Tuesday, December 05, 2006

The Dollar Melts as Iraq Burns

James K. Galbraith says in the Guardian on December 4, 2006 that as "far back as 2002, we understood - as the economically illiterate neo-imperialists did not - that a world system very favourable to America was on the line. And it was not, as they seemed to think, just a matter of military might. We knew that if the war undermined confidence in the power, good faith and common sense of the United States, that could lead toward disastrous changes on the financial front. Four years in and with no end in sight, that risk may finally be catching up to the almighty dollar."

No doubt Mr. Galbraith is correct, the global economy and interdependence is America's Achilles Heel. What was, and still is, the Bush administration thinking when it comes to financing these huge budget deficits that according to them don't matter very much? Someone has to finance those deficits, and the countries doing so in large part are not exactly America's best friends, or to say the least, they certainly have their own interests in mind. I'm talking about China and Saudi Arabia. Saudi Arabia alone could pull the rug out from under the American economy and set it in a downward tail spin simply by pulling out it's investments in America's debt. China could easily do the same.

The current fall in the dollar reflects the loss of confidence among the world's investors in the American market. Mr. Galbraith seems to be adding that the world may not just be losing confidence in America's market, but in America itself.

Very troubling indeed.

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