World Affairs Brief, March 14, 2008. Commentary and Insights on a Troubled World.
Copyright Joel Skousen. Partial quotations with attribution permitted. Cite source as Joel Skousen’s World Affairs Brief.
SACRIFICING THE DOLLAR TO SAVE THE BANKS
We hear a phrase all too often nowadays: “The dollar sank to a new record low this week.” Get used to it. It’s going to continue its steady decline as the Fed continues to bailout the major banks and financial institutions whose solvency depends on a package of paper assets that no longer has a verifiable value. As currency traders react to each new injection of liquidity and the lowering of US interest rates, the dollar keeps losing value. It lost 1% this past week compared to the Euro. It has gone down 6% in the past month, 17% in the last year, and a whopping 31% since late 2005. The debasement of our currency is even worse than that, however. The markets are comparing the dollar to the Euro, or the Yen, or the British Pound. Each of those currencies is also being debased, but not quite as much as the dollar. Real inflation of the money supply is higher than the percentage fall of the dollar since all comparative currencies are moving downward as well. This week we’ll talk about who are the winners and who will be the losers in this frantic game of maintaining US buying power.
Even the markets are having trouble figuring out what are the effects of this bailout fever. As the Baltimore Sun noted, “Wall Street’s euphoria over a $200 billion plan from the Federal Reserve [resulting in an unwise gain of 416 points] turned to caution yesterday, leading stocks to retreat a day after their biggest rally in more than five years. Volatile energy prices added to the market’s anxiety. Oil prices initially fell after the Energy Department said crude and gasoline supplies rose by unexpectedly large amounts last week, but then they returned on their record-setting streak to briefly surpass $110 a barrel.”
The primary reason why oil is rising despite increasing supply is that it has become a store of value for currency traders trying to hedge against a falling dollar–following the pattern of gold and silver. In other words, speculators are joining in with oil traders to find a place to park their excess dollars, causing the price to rise unrelated to actual supply and demand of the raw product.
Major financial institutions are collapsing even though only a few, like Countrywide, have reached the state of publicly admitting default. This week another huge insider-connected fund is going under. Carlyle Capital Corp. has not been able to reach an agreement with Deutsche Bank and J.P. Morgan Chase to refinance Carlyle’s highly leveraged debt of some $21B. Carlyle’s creditors have made margin calls against Carlyle’s highly leveraged positions and are now seizing Carlyle’s collateralized assets (subprime debt) for auction. The Carlyle Fund is owned by the powerful insider-connected Carlyle Group (that owns or controls many dark side mercenary operations on behalf of the US government). If even the insiders can’t save their own, you know it’s really bad. The Carlyle Group itself is somewhat immune from financial liability since it, like other major insiders, switched corporate registry offshore (Guernsey Islands, U.K.) And their stock trades in Amsterdam.