From 700 billion to 12 trillion / The Economic Crisis that was and yet is

Chart showing decline of US dollar from 1999 to 2009

In the movie ’2012’, in addition to blowing and sinking most of planet Earth to kingdom come, there also is made cryptic reference to other types of major catastrophes that may overtake this present world in the not too distant future. The collapse of the US dollar is one such event mentioned in the movie. Charlie, the only person in the movie who seems to be telling the truth is portrayed as ‘conspiracy nut’ which is the norm in Hollywood movies. People who reveal the world to be not quite as simply explicable as the mainstream media would have us believe are portrayed as suffering from paranoia or otherwise not ‘normal’, as for instance the Mel Gibson character in the movie ‘Conspiracy Theory’. At about 31 minutes into the movie ‘2012’, Charlie details the collapse of the ‘Economy’ to Jackson. To paraphrase Charlie tells Jackson very animatedly with lot of explosive noises (BOOM!) that first the stock market collapses, then the economy, then the dollar goes boom! He makes other predictions that result from such events such as ‘pandemonium in the streets’, ‘war’, and ‘genocide’. Why the screenwriters chose to use the word ‘Genocide’ in the context of an economic collapse and ‘natural catastrophes’ is a bit of a mystery that will be examined in a future article.

The fall in value of the dollar may not be viewed by the man on the street as ‘catastrophic’ as for example the sinking of a major part of California into the Pacific; but the results can be just as deadly if not more so. The debasement or possible collapse of the US dollar, the world’s reserve currency, and how it relates to biblical prophecy is the subject of this article. I came across a news article that originated from a very influential source in the world of economics who is predicting the collapse of the US dollar. The article was printed in The Telegraph, a major UK newspaper and is available to be read online at: http://www.telegraph.co.uk/finance/4125947/Willem-Buiter-warns-of-massive-dollar-collapse.html. “Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned”. As opposed to the ‘nut case’ Charlie in the movie this man occupies one of the highest positions in the mysterious world of high finance as a former Bank of England policymaker and now with the most prestigious economic institution in the world, The London School of Economics. So Mr. Buiter’s predictions originate from something other than crystal ball gazing. The following links also examine the steady decline in value of the dollar over the past decade and its implications.

• http://www.globalpolicy.org/component/content/article/214/43906.html
• http://articles.moneycentral.msn.com/Investing/Dispatch/WhatTheFallingDollarMeansForYou.aspx
• http://articles.moneycentral.msn.com/Investing/Extra/the-dollars-down-decade.aspx

The above links examine the decline of the US dollar and the chart at the top of this page shows that the US dollar has declined 38% in value since 2001 when it stood at around 120 on the US dollar index to its present value at around 77. The US dollar index measures the value of the US dollar against a basket of currencies such as the Euro, the Pound, the Canadian dollar and a few others. Despite platitudes spouted by officials in every administration that they favour a strong dollar, the truth is that the dollar has weakened considerably over the past decade and is forecast to drop much further according to influential analysts such as Mr. Buiter.

In the case of a country other than the USA, a fall in the value of its currency would effect only that particular country, such as happened in Russia in 1998, and again with less severity in 2008. This article that can be found at http://en.wikipedia.org/wiki/1998_Russian_financial_crisis provides details of the crisis that literally wiped out the savings of millions of Russians. Devaluation of a currency simply means that the same amount of money buys much less after the devaluation than it did before the devaluation. Many Russians still tell horror stories of having enough money saved up to buy an automobile who suddenly discovered that the same amount of money would perhaps only buy the tires now (without the automobile). Loss of purchasing power is a price paid by the citizenry for the fiscal irresponsibility of its government.

Regrettably the US dollar is the world’s reserve currency, a position that has historically been held by gold. Reserve currency is defined as: A reserve currency, or anchor currency, is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. It also tends to be the international pricing currency for products traded on a global market, such as oil, gold, etc. This permits the issuing country to purchase the commodities at a marginally lower rate than other nations, which must exchange their currency with each purchase and pay a transaction cost. For major currencies, this transaction cost is negligible with respect to the price of the commodity. It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others. http://en.wikipedia.org/wiki/Reserve_currency. Because of its unique position a decline in the value of the US dollar effects not only the citizens of the USA but also the whole world.

A decline in the value of the US dollar is especially devastating for countries such as China, the health of whose economy depends a great deal on exports to the United States. If China were to bill US companies the same value for goods as it did in 2001 it would have to raise its prices by 38%, which in turn would drastically reduce the amount of goods purchased by US businesses. Therefore in order to maintain its export business, Chinese manufacturers have to drastically reduce their profit margins. In most cases the cost of raw materials either increases over time or at least stays the same, as for instance the price of oil which has risen five fold since 2001. So if the cost of raw materials stays the same but the Chinese need to maintain the price of their goods for export, they then must reduce labor costs drastically. Thus the US consumer may feel no pain in regards to higher prices in the stores but the Chinese workers most certainly feel it. Here’s a 2007 article that proves that this indeed has been the case, using World Bank figures the writer shows that real Chinese wages have decreased even as the country is seemingly in the midst of a boom. http://www.greenleft.org.au/2007/728/37739. The decline in real wages has grown even more since 2007 as reported by CNBC in 2009 / http://www.cnbc.com/id/29292739.

In a global economy where internal consumption of domestically produced goods has become the exception rather than the historic norm, the decline in the value of the world’s reserve currency effects just about everyone, from the lowly factory worker in China, India and other third world countries to sheiks in Dubai who can no longer finance their gold plated bathroom fixtures. If the import dependent Western world, mainly North America, Europe and Australasia can no longer afford to buy as many goods as they formally did because the goods have become more expensive, and consumption has indeed declined dramatically in the Eurozone countries and North America, then the economies of both the importers and exporters are in deep trouble. And because Western governments, particularly the US have embarked on a money printing mission like never before seen in history, the unprecedented increase in the amount of dollars in circulation will dilute the value of the dollar even more. The more the amount of goods that are available in a market, the less valuable they become. As the production of flat screen TVs and laptop computers has increased dramatically so has their price fallen; currencies are no different, the more of a currency in circulation the less valuable it becomes, meaning it buys less and less as the Russians, Argentineans and particularly the Zimbabweans have found out recently.

One of the fundamental functions served by the gold standard was that it kept a check upon the amount of currency in circulation in an economy. Since Nixon removed the US dollar off the gold standard in 1971, governments have been free to put as much currency into circulation with nothing to back it as they desire. And since the US dollar has been the currency not just for a single economy but the economy of the whole world, its collapse as has happened slowly over the last decade but is set to intensify as predicted by Mr. Buiter and others will have dire consequences for the whole world. This I believe to be a fulfillment of prophecy, of one of the signs that Jesus gave must come to pass before the end of the world. The path that is being followed by governments, especially in Western nations, to fix this so – called economic crisis, that in reality is a currency crisis is the exact opposite of what needs to be done to fix the problem. In a real free market economy that is honestly overseen by the government on behalf of its citizens, such a ‘crisis’ would not have arisen in the first place. The collapse of economies worldwide such as that of ‘Iceland’ last year and debt default by ‘Dubai’ this year are opening salvos in this economic war that will be lost by ALL nations in the days and years to come. If this crisis that began in early 2008 and was projected to cost a few hundred billion dollars to fix has only intensified after 11 trillion dollars being thrown at it, then it is obvious that the stated problem was not the problem and the suggested solutions will not, and have not, solved anything.

FROM 700 Billion to 12 Trillion (and growing)

Now let’s look at the history and evolution of this financial crisis that in less than 18 months has grown from an estimated 700 billion to fix to nearly 12 trillion and counting. These figures have been assembled from published mainstream news sources. Since the current figure is almost 20 times higher than the originally reported ‘crisis’ fixing figure of 700 billion, how can we believe that this is the end? Since 12 trillion is nearly 1/5^th the amount of the entire world’s economy where will this money come from and who will pay for it? And who is the money being given to? A truly astronomical figure like 12 trillion ought to pay off most if not all of the consumer debts in the world, and get consumers consuming again, at least in the western world. Leaving all that aside just take a close look at the how the figures have grown exponentially from mid 2008 to end 2009.

“Numerous plans were put forward with intent to solve the crisis and in the end President George W. Bush and the Secretary of the Treasury announced a $700 billion financial aid package intented to limit the damage that the previous few week's events caused. The plan was received well by investors on Wall Street and around the world”. 700 billion dollars were supposed to fix it all back in 2008, but see how this figure has changed in the past 18 months.

IMF says global banks need $675 billion in capital / Bloomberg / Washington October 8, 2008, 0:14 IST The world’s major banks may need $675 billion in fresh capital over the next several years to recover from a credit crisis that shows few signs of abating, the International Monetary Fund said.

14 Oct 2008 / UK Telegraph – 2 trillion POUNDS (not dollars) to fix crisis. From Oct. 8, 2008 IMF estimate of 675 billion, in less than a week the UK Telegraph upped the ante to 2 Trillion pounds!

IMF puts total cost of crisis at £7.1 trillion / The cost of mopping up after the world financial crisis has come to $11.9 trillion (£7.12 trillion) − enough to finance a £1,779 handout for every man, woman and child on the planet. By Edmund Conway / Published: 10:01PM BST 08 Aug 2009 / Only ten months after estimating 675 billions were needed, the IMF increased this figure to almost 12 trillions, a near 20 fold increase! Are their economists that incompetent that they missed the size of the problem by 11 trillion dollars or...?

/ Financial crisis costs move towards 25 trillion / This figure comes from a financial analyst and may just be the true figure which would mean that we are yet far from the finish line of this so – called ‘crisis’ that is looking more and more like a catastrophe to those who know how to read the signs.

2010, I believe will be a tipping over year, where it will start becoming obvious to the whole world that the ‘economic crisis’ far from being over has only just begun!

· http://news.goldseek.com/GoldSeek/1254895620.php / Faces of death: US dollar in crisis – extensive analysis and projections in this article