Will the Dollar Crisis Spawn Chaos?
By Staff News & Analysis - July 14, 2010

Western Powers in Decline, China To Rule: Economist … Western powers are in decline and China will end up ruling the world economically, Stephen D. King, chief global economist at HSBC told CNBC Monday. "Western prosperity is slowing eroding," said King. "The U.S. is increasingly reliant on China's deep pockets (to pay its debt with China buying U.S. Treasurys) and China will end up dominating the world when it comes to economics." King also said that the euro crisis will turn into a crisis for the U.S. dollar. "It comes down to the U.S. deficits," King added. "The U.S is behaving like the debtor nations of the Mediterranean (Greece, Italy). China and other countries are asking themselves whether American taxpayers will pay their debt." – CNBC

Dominant Social Theme: It gets worse and worse, and perhaps that's the plan!

Free-Market Analysis: When is a report a dominant social theme and when is it reality? And when, perhaps (we wonder) is it both? These are serious questions to those who believe the Western world is manipulated by a power elite that wields dominant social themes as a way of further consolidating wealth and power. Central banking is an obvious theme, as is war (or certain wars) and so is global warming and even regulatory democracy itself. These themes run through social interactions, organizing the way people live and work. The end result is one that inevitably seems to benefit the power-elite.

Those who study and analyze elite activities often maintain that everything that stems from the actions of the powers-that-be is both purposeful and necessary. In this view, as we have pointed out before in these modest pages, the power elite can do no wrong and every aspect of society and its lapses has been meticulously planned. Of course, we disagree with this. We tend to believe, for instance, that the financial crisis in particular is far worse and more destabilizing to the West than was expected.

The elite is now fighting a rear-guard battle to salvage the current financial system. But the outcome is by no means preordained. Stephen King (see article excerpt above) doesn't deal with this issue at all, though he does make some good points about China and the dollar. What is increasingly clear to us, however, is that the Western elite is truly supra-national and derives its wealth from an increasingly global network of multi-national corporations and resource providers. GM, for instance, is said to be selling more cars in China than America. Seen from the point of view of an international elite, then, it doesn't much matter whether China or America are in the ascendant. It matters only to the WORKERS of those countries.

The elite does not necessarily have a vested interest in the success of one region or country, nor does it pledge allegiance to any flag. But the powers-that-be certainly do have an investment in the larger global SYSTEM. And we believe for many reasons that the elite is quite fearful of any kind of catastrophic collapse. Everything possible will be done to avoid one. Yes, people in the West will be made to suffer through austerity, but the idea is to spread out the pain so it is just tolerable enough and doesn't, therefore, touch off some sort of sociopolitical revolution.

But the elite has its work cut out for it. This is a most challenging time. It may appear that the American economy is making progress, but, until larger fundamental issues are dealt with, as King points out, we think the US economy will be prone to relapse. The great recession of the 1970s ended in a grinding downturn, almost a depression. This economic era (beginning in the early 2000s) is worse than the 1970s.

There is much confusion in the world currently – more than usual, it seems. The Internet itself is very obviously an evolution that the elite did not expect. In fact, the combination of the Internet and the financial crisis has certainly proven toxic to certain elite dominant social themes. Global warming has been exposed, basically, as a hoax; Western fiscal and monetary policies are seen by many increasingly as a manipulation; and the economic crisis has undermined people's belief, both in the direction of the European Union and also, we believe, (see the Tea Party) as to where the American economy is headed as well.

We think it is perfectly likely that the next "shoe' falling will be an American one. We've maintained almost from the beginning of this crisis that the problem had to do with the failure of fiat currencies, generally, not with the insolvency of particular financial products or companies. The difficulty, in other words, lies at the monetary core. A broad swath of Western fiat currencies, including the dollar, are basically seen as insolvent by those who are forced to use them.

After Thoughts

Investors, as we've pointed out, are going to continue to have a rough go of it. In the 20th century one could perhaps isolate dominant social themes and bet on them with some level of surety. And yes it is tempting to believe that level of infallibility exists today from an investing standoint. (Certainly it would make things eaiser.) But we simply don't think it's the case. (Nor are we unhappy to come to that conclusion.) Now we don't know, as we've explained before, where it all ends up. But what comes afterward, in our view, when the crisis is finally over – really over – will be different than what we see today. That's a reality from our point of view, not a dominant social theme.