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GATA seeks contributions for production of Gold Rush 21 video disc
By Bruce Stannard
The Australian, Sydney
Monday, August 29, 2005
http://www.theaustralian.news.com.au/common/story_page/0,5744,1641668
0%255E28737,00.html
The nightmare scenario that haunts global strategist Clyde
Prestowitz is an economic September 11 -- a worldwide financial
panic triggered by a sudden massive selloff of US dollars that would
lead inexorably to the collapse of economies around the world.
If that happens, Prestowitz predicts: "It would make the Great
Depression of the 1930s look like a walk in the park." Australia
would be sucked into the vortex of such a recession, which would
cause great hardship throughout the world, he warns.
Prestowitz is not a doomsayer, neither is he alone in his views. As
president of the Economic Strategy Institute, a Washington think
tank, he is in regular contact with the most influential US business
leaders, some of whom -- Warren Buffet and George Soros included --
have taken steps to hedge their currency positions against the
possibility of a cataclysmic plunge in the greenback.
"Right now," he says, "we have a situation in which the US is
running huge trade deficits -- about $US650 billion (AU$766 billion)
in 2004 -- which are financed by borrowings from the central banks
of Asia -- mainly the Chinese and the Japanese. All the world's
central banks are chock-full of US dollars -- they're holding many
more dollars than they really want. They're holding those dollars
because at the moment there's no great alternative and also because
the global economy depends on US consumption. If they dump the
dollar and the dollar collapses, then the whole global economy is in
trouble.
"However, some countries have a bigger stake than others in
maintaining the status quo. China and Japan have a big stake in
maintaining the flow of their exports to the US and keeping the US
economy humming. Russia, on the other hand, does not export much to
the US. India doesn't export much to the US. Yet Russia and India
are also big dollar-holders. They hold many more dollars than they
really want or need.
"It doesn't take any great stretch of the imagination to see what
could happen if one of these central bank managers decides to dump
dollars. We had a situation recently when a mid-level official at
the Central Bank of Korea used the word 'diversification.' It was a
throwaway remark at some obscure lunch, but there was instantaneous
overreaction. The US stock market fell by 100 points in 15 minutes
because the implication was that South Korea might be shifting out
of US dollars.
"So picture this: You have a quiet day in the market and maybe some
smart MBA at the Central Bank of Chile or someplace looks at his
portfolio and says, 'I got too many dollars here. I'm gonna dump $10
billion.' So he dumps his dollars and suddenly the market
thinks, 'My God, this is it!' Of course, the first guy out is OK,
but you sure as hell can't afford to be the last guy out.
"You would then see an immediate cascade effect -- a world financial
panic on a scale that would dwarf the Great Depression of the
1930s."
Prestowitz says the panic could be started by something as simple as
a hedge-fund miscalculation.
"We had exactly that scenario in the US recently," he points
out, "when a big hedge fund called Long Term Capital Management went
belly-up. These guys were pros. They had two Nobel prize-winning
economists writing their trading algorithms, and their traders were
the creme de la creme among New York bond traders.
"They made a big bet -- a trillion dollars leveraged 20 to one, and
they blew it. They went belly-up. That threatened to bring down the
whole system so US Federal Reserve chairman Alan Greenspan had to
organise a bailout through the Federal Reserve Bank of New York.
"Now consider this: There are currently 8,000 hedge funds in the US
alone. Every day $6 trillion of derivative instruments trade on
international markets. If there are four people in the world who
understand those trades, I'd be surprised. So the potential for
another disaster is not insignificant. This is why Warren Buffet,
chairman of investment giant Berkshire Hathaway, is betting $US21
billion against the dollar. This is why currency speculator and
hedge fund manager George Soros has also made a big bet against the
dollar.
"Soros is one of the greatest currency speculators of all time. He
was the guy who broke the British pound in the early 1990s by
betting $US10 billion it would fall. He made a quick billion when it
did. In 2002, he warned that the greenback was in danger of losing a
third of its value. Of course, it could be argued that Soros is a
professional hedge fund manager whose job is to play the ups and
downs of currencies and his remarks could be seen more as
manipulation than prophecy. And yet, in conversations with me, Soros
has expressed concern about the market fundamentalist view that
prevails in Washington and parts of Wall Street.
"This is the belief that markets are self-correcting and best left
alone. Soros calls this a dangerous siren song. Far from being self-
correcting, he emphasises, markets tend to excess. They over-shoot.
Anyone with any experience of markets knows this.
"When markets are going down, all the weaknesses get concentrated,
and you need intervention at the right time to stop things from
getting out of control. If the dollar started to melt down, the
results could be really nasty. A 1930s-style global depression is
not out of the question."
To underscore the point that he is not alone in this, Prestowitz
cites Paul Volcker, head of the Federal Reserve before Greenspan,
who has said publicly there is a 75 percent chance of a dollar crash
in the next five years.
"No wonder people look at this and say, 'Holy cow!,'" he says. "No
one knows for sure what will happen, but clearly the global markets
could implode very quickly. The lack of an alternative to the dollar
is the only reason it hasn't taken a big fall already."
Prestowitz, formerly a trade adviser and negotiator for former US
President Ronald Reagan, believes the US will continue to be the
world's most powerful economy for the foreseeable future. But he
foreshadows an inexorable decline, a trend that is likely to
continue "depending on the way we play our cards."
"Right now, we're playing them just about as badly as it's possible
to play them, and that has geo-political implications." he
says. "We've outsourced trying to deal with North Korea to China, we
really can't deal with Iran, so we've outsourced that to the EU,
which is struggling, and Iran is cozying up to China. Other bad
actors like Zimbabwe's Robert Mugabe and Sudan are cozying up to
China.
"America's global hegemony is already under challenge, and that
challenge is going to become more and more evident as the extent of
the relative US economic decline becomes evident. Right now the US
dollar is probably 40 percent overvalued versus the Japanese yen or
the Chinese renminbi. How's the US going to look as a global power
when the dollar is at 50 percent of its current value?"
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http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
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http://www.resourceinvestor.com
http://www.goldpennystocks.com/
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
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Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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and
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The Moneychanger
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1-888-218-9226, 931-766-6066
----------------------------------------------------
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