Here in the U.S, news of the "subprime meltdown" has been muted, with the White House putting its characteristic smiley-face on the crisis. However, the crux of the issue at hand is China, which has been buying vast amounts of U.S. securities (t-bills), allowing Bush to finance the Iraq occupation "off the books" without raising taxes. In effect, China has loaned Bush the money to make Iraq possible, and stands to make vast sums off the interest as the debt is denominated in dollars. Bush has committed our country to financing the world's largest communist regime and greatest economic rival in order to keep his disastrous Iraq 'plans' fiscally viable. If this anticipated "slowdown" hurts China's economy, that Chinese credit card will quickly become maxed out. The next president will likely face the worst of it, however. Substantial tax increases will become necessary to pay the interest to our Chinese creditors, and the "put it on my tab" mentality of the Bush Administration will give way to the harsh reality that we can no longer afford to be in Iraq any longer. The money that we will need to deal with a workforce that is rapidly approaching retirement, infrastructure that has crumbled during the rose-coloured presidency, disabled troops' medical care and payments, and any number of other issues will have to be paid for as we go.
Even more dangerous is the possibility of the dollar being replaced as the default currency in favour of the Euro. Since so much of the world's currency exchange takes place in the petroleum industry, it is crucial that oil payments be denominated in dollars. If the dollar sinks significantly, the Euro will look even more attractive than it already does, and oil-exporting nations will be sorely tempted to move from the dollar. With such large amounts at stake, even a small decline in the dollar could cost these countries millions overnight. Russia and Venezuela are the most likely candidates to make the switch, with the possibilities of Iran and Libya following suit. Depending how Britian goes with adoption of the Euro, Nigeria could also be a good candidate to bail on the dollar. Ironically, with China holding so much U.S. debt, they would naturally become one of the strongest defenders of the dollar.
Australia faces economic turbulence from U.S. meltdown
SYDNEY (Reuters) - Australia, one of the best-performing advanced economies, faced looming economic turbulence from the subprime lending meltdown in the United States, Prime Minister John Howard warned on Sunday.On Friday, Australian Treasurer Peter Costello had warned of an approaching international financial "tsunami", with China at its epicentre."We are entering a more difficult time of economic management. There are storm clouds on the international economic horizon," Howard told Channel 9 television on Sunday.He was speaking on the campaign trail for Australia's federal election on November 24, which the coalition government is fighting largely on its economic credentials.Battling poor opinion polls, Howard faces the prospect of an official interest rate increase by the Reserve Bank on November 6, during the election campaign."I don't think its panicking anybody to say that the subprime meltdown in the United States, which has already had an impact on market interest rates, because of the globalised nature of our economy, is going to have an effect," Howard said.In an interview with the Sydney Morning Herald on Friday, Costello said global financial markets faced a "huge tsunami".The U.S. economy would weaken in the wake of its subprime mortgage meltdown, and the breakneck pace of Chinese growth also could not continue, Costello said.At some stage, likely to coincide with a move to a floating of the Chinese currency, China would unleash greater instability on global markets than the United States had, he said.This article: http://news.scotsman.com/latest.cfm?id=1719472007
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