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The Dollar Will Not Crash

Wednesday, October 21, 2009

By Mike Whitney
CounterPunch


he dollar is not going to crash. There may be grumblings in foreign capitals and "secret meetings" between finance ministers but, for now, the dollar appears to be safe.  
 
Foreign countries don't trade in dollars because they like America. They do it because they have no choice. If they want oil, they need dollars; it's as simple as that.   

It's great to talk about a "basket of currencies" replacing the dollar, but that's still a work-in-progress. It might happen, or it might not; no one really knows.  What's clear, is that we still live in dollar-centric world where paper claims on wealth are arbitrarily increased at will by a handful of unelected officials at the Federal Reserve. It's a process which relies more on Gutenberg than moral authority.  

There's no sign that the dollar is about to lose its position as the world's reserve currency. For that to happen, central banks would have to start unloading US Treasuries, which they are not. Despite record government spending and mushrooming deficits, there is still a strong appetite for US debt. Treasury data show that foreigners purchased $28.6 billion more in US assets in August than they did in June. The flows are not enough to offset downward pressure on the dollar, but that could change in the months ahead. As capital flows increase, dangerous imbalances will reemerge, and the prospect of another financial calamity will become more likely. The Fed is rebuilding the system that just blew up using the same blueprint as before.

World leaders and central bankers mutter about Fed policies, but do nothing. There's been no resistance to the secrecy, the bailouts or the money printing.  The bottom line is that the people in power really don't want change. They just want to make speeches and blame America. It's all just empty posturing....(Remainder.)

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