation of the U.S. dollar, the disorderly unwinding of global imbalances and a spillover of U.S. housing market weakness are external risks to the currency stability in Hong Kong. Financial instability and volatile capital flows are induced by an increased risk aversion of market participants and higher market volatility and the destabilizing activities of hedge funds," HKMA chief executive Joseph Yam Chi-kwong said in a report to the Hong Kong Legislative Council Panel on Financial Affairs.

Yam's warning points to those made by Lyndon LaRouche for two years against those bankers, elected officials, and economists who want to force China's currency dramatically upward; they are driving for a global dollar collapse and financial chaos. The HKMA recently decoupled the Hong Kong dollar from China's yuan, according to Yam, and kept it pegged to the U.S. dollar, though it has slid to the 22-year low end of its range against the U.S. dollar. Meanwhile, he said, the value of China's yuan has actually already risen 7% in two years. Now he is warning about "an asset bubble in China"; but clearly, Yam's real worry is of a U.S. dollar collapse and "an interest rate shock," with China tightening and raising interest rates even as the dollar plunges.

While Yam maintained that the economy of Hong Kong itself is "normal," he had warned in February, that efforts in Beijing to control liquidity and China's enormous trade surplus, means that "the economy may be faced with consequences beyond imagination, eventually."

Hong Kong, although only a "special zone" of China, has the eighth-highest amout of foreign exchange reserves in the world, $137 billion, more than either Germany or Brazil.

Buying up the US, Chinese-style

TAIPEI TIMES
When China National Offshore Oil Company tried to buy the US firm UNOCAL two years ago, it set off a political firestorm in the US. When Dubai Ports World bought Britain's P&O Steam Navigation Company, the fact that P&O operated ports inside the US led to more controversy.

One would think that a country like the US, with a current account deficit of roughly US$800 billion a year, would realize that such a yawning external gap is inevitably financed only by selling off assets, which means that foreigners with money acquire ownership and control of US-based businesses.

But the US -- or at least Congress and the media -- doesn't get it. Americans evidently hope for a world in which they have feckless deficit-generating fiscal policies, a very low private savings rate and a moderate rate of investment, all financed by foreign capital whose owners are happy to bear the risks yet have no control over their assets.

One might think that foreign investors would quake in terror at these terms and shy away from dollar-denominated assets. But this has not been the case. High oil prices have created huge export revenues for Middle Eastern governments, which still want to park their earnings in US assets. The same is true of Russia, whose oligarchs, as well as the huge state investment fund that Finance Minister Alexi Kudrin has created, also want to invest their oil revenues in the US.

As for Asia's governments, with China in the lead, the US remains the importer of last resort. The key to their development strategy is to put migrants from the countryside to work making exports destined for the US market. They doubt that an alternative development strategy based on boosting domestic demand would succeed. Thus, the real values of their currencies must be kept low relative to the dollar, which means that their reserves now invested in the US must continue to grow.

Someday, of course, this will come to an end. Perhaps Asian real currency values will rise sharply as a result of a burst of inflation in Asia. Perhaps the dollar will collapse and there will be a burst of inflation in the US as the Federal Reserve Board decides that temporarily abandoning its price-level peg is a lesser evil than the unemployment fallout that will result from a dollar collapse and interest rate spike.

A government that buys political risk insurance by placing an ever-growing stock of reserve assets in dollar securities guards against some dangers. But it is exposed to other risks, especially if it confines its investments to that slice of the asset pool, US Treasury and high-grade corporate bonds, that US politicians are comfortable having foreigners own. Nominal bonds are not well hedged against inflation and, over the long run, assets that are claims to cash without effective control are highly vulnerable to financial vultures. Prudent foreign government and private investors would find some way to diversify.

But how? Buying other countries' bonds would mean abandoning the goal of keeping real currency values low against the dollar. Buying up whole enterprises triggers angry speeches in the US Congress. What are needed are intermediary organizations that will grant a measure of control to foreigners, allow diversification across a wider range of US-located assets, and yet still appear 100 percent American to US politicians.

Enter the Blackstone Group.

China's US$3 billion investment in Blackstone, while insignificant relative to China's US$1.3 trillion in reserve assets -- a sum headed for US$1.5 trillion by the end of this year and likely to hit US$2 trillion sometime in 2009 -- is but a toe dipped in the water, a test run. At the start of the process, China will have small and indirect ownership stakes in a great many US enterprises, and the odds are that the usual objections will be absent. China will gain a measure of risk diversification, reduce the price pressure that has kept earnings on its foreign exchange reserves low and avoid running into political trouble. Blackstone will gain extra cash to deploy and extra fees.

Some observers think that the US political backlash against foreigners "buying up America" is what will bring the current configuration of global imbalances to an end. Deals like China's investment in Blackstone postpone that backlash, but not for long: US$3 billion is equivalent to what China accumulates in reserve in less than three working days.

The question following China's Blackstone investment is this: How far can this process go? And how much control will US investors ultimately realize they have given up?

JFK Airport Plot Has All The Hallmarks Of Staged Terror


Near-retarded "ringleader", paid government provocateur mirrors legion of previous cases
PRISONPLANET

An alleged plot to blow up fuel tanks, terminal buildings and fuel lines running beneath Kennedy International Airport has all the hallmarks of being another staged terror alert, having never advanced beyond a rudimentary planning stage while being prodded and provocateured by a paid government informant.

In every single major terror sting we have researched in the west since 9/11, not one single plot has been absent the ingredient of a government provocateur, save the cases that were outright manufactured by imaginative government propagandists in alliance with the corporate media.

In this case, the provocateur was "An informant with a criminal history including drug trafficking and racketeering agreed to work with investigators on the case, in exchange for payments and a reduced sentence," according to the New York Times.

Officials have refused to say how they became aware of the plot in the first place, but in every previous case of this nature we have found that it is the government agent provocateur who radicalizes the group and formulates the plot. The cover story is that the group is infiltrated by the informant having already planned the attack but as more details emerge, inevitably the plot always reveals itself as an artificial creation on behalf of the intelligence services.

What's the motive? The war on terror is the most politically exploited concept since the cold war. The propaganda boon from hoodwinking Americans into thinking they are constantly under threat from terrorists is unsurpassed. On the very day that this alleged plot was announced, Rudy Giuliani was already using it to inflate his presidential campaign.

In addition, the new head of the Arkansas Republican Party, Dennis Milligan, told a reporter this past weekend that America needs to be attacked by terrorists so that people will appreciate the work that President Bush has done to protect the country.

Once again we learn that "the plot was only in a preliminary phase and the conspirators had yet to lay out detailed plans or obtain financing or explosives," and yet the event is reported by a jingoistic and frothing media as if an imminent attack on the scale of 9/11 has been averted.

But as always, the devil is in the details, because even if the group had managed to acquire the financing and explosives to enact the plot, it would have been unsuccessful, due to "safety shut-off valves would almost assuredly have prevented an exploding airport fuel tank from igniting all or even part of the network."

The sum of the group's planning for the alleged attack amounts to nothing more than visiting Google Maps and printing off photographs.

It appears that part of the agenda in hyping the alleged plot is to undermine Hugo Chavez, since the ringleader, Russell Defreitas, has links to Jamaat al-Muslimeen, a Muslim group headed up by Imam Yasin Abu Bakr, and in turn Bakr has been affiliated with Chavez.

As Kurt Nimmo writes, Neo-Con websites are already exploiting these tenuous links to demonize Hugo Chavez, who - whatever you think of his domestic policies - has been a constant thorn in the side of the Globalists and was subject to an attempted CIA coup in 2002.

Defreitas is described by one law enforcement official as “a sad sack” and “not a Grade A terrorist,” who would have been incapable of carrying out any attack. A friend described him as "not smart enough" to have carried out the attack.

In several other cases, we see a pattern where near-retarded individuals are used as patsies for terror plots orchestrated by intelligence agencies because they are easily manipulated and cannot defend themselves after the fact.

From out of nowhere, Defreitas goes from embracing American culture and enjoying jazz music to dressing in traditional Muslim garb and referring to himself as Mohammed while planning a devastating attack due to his supposed hatred of the west.

The basic tenet that the terror threat has been overhyped and magnified a thousand-fold for political propaganda is proven alone by documents obtained under the Freedom of Information Act that show only 0.0015 percent of the total number of cases filed by the U.S. Department of Homeland Security were terrorism related, despite the fact that the Bush administration has repeatedly asserted that it is the primary focus of the DHS.

As more details leak out, there seems little doubt that the JFK airport plot will dissipate into nothing more than another hyped terror alert - coddled, molded, and directed by the government, before being unleashed on an increasingly skeptical American public in another vain attempt to prop up the flagging legitimacy of the "war on terror".

Gop Head: We Need More 'attacks On American Soil', so people appreciate Bush


raw story
In his first interview as the chairman of the Arkansas Republican Party, Dennis Milligan told a reporter that America needs to be attacked by terrorists so that people will appreciate the work that President Bush has done to protect the country.

"At the end of the day, I believe fully the president is doing the right thing, and I think all we need is some attacks on American soil like we had on [Sept. 11, 2001]," Milligan said to the Arkansas Democrat-Gazette, "and the naysayers will come around very quickly to appreciate not only the commitment for President Bush, but the sacrifice that has been made by men and women to protect this country."

Milligan, who was elected as the new chair of the Arkansas Republican Party just two weeks ago, also told the newspaper that he is "150 percent" behind Bush in the war in Iraq.

In his acceptance speech on May 19th, Milligan told his fellow Republicans that it was "time for a rediscovery of our values and our common sense."

The owner of a water treatment company, Milligan was a relative unknown in Arkansas politics until last week's vote. He had previously served as the party's treasurer and the Saline County Republican chair.