Dollar Replacement Beat Goes On … and On
By Staff News & Analysis - April 20, 2011

Expert: U.S. should 'give up on the dollar' – The push to replace the U.S. dollar as the world's reserve currency has been gaining steam, with one expert arguing that America "must give up on the dollar." In a Financial Times op-ed, Michael Pettis, a finance professor at Peking University, said U.S. policymakers should lead the charge to create a more diverse reserve system, "in which the dollar is simply first among equals." The dollar has been the dominant reserve currency for decades, with central banks and other institutions around the world amassing vast reserves. Pettis argues that this has resulted in dangerous trade imbalances that threaten to destabilize the global economy. – CNN

Dominant Social Theme: Get rid of the dollar and all will be well. An "expert" says so.

Free-Market Analysis: This article from CNN comments on an editorial that just appeared in the Financial Times, which like the Economist magazine, tends to enunciate the positions of the Anglo-American power elite. It confirms our suspicions once again that Western elites have in mind swapping out the dollar, and maybe sooner rather than later. The idea of course is that if Western elites can create something closer to a one-world currency, global government itself becomes a considerably more realistic proposition.

The ramifications of course are profound. But there is no way to accomplish such a move without launching a huge promotional effort. This seems to us just what is going on. The larger populations especially of the West must get used to the idea of a new currency and thus, almost every day (or week) we hear of a new initiative aimed at weakening or otherwise "broadening" the dollar reserve system and eventually replacing it.

George Soros just hosted a dollar-replacement summit that he called a new "Bretton Woods." It didn' t really make headlines but it wasn't supposed to. Its existence was the big story, and it got loads of ink leading up to the letdown of the summit itself. The International Monetary Fund has taken to issuing white papers explaining how its SDRs can be turned into a true world currency complete with a real bond market. The BRICS, as we reported yesterday, are meeting regularly to create their own currency swaps that exclude the dollar. And now, in upcoming meetings the G20 (meeting again!) are to take up the issue of the dollar's shaky footing.

We find the whole thing increasingly contrived, as we have stated before. The dollar in our view was purposefully destabilized by the US Federal Reserve and by the Bush administration via serial wars, aggressively low interest rates and Bush's strange habit of endlessly refusing to veto expansive legislation. Anyone who studies the Bush presidency can see a trend leading the US economy into economic oblivion.

Now why would the President of the United States want to do such a thing? Well, if your family has elite connections going back generations (as the Bush family does) and if Western elites want to create a global government, they need to move the world from a series of disparate currencies to just one – and in order to do that, the dollar reserve itself must be undermined.

Of course, those involved aren't simply going to come out one day and announce that the new world order demands a new currency and therefore policies have been put in place to undermine the dollar (and perhaps the euro as well, new as it is).

No, it will be done, as so much is these days, furtively. The dollar will be destabilized softly, over an extended period of time along with America's national sovereignty. And in order to acclimate people to what is happening, various groups and editorialists will continually comment on upcoming changes. It is quite possible to categorize this recent FT editorial as one such desensitizing gambit.

In his editorial, Pettis (an economics professor in Peking of all places) rolls through the whole rusty paradigm of dollar replacement. Of course that's just the point. Promotions don't seek to be original. They're supposed to be repetitive – that is how dominant social themes morph into memes. Thus Pettis repeats for the umpteenth time that "countries such as China have been able to 'game the system' by stockpiling dollars, which has allowed them to grab a larger share of global demand for goods and services."

He points out predictably (and incorrectly), that money instability has reduced currency availability within the United States and thus jobs (that's not true) and flowed to "red hot" job markets in developing economies elsewhere in the world. The United States, he writes, then has to make a Hobbesian choice between printing more money (adding to the deficit) and "stimulating" the economy or opting for a more fiscally conservative approach that will leave unemployment consistently high.

Never mind that we hear over and over again that the US job situation is improving (it likely is not). The dollar reserve system actually collapsed in 2008 and had to be revived by an incomprehensible injection of some US$20 to US$50 trillion in loans and other sorts of dollar funding schemes – not just in the US but also around the world.

While the dollar system was propped up for a time, it is probably beyond salvage. The job situation in the US is terrible (not because of currency flows as Pettis argues) because the whole economic system is so distorted that it is impossible to tell a healthy company from an unhealthy one. Businesses don't want to hire and people are yet reluctant to spend.

Even if this situation changes, economic health will not improve much because central banks around the world will then have to raise rates and otherwise "sterilize" the world's economy of its massive dollar overhang. Rates go up and economic vigor, what there is of it, begins to recede. This can go on for years.

Pettis also runs through the usual options when it comes to the dollar's replacement. He examines the euro, before discarding the idea and then takes a look at the International Monetary Fund's SDRs. In fact, we have come to believe that Western elites dearly wish to replace the dollar with some sort of SDR derivative. Here's some more from the CNN commentary:

The global monetary system and the dollar will be discussed this weekend as finance officials from the Group of 20 economies gather in Washington for the spring meetings of the International Monetary Fund and the World Bank. The dollar found some support Friday as investors turned cautious ahead of possible policy changes stemming from this weekend's summit. "Today's risk will come from sideline comments from the G20 and IMF meetings as well as the deluge of U.S. data," said Camilla Sutton, chief currency strategist at Scotia Capital. Investors are also focused on the outlook for global interest rates, as central banks adjust to rising inflation.

We wrote yesterday about the orchestration of world events when it comes to the BRICS, and how orchestrated this economic "threat" seems. We argued, hypothetically anyway, that the Western elites are still calling the shots and we would argue the same thing regarding the "dollar crisis." The BRICS are working on their own version of a dollar replacement, one that's perhaps gold-backed and the IMF is elaborating on SDRs.

It doesn't take a genius to see that at some point an additional crisis can be manufactured for the express purpose of pressuring the two sides to sit down at the table together and merge their approaches into one single currency. We don't know if the euro will be involved, or if perhaps the euro will be used to trigger a larger currency crisis but every time another article or white paper comes out on the issue, our suspicions are raised.

After Thoughts

The IMF has been especially thorough with recent reports while cautioning that a replacement for the dollar is perhaps decades away. We used to believe that ourselves but these days we tend to believe the opposite of what elite institutions say. If the IMF is presenting the SDR as an alternative to the dollar "reluctantly," then its institutional stance is more likely an eager one. And if such changes can only occur tectonically over decades than we would tend speculate that they are more likely only years or even months away.