The Dollar' S Decline Is A Symptom Of Imperial Weakness

Business.

Destroying the us$ is not good policy - there are consequences to debasing a currency and none of them are positive. Increase exports and inflate the US economy out of the financial crisis precipitated by a fall in house prices.

US monetary policy is a conscious attempt to devalue its currency. - it is both an unnecessary and quite dangerous policy. First the US is printing too much money and interest rates are too low[ 3% in the US vs 25% in the UK, and 4% in the EU] . The reasons for the U$ decline are varied but at the core are 3 issues. Second, entitlement programs and, fiscal improvidence subsidies are leading to budget deficits. The Americans can address all three issues - and they should.

Third, higher returns are being realised outside the US and these returns are not U$ denominated. - first the money supply is growing by more than 10% a year - far in excess of economic growth[ about 3% in 2007 overall] ; inflation[ 2% ] and population growth. Second, non - essential and non - military spending is out of control increasing by at least 10% per year. In fact is almost double. Third, the Americans need to cut taxes and regulation to stimulate their economy, returns and foreign investment. In 2001 the dollar index was at 11In the past 5 years the dollar has dropped close to 40% and has fallen by 5% in the past month alone.

Over the past 30 years the dollar weighted index has fallen from 100 in 1974, to 60 in 200This is a dramatic 40% drop in one generation. - this is simply an unsustainable dollar devaluation crisis. The greatest threat to wealth is inflation. If not arrested it will herald the end of American hegemony and presages a huge inflationary run up. Inflation is a tax on consumers and wealth. Incomes typically can' t keep up with 4% plus inflation - at least not in the short term - so real wages fall. As purchasing power declines wealth in all dollar denominated assets also decline.

As wages fall in the short term the consumer part of the economy contracts. - as inflation increases raw material costs go up. Similar problems exist for business. Industrial commodity prices on every item are near or above historical records. Any commodity or material priced in U$ must increase in value as the dollar is debased, leading to inflation and for many firms using the commodity as an input, lower profits. Oil is now forecasted to rise to$ 150 as the US$ keeps falling.

The main beneficiaries of a declining dollar are exporters with a large based of buisness outside the US. - as well they can purchase in overseas markets commodities and raw materials with stronger currencies. They benefit from translating stronger currencies into the US$ and inflating revenues and profits. Other beneficiaries of a declining US$ would be those holding assets in stronger currencies including the Euro, many of which were in marked decline against the US dollar a few short years ago. None of the consequences of a debased US currency are positive. So what does the declining U$ mean?

At some point the international financial and reserve system will move out of U$ to the Euro. - the world currency owner can for example borrow at lower rates to finance deficits and increased consumption over investment. This will give the Europeans more financial, political and even economic importance, since the world reserve currency generates profits for the holder of that currency. Such a shift from the U$ to the Euro would have a profound impact on the US economy and on foreign affairs. It would also occasion governments in the US to deal with out of control spending by either raising taxes. Simply put the US would be far weaker, if this were, even militarily to occur. Cutting spending.

None of these would be beneficial to the US economy. - or borrowing at above market average rates. There is of course the matter of prestige and power. The richest empires in history have proven that a robust and reliable currency unit is mandatory in running, and managing a far - flung empire. A weak currency reflects intellectually and superficially, a weak country. The Roman denarii, even the Franc, the British pound and Ruble, all have demonstrated the benefits of imperial monetary domination. Allies and satrapies don' t take kindly to devaluating assets or using a weak imperial currency.

Maintaining a strong currency and reassuring the empire' s citizens of its reliability, is a must for the imperial power. - in times past debased currencies and economic chaos has led to many a war and rebellion against a weak imperial power. A dollar decline might benefit multi - national firms and exports. The dollar' s decline is a symptom of imperial weakness. And decrease temporarily the trade deficit, but those benefits come at a huge cost. The U$ dollar' s 30 year decline once again proves the folly of governmental and political posturing.

Inflation, rising oil and gold prices which are denominated in the U$ , and most vitally, a decrease in hegemonic power, are the results of bad fiscal and monetary policy. - once the us dollar loses its status as the world' s reserve currency, it will soon relinquish its imperial dominance. Empires bring peace, prosperity and wealth creation. This is not a positive for anyone inside the US imperial system. International economic chaos does not.