Free Markets, Free People
If you were to ask them though, the taxes will be collected only from corporations and the rich. The idea is to stick them with the bill for services the rest of the voters have decided they’d like but can’t afford. It’s a bit like getting on a train without a ticket, finding a well dressed man, and having the ticket collector point a gun at him and demand ticket money for your trip.
If I were the well dressed man, I’d probably find alternate transportation for my next trip. If I was a “rich” person in Oregon, I might begin scouting out a new place to live. The voters have certainly made it clear they feel they have every right to loot my earnings at will. Why would I want to give them any more chances?
Measure 66 raises the income tax paid by households earning at or above $250,000 a year or individual filers who make $125,000 or more. Measure 67 raises the state’s $10 minimum corporate income tax.
Together they generate an estimated $727 million, which has already been budgeted by the 2009 Legislature for public schools and other state services.
So instead of cutting budgets at the state level to what they can afford, Oregon voters have doubled down and bought into the populist notion that they can do it on back of those demonized rich people and evil corporations.
Corporations, of course, have a number of choices. Among them, if the tax isn’t too high, is pass the cost on to their customers. That would most likely be those who voted “yes” on Measure 67 ironically. If it is a large tax which is not easily passed on to the consumer, the corporation has other choices. It can cut headcount – lay people off – to recoup the cost. Or, if it is really crippling, find a new home for their business in a state which is friendlier toward business than is Oregon. What they most likely won’t do, at least not anytime soon, is hire and expand. And if I was a corporation looking for a new home, this vote would have me cross Oregon off the list.
The “rich” also have options. Find ways to hide that income. Like increase 401k savings so that taxable income is below that number. Many are probably small businesses which will hide income in the business vs. putting it in the owner’s income. If none of that’s possible they may find a new home for themselves and their business. One of the benefits of being “rich” is it does tend to give one some options as to where to live.
That’s not to say they will or even that all of them object to this new tax, but Oregon voters shouldn’t fool themselves that this sort of taxation is beneficial in the long run to an atmosphere which will attract and keep businesses or people who have the money to help the economy. Oregon might be a nice place to live, but it’s not that nice – especially when alternatives exist.
UPDATE: Megan McArdle points out something about the tax on business that makes it even worse:
The business tax changes apparently include a gross receipts tax, which is really an awful tax, especially during a downturn. Companies which are actually losing money may still owe taxes, which could hasten their closure, and the evaporation of any jobs they provide.
Any business that took in a dollar last year owe taxes on it. That means, as McArdle points out, marginal businesses who have just managed to hang on (and continue to provide employment) may be forced to lay off or close their doors and liquidate to pay the tax. A particularly “smart” move in a recession.
Additionally, as Tonus points out in the comments – the $727 million will be spent on the static analysis which said such a tax would yield that amount of revenue. But life isn’t static and those effected will immediately begin to do things which will lessen the impact on them and, of course, make that revenue stream smaller than anticipated. That means two things – more deficit spending and, most likely, more taxes on those who approved these to measures in order to make up the revenue shortfall.
This is what it takes to create “Green Jobs“?
President Obama’s announcement earlier today of an additional $2.3 billion in federal tax credits for creating approximately 17,000 subsidized temporary jobs in the green energy industry is drawing a less than enthusiastic response from Thomas J. Pyle, president of the Institute for Energy Research:
“Show me one other industry that requests and receives a nearly 30 percent taxpayer subsidy. That’s what the wind and solar industries require – at a minimum – to exist. All the president did today is throw more money at an unproven technology that is not economically viable in the marketplace. Unfortunately, the only winners in this latest taxpayer giveaway will be Wall Street money managers and corporate interests in the wind and solar industry.
Of course, dividing the subsidy by the number of jobs shows us that each job costs the taxpayers $135,295 each. The usual inefficient and wasteful spending for which the government is famous.
But there’s another bit of truth in Pyle’s statement that the right likes to mostly ignore – corporate interests, not just in the wind and solar industry, are deeply intertwined with political interests in this country and those corporate interests use their ability to influence in ways that give them an advantage (even to the point of helping to write legislation). However, that’s a post for another day.
Today, we’re looking at a perfect example of a governmental distortion of a market. Without the subsidy, the wind and solar industries most likely wouldn’t survive. But since it is a politically favored industry, it gets a hand out to keep it afloat. Meanwhile, it finds only a limited market share because the alternatives – coal, natural gas, oil, etc. – are much cheaper, more reliable and more readily available. Says Pyle:
“If the president really wants to create an environment that will foster economic growth and job creation, he need not look any further than the domestic oil, gas and coal industries. These three industries and energy sources built this nation. For the administration to continue to ignore this fact and to keep the vast resources that taxpayers own under lock and key at the Department of Interior is irresponsible and a disservice to the American people.
“The Outer Continental Shelf (OCS), if opened for business, would create over 1 million high-wage jobs. It would reduce our dangerous dependence on hostile nations for their energy resources and spur economic growth across all 50 states. Development of these energy resources will create sustainable employment, not taxpayer dependent make-work jobs.”
Instead, as I pointed out in a post last week, this administration is doing the opposite. New rules from Secretary of the Interior Ken Salazar make such exploration and exploitation of these known reserves much more difficult to do. It is step 2 in the government’s distortion of the energy market.
And it’s distortion of markets does have an effect – mostly unintended and, frankly, negative. Take the biofuel mandates Congress passed into law a year or so back.
It sounded like a good idea: Provide a little government money to convert wood shavings and plant waste into renewable energy.
But as laudable as that goal sounds, it could end up causing more economic damage than good — driving up the price of raw timber, undermining an industry that has long used sawdust and wood shavings to make affordable cabinetry, and highlighting the many challenges involved in decreasing the nation’s dependence on oil by using organic materials to create biofuels.
In a matter of months, the Biomass Crop Assistance Program — a small provision tucked into the 2008 farm bill — has mushroomed into a half-a-billion dollar subsidy that is funneling taxpayer dollars to sawmills and lumber wholesalers, encouraging them to sell their waste to be converted into high-tech biofuels. In doing so, it is shutting off the supply of cheap timber byproducts to the nation’s composite wood manufacturers, who make panels for home entertainment centers and kitchen cabinets.
The subsidy has distorted the market that has historically seen timber byproducts go to composite wood manufacturers and, since the subsidy pays more, seen those byproducts go to the production of biofuels. Result? Higher timber prices, an important market segment in trouble and an industry which couldn’t survive in the market without the subsidy continues to function.
In fact, the tail is wagging the dog as the government uses its power and purse to attempt to meet the arbitrary mandates that Congress passed into law:
The federal government is actively working to support the growth of as many of these biomass crops as possible, in part to meet requirements under the 2007 energy bill: The country must produce 5.5 billion gallons of advanced biofuels annually in five years, and 21 billion gallons by 2022. Right now, almost no U.S. land is devoted to raising biomass crops; according to congressional estimates, by 2022 the country will need between 22.2 and 55.5 million acres for this purpose
Did you get that? In 13 years it is estimated that between 22 and 55 million acres will be devoted to growing crap “crops” – like switch grass – instead of food – just to feed this contention that biofuels are better for us than fossil fuels. Those, I suppose, will be “green jobs” as well.
Speaking of green jobs – the government doesn’t even have a definition of what that means:
Even the Bureau of Labor Statistics, which has been cogitating on the problem since last spring, hasn’t made up its mind on how to count green jobs.
“There’s alternative ways for doing that and we haven’t yet finalized our methodology,” says John Galvin, associate commissioner for employment statistics at the BLS.
So you, and they, can call just about whatever you want a “green job” – and I have little doubt that the spinmeisters in government will do exactly that for the foreseeable future (especially when inventing statistics for “created and saved” jobs).
In reality I have no problem with “green jobs” or alternate and renewable fuels. I only have one demand – that they carry their own weight in the marketplace. Subsidizing each doesn’t meet that demand. Instead it unleashes the law of unintended consequences in all its negative fury and distorts exiting markets in ways that cost jobs and productivity that this economy badly needs. As Thomas Pyle points out, we have existing resources and existing technology that could create more available energy while creating thousands of good paying jobs not requiring a single dollar in subsidies that we’re ignoring to push an industry (or industries) which aren’t economically viable and, with existing technology, won’t be for years if not decades.
It is a short-sighted, politically driven policy which will hurt us in the long run. While this administration talks about a “comprehensive” energy policy, it is clear it has settled on one which is focused on an nonviable but politically correct industry to the detriment of the viable but carbon based existing industry. That is not a comprehensive policy regardless of how many times the politicians claim it is or put it in the title of their bills. A comprehensive strategy would recognize the reality with which we’re faced, exploit the traditional carbon based fuels while putting together a rational timetable for switching over to alternative (nuclear) and renewable fuels as the technology proved viable and cost effective.
Instead we get subsidized distortion of the markets, eschewing of readily available carbon based fuels and a push for jobs no one has yet to be able to define.
It’s madness. And, unfortunately, it is a madness which is going to cost us dearly in the not too distant future.
It appears a number of economists and financial experts see it as a failure. Not only a failure but an impediment to recovery.
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
The harm it has done is precisely the same harm that many of the larger programs have done, and something we warned about here at QandO at the time. Instead of letting the market take the hit it deserved for the bad risk it undertook and giving it an opportunity to digest that and then begin recovering, both the Bush and Obama administration’s chose to try and manage the crash and avoid the pain. Consider this particular program a microcosm of what many experts believe we’ll see happen in the larger economy. And, as usual, while it was something done with best of intentions it has run afoul of the Law of Unintended consequences and as critics are saying, has seemingly done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Homes Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
On the other side of the program are the lending institutions who some experts claim are using the program to delay an honest accounting of the toxic loans they have outstanding.
Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.
Instead, we’ve chosen to string this all out:
Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
In other words, government intrusion – with the best of intentions – has impeded the market’s ability to properly reconcile the losses and begin recovering and learn from the experience. Instead, both homeowners and financial institutions have been given false hope that they can avoid this pain and somehow benefit from the program without having to do what is really necessary. And this false hope, upon which reality will eventually intrude, is simply delaying the financial reckoning and further delaying a real recovery. Once that is done:
“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”
The article goes on to discuss proposed fixes, tweaks and alternatives. But the bottom line is the existing program doesn’t help, but instead hurt the chances for recovery within the housing market. And that’s the lesson here. There is pain in life, but pain’s usefulness is its warning not to do what one did to incur it and to modify behavior in the future to avoid it. The problem with removing the pain quotient is the lessons necessary to modify future behavior and avoid repeating the painful activity are lost. Additionally, by attempting to avoid the pain, the present problem isn’t quickly fixed, but instead drags out as false hope does its damage before reality finally takes its course.
No one wants to see people lose their homes, but the fact remains many took on homes they couldn’t afford and many lending institutions backed their acquisition. This program isn’t going to make their homes more affordable to them nor is it going to make their loans good ones. Time for the players, not the taxpayers, to pay the piper. Government needs to back away. Until they do and the financial reckoning necessary takes place, the recovery in the housing market will continue to be delayed.
We’ll soon be treated to the spectacle of a White House job summit in December. Yes, almost 11 months into his presidency, Barack Obama has discovered that the public is most concerned with the economy and jobs – not health care. Not the environment. Ironically, it is most likely those two things at which the administration and the Democratic Congress have been working so hard to pass into law that have caused the job situation and economic outlook to remain so bleak.
While President Obama and congressional leaders say they would like to do more to spur job creation, economists and business executives warn that their plans to impose new health care and climate-change costs on corporations would have the opposite effect.
The initiatives, according to this analysis, are likely to overwhelm any positive impact on jobs from stimulus measures by giving businesses a reason to keep laying people off.
The House’s health care bill would raise the cost of hiring in a straightforward way: by charging businesses a new payroll tax of up to 8 percent if they do not provide health insurance to workers. The Senate plan would impose smaller fines on those same employers.
The House-passed climate-change legislation would not add directly to the cost of hiring, but would raise energy prices, which are a major cost of doing business. Economists say that many companies would react by hiring fewer people.
As we’ve mentioned numerous times, businesses want, in fact usually require, a stable economy before they begin hiring or expanding. They want to see trend lines headed up and they also want a climate that is conducive to expansion and thus hiring.
With these to major bills looming and, as the Washington Times notes, major new costs a part of their passage, businesses aren’t going to
commit to doing anything until they understand how those new costs will impact them.
So don’t hold out much hope for anything major to come out of the job summit. It’s mostly for show – a way to show concern. If the administration really wanted to see jobs created, they’d kill the two monstrosities in question and provide incentives to business (tax cuts, tax incentives, etc) to spur hiring. Instead we’re much more likely to see talk about a “second stimulus” and other big government “solutions”.
Just don’t forget the promise of the last “stimulus” – it would stop unemployment at 8% and “create or save” millions of jobs.
The official unemployment rate is 10.2%.
I don’t think there’s any real doubt that Eric Holder’s decision to try the 9/11 defendants in New York’s federal court was as much about politics as justice. President Obama’s remarks about KSM’s guilt and the outcome of the trial left little doubt this is to be a show trial. And while I’m certainly no fan of Sen. Lindsey Graham, I thought he made Holder look foolish during the Senate hearings into the matter. It was clear, at least to me, that this decision was not well thought out. It was also clear that Holder had no idea of the possible ramifications of his decision. He continually, but ineffectually, avoided Graham’s points – once these terrorists are brought into the federal court system there are a completely different set of rules at work. And while they may indeed get convictions with these particular defendants, it most likely won’t be pretty and it sets a precedent (criminalizing this war) that we may regret in the future.
It is now emerging that even if the administration adamantly denies that these are show trials, the terrorists in question know exactly what they are and plan on using them to propagandize what they did and why:
Scott Fenstermaker, the lawyer for accused terrorist Ali Abd al-Aziz Ali, said the men would not deny their role in the 2001 attacks but “would explain what happened and why they did it.”
Mohammed, Ali and the others will explain “their assessment of American foreign policy,” Fenstermaker said.
“Their assessment is negative,” he said.
Fenstermaker met with Ali last week at the U.S. prison at Guantanamo Bay in Cuba. He has not spoken with the others but said the men have discussed the trial among themselves.
But don’t worry – the feds have it all under control. This will be a fair but orderly trial:
Dean Boyd, a spokesman for the Department of Justice, said Sunday that while the men may attempt to use the trial to express their views, “we have full confidence in the ability of the courts and in particular the federal judge who may preside over the trial to ensure that the proceeding is conducted appropriately and with minimal disrupton, as federal courts have done in the past.”
Really? So how does Mr. Boyd and the Department of Justice plan on stopping a terrorist, to whom they just gave this right, from confronting his accusers in court and taking the stand to defend himself?
I mean if this is all about justice and not about, you know, a show?
To me the UK has become the example of what can happen when you allow the state to begin to usurp liberties in the name of “safety” or “security”. What may first be given over to the state usually becomes an ever expanding list of things the state then feels enabled to intrude upon. The old “camel’s nose under the tent”. The latest example from Britain:
Health and safety inspectors are to be given unprecedented access to family homes to ensure that parents are protecting their children from household accidents.
New guidance drawn up at the request of the Department of Health urges councils and other public sector bodies to “collect data” on properties where children are thought to be at “greatest risk of unintentional injury”.
Council staff will then be tasked with overseeing the installation of safety devices in homes, including smoke alarms, stair gates, hot water temperature restrictors, oven guards and window and door locks.
The draft guidance by a committee at the National Institute for Health and Clinical Excellence (Nice) has been criticised as intrusive and further evidence of the “creeping nanny state”.
Ya think? Two things at work here – one of which we’re all familiar, even in the US. This is what? It is “for the children”. All manner of state intrusion is prefaced by claiming it is “for the children”. Which brings us to the second thing – the assumption by the state that parents are too dumb and inept to properly care for their children. While this is true of some, certainly, the standard is applied to all. And we’ve certainly seen evidence that the state is so much better, haven’t we?
So why does the state not only feel the necessity but right to intrude at such a level?
About 100,000 children are admitted to hospital each year for home injuries at a cost of £146m.
Oh, health care costs. And who controls the health care in the UK.
Why the state, of course. So of course it feels it has the right to intrude. When the state pays for health care, it assumes the “right” to tell you how to live your life and it also feels empowered to do what is necessary to make you do so in order to drive down costs, doesn’t it?
Well, it does in the UK. And we’re about to hand a similar power over to the state with this health care bill being considered. Our camel’s nose under the tent moment, if you will. In terms of intrusion, it may not be quite as bad as the UK’s – yet. But then they’ve had 60 years to get to this point.
Or at least the results since the Obama White House made FOX News the focus of its attempt at dictating which organizations should or shouldn’t be taken as serious “news” organizations:
But the White House’s stance also gave extra lift to the network at a time when it is on track to record its best ratings year ever. This year, Fox News has averaged nearly 1.2 million viewers across all its programming, a 16% increase over the same period last year, according to Nielsen. In the two weeks since aides to President Obama took after the coverage, the audience has been 8% larger than the previous two weeks.
If anything, the Obama administration has succeeded in reinforcing Fox News’ identity as a thorn in the side of the establishment — a role the network loves to play.
What news organization wouldn’t love to play that role? Er, the NYT, LAT, WaPo, ABC, NBC, CBS, MSNBC and CNN?
Maybe this is a little lesson for them as well.
It floors me when people who have an inkling of how markets work warn what will happen if pay restrictions are imposed on some of the companies in an industry, but not all, and those warnings are disregarded. And no, I’m not campaigning for all companies to come under the “pay czar’s” control. Instead, what is clear is the “pay czar’s” unilateral pay cuts are now hurting the very companies you and I (and our grandchildren’s grandchildren) unwillingly bailed out. And while I mostly agree with MichaelW’s thoughts on the subject, I also understand that the way it is being done does not help make their profitability (that’s how they’re going to pay back the bailout money) better. In fact, it stands a much better chance of hurting profitability:
Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.
“There’s no question people have left because of uncertainty of our ability to pay,” said an executive at one of the affected firms. “It’s a highly competitive market out there.”
It would be a bit like the government getting its hands on an NFL franchise for whatever reason that was failing. After “saving” it with your tax dollars, the powers to be decide that one of the things they need to do is severely limit the salary of players, because, you know, in relation to Joe Six-Pack, what the players make is obscene. So they unilaterally put salary caps on what players can make that are well below industry standards.
Any guess what happens when free agency rolls around? Any idea of how many drafted players are going to say “no” and remain unsigned when their salary demands aren’t met? Why?
To quote the executive, “It’s a highly competitive market out there”, and there are teams more than willing to pay the price for that talent. Why? Because the talent has proven themselves or have tremendous potential (as in the case of high draft choices).
So if it is blindingly obvious what would happen with an NFL franchise if the same thing was done there, how do these people who are doing a very populist political thing endemic to identity politics, think what they’re doing will be the exception?
They’re unilaterally limiting the talent pool in financial institutions we’ve paid to bail out which puts in jeopardy the ability of those companies to pay back the bailout money.
That doesn’t hit me as very bright. But then, a lot of things that have been done recently fall into that category, don’t they?
Stuffed in the National Defense Authorization Act is something which has absolutely nothing to do with defense, but is a law that “progressives” have desired to have on the books for a long time. Named the Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act, its purpose is to make crimes against certain groups punishable by harsher sentencing if it is determined the crime was driven by “hate”.
Since the votes weren’t present in the Senate on a stand-alone basis, Senate Democrats have attached it to the defense authorization bill as an amendment.
The crime bill — which would broaden the protected classes for hate crimes to include sexual orientation and “gender identity,” which the bill defines as a victim’s “actual or perceived gender-related characteristics” — passed the House earlier this year as a stand-alone measure.
Republicans object to the law on First Amendment grounds:
Beyond that, GOP lawmakers feared the new bill could infringe on First Amendment rights in the name of preventing broadly defined hate crimes. The bill’s critics, including many civil libertarians, argued that the hate crimes provision could chill freedom of speech by empowering federal authorities to accuse people of inciting hate crimes, even if the speech in question was not specifically related to a crime.
My objection, as usual, is that the GOP has accepted the premise of “hate crime laws” as being legitmate and are only arguing about the final form. The crime of murder, in terms of a result for the victim, isn’t any worse if it was driven by hate or not. In fact, it could be argued that murder, for any reason, is essentially a hate crime.
The reason for the crime is hardly the most relevant point. The result is what we can concretely and objectively judge and punish. The job of law enforcement is to ensure that a murderer is brought to justice by connecting him or her irrefutably to the crime. Other than that, I see little relevance in whether it was done because the person didn’t like gays or because the person wanted to get rid of their spouse. Murder is murder.
Another thing that bothers me is the title – The Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act. This isn’t about just punishing what is deemed a hate crime, by whatever arbitrary definition they choose to define a hate crime, but instead “preventing” those crimes.
That means, as the GOP points out, monitoring and doing something about what is deemed “hate speech” because the only way to “prevent” a “hate crime” is to prevent (or stop) the speech which government decides might incite people to take action. No speech, no incitement. No incitement, no crime.
Now, it is important to note that we already have an exception to the 1st Amendment’s ban on punishing speech and that’s the “fighting words” exception. It essentially says words can incite undesirable and even criminal action and those words aren’t protected speech. What is being proposed here is an expansion of the meaning of “fighting words” to include words that Congress decides incites “hate” and then criminal behavior (thus the term “hate crime”).
Unfortunately the bill looks like it will be signed into law. The question, of course, is how broad the final bill will be and how badly it attacks our First Amendment rights.
Republican Sam Brownback offered an amendment to the Senate version which said the bill could not “construed or applied in a manner that infringes on any rights under the First Amendment” and could not place any burden on the exercise of First Amendment rights “if such exercise of religion, speech, expression, or association was not intended to plan or prepare for an act of physical violence or incite an imminent act of physical violence against another.”
With that amendment, GOP Senators supported the final bill. However when the bill went to the conference committee, key changes were made to the Brownback amendment by the Democrat controlled committee:
Where Brownback had insisted, and the full Senate had agreed, that the bill could not burden the exercise of First Amendment rights, the conference changed the wording to read that the bill could not burden the exercise of First Amendment rights “unless the government demonstrates … a compelling governmental interest” to do otherwise.
That means your First Amendment rights are protected — unless they’re not.
“A compelling governmental interest” leaves the door wide open for your free speech rights to be trampled on the government’s whim. Where the First Amendment was designed as a limit on government power (as was the entire Constitution), this law is a blatant attack on those limits and an attempt to expand government power. Additionally, instead of an objective standard by which to judge a crime, this attempts to identify and punish thought.
In terms of our civil liberties it is an incredibly dangerous and precedent setting move that will enable government – as long as it can “demonstrate a “compelling … interest” (which it will define) – to restrict or punish speech it chooses to categorize as “hate speech”.
Obama has said he’ll sign the bill when ready. With Obama’s recent LBGT troubles, this is a bone he can throw their way.
“I will sign it into law,” the president told a cheering crowd at the gay activist group Human Rights Campaign on Saturday. “Together we will have moved closer to that day when no one has to be afraid to be gay in America.”
The GOP finds itself in a no-win position. They can vote against the hate crimes part of the bill and be accused by Democrats of not supporting the troops, or they can vote for the Defense Authorization Act and the hate crimes portion becomes law.
I think we all know they’ll vote to authorize the defense spending. And with that vote, America will become a little less free as Democrats continue on pace to erode our liberties while they have the chance.
While the Fed tries to assure us that when the time comes it can wring the excess money it has pumped into the economy without driving it into the ditch, Paul Krugman and others want more spending, and we’re staring at 9 trillion in additional debt, the rest of the worldhas seems to be quietly deciding that the dollar has become an unstable currency in which they’d rather not trade:
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
They’re talking about a whole range of different currencies to replace the dollar but the fact remains that the old buck ain’t what it used to be and those trading in oil are looking for a more stable means of trade.
The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.
Which explains some of the growth in the price of gold. Of course this transition will take time as the various countries carefully get rid of their dollar reserves over the coming years. However, if they are as committed to this transition away from dollar as the base trading currency for oil as this article indicates, then obviously the strength of the dollar will be adversely effected over that transition period and beyond as dollars are dumped. Couple that with the excess dollars we’ve pumped into the system these past few months and you can begin to understand the possible economic disaster this may end portend.
Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America’s trading partners have been left to cope with the impact of Washington’s control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.
The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. “The Russians will eventually bring in the rouble to the basket of currencies,” a prominent Hong Kong broker told The Independent. “The Brits are stuck in the middle and will come into the euro. They have no choice because they won’t be able to use the US dollar.”
Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.
We’ve been talking and hinting about this since it first began surfacing and warning of the dire economic consequences such a move would have. Of course it is the result of our own profligate spending and financial mismanagement, but I don’t think, for the most part people understand the implications of this move to replace the dollar. And it also doesn’t appear we have ability (much less a plan) to reverse this trend toward this change of the economic guard.