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US complicit in its own decline
By W Joseph Stroupe
It is now well known and appreciated that in the past 30 years, since the Arab oil embargo of 1973-74, every global oil price "shock" has been followed closely by a US economic recession. The link between the two is indisputable. What applies to the US economic engine also applies to the global economy as well. However, US economic vulnerability to the global price of oil is now significantly greater as compared with the vulnerability of most other economies. How is that true? . . . The US has been steadily transferring its economic wealth and the power that goes with it to other nations, directly as a result of its enormous debt. The US is frighteningly dependent upon foreign cash inflows to finance its huge deficit. This increasingly places the very solvency of the US economy in foreign hands. The US currently runs an account deficit of 5 percent of its GDP, a record high, which cannot be maintained indefinitely. Crude-oil imports account for a sizable portion of this current account deficit, and become increasingly significant as the global price of oil elevates. An orderly decline of the dollar by about 40 percent, far greater than the overall 8 percent (about 20 percent against the euro) seen so far, would be required to help shrink the dangerous current account deficit. However, such a decline presents a range of other problems that are considerable in their impact and risk. . . . As the dollar declines, oil producers, which currently price their exports in terms of US dollars, seek to hedge against the lessening of their real profits resulting directly from the dollar decline. They do this by pegging the price of exports to a more stable currency with fewer structural problems, the euro. Evidence compiled by James Turk, founder of Goldmoney.com, strongly indicates they may already have established a de facto but undeclared peg to the euro. As a result, oil producers artificially inflate the price (in dollars) of oil to hedge against a weaker dollar, and that puts increasing upward pressure on the US current account deficit, which puts further downward pressure on the value of the dollar. A vicious cycle has already ensued. The likely effect is an eventual not-so-orderly decline in the value of the dollar. This can have a catastrophic impact upon the US economy and upon the global economy as well. . . . The United States is helping to create severe problems for itself by participating in the transfer of its wealth overseas, and at the same time, by pursuing a militarized foreign policy that alienates it from traditional friends and allies, and which creates an atmosphere of distrust of its real intentions and its underlying motives. The US is therefore helping to marshal opposition to itself, helping to consolidate such opposition and continuing to give impetus to collective moves on the part of its friends and rivals alike, designed to limit US power and intensify their own. In essence, the US is unwittingly causing the accelerated creation of a multipolar world, where US global dominance is no longer desired, no longer accepted as inevitable. Now, the US is finding that it no longer possesses the influence among the global community of nations that it once had. . . . The US is also working to undermine international confidence in its economy as it facilitates corporate fraud, a la Enron, WorldCom and many others, seemingly without end. These scandalous, gigantic corporate failures have a serious effect on investor confidence worldwide. There are other places to put one's money, and when such monumental failures occur in the heart of the US economy, investors are forced to hedge their bets, to diversify their investments for fear they will lose everything in the US system. They have already begun to put their money elsewhere, on a large scale. Unfortunately, few in the United States understand, or even see, such trends. But they are continuing briskly, even accelerating, thereby weakening the US economy by undermining international confidence in it.

posted by Lorenzo 3:54 PM