The Dollar Is Strong, The Dollar Is Weak

The dollar is strong, the dollar is weak; the dollar is strong, the dollar is weak; the dollar is... ad nauseum. Over the past few years the Dollar is continually given the appearance of being volatile when it is not; volatility in all investment markets is replacing stability, because stability is less profitable for Wall Street. Volatility induces more trades that result in more fees, commissions, and opportunities for brokerage firms to remove the contributions of investors to pay the wages and expenses of Wall Street, rather than increase the value of stocks, bonds, and commodities. So the Dollar must also be made to appear to be volatile as well, to continue a charade of strength that over any period of time greater than one year shows that the Dollar is continually weakening; and has, with one exception, been weakening for the past 100 years; the gross manipulation of the dollar to destroy equity, during the great depression, being the exception; today it requires $98.00 to buy what $2.00 would buy in 1914, such is the strength of the Dollar on its relentless march to zero. The Dollar may be temporarily stronger relative to a few other currencies, but our ever increasing massive debt load belies any Dollar strength.

If the world economy were an enormous weight being lifted by a multitude of cranes representing various currencies, the corners would be lifted by the U. S. Dollar, the Euro, the Yen, and the Yuan. It is true that currencies and cranes start out with a given strength which declines with age; money inflates and iron fatigues; to continue the analogy, if the Euro crane begins to weaken and buckle, the fact that the other cranes are still holding the world economy weight up, does not mean that they have gotten stronger; and with the Euro currency headed down the path of devaluation by inflation does not make the Dollar, Yen, or Yuan stronger relative to any economic relationship except a direct exchange for Euros; every other economic relationship is unchanged except trade with the Euro countries, whose imports from other economies will decline.

Yet there is an almost weekly cycle of the Dollar being weak relative to stocks, bonds, and commodities for a few days and then the Dollar is suddenly strong relative to these markets. The Dollar is not strong one day and weak the next except for a purpose; and that purpose is extracting dollars out of the investment accounts of individuals and businesses that are market chasers, buying and selling behind the curve and losing wealth in the process. It costs billions and billions every year to pay the wages and profits to operate Wall Street; a lot of that money comes from the monthly contributions of 401Ks and IRAs and daily market chasers. When the inflow of these contributions ceases, or drops below the amount needed to fund Wall Street, the whole thing will collapse suddenly and totally; and just as occurred in 1929 the wealthy insiders and specially informed elite will remove themselves from these markets before the collapse, preserving themselves at the expense of the controlled ignorance and naiveté of the middle class, whose 401K and IRA investments (like all their other federal and local taxes) are spent and gone.

We live today on yesterday's produce; and we will live tomorrow on today's produce; society provides for itself a few weeks, up to a year, in advance. There are no perpetual provisions that will support human societies for an indefinite period. There are no investments made today that will guarantee future security from want and need. The middle class has voluntarily taxed itself to pay the common expenses of our cities, states, and federal government; what is odd is that the middle class and businesses are taxing themselves through 401K's and IRA's to pay the expenses and profits of operating Wall Street. The huge salaries and bonuses being paid on Wall Street come from the middle class. Yes a relatively small number of people are retired and cashing in their 401K's or IRA's and receiving income from those in the middle class that are still taxing themselves to keep this system going; but like Social Security, you can pay into the system your whole career, but you will only receive benefits if there are enough people employed and paying into the system in the future to afford you a share when you retire. Today's contributions support today's retirees; tomorrow's retirees will only be supported by tomorrow's contributions. No contributions (or investments) made today will be available to support tomorrow's needs; they are spent and gone. Like the Social Security Trust Fund, 401K and IRA investments are a complete fraud; money that is spent and gone, is SPENT and GONE; you cannot resurrect it to provide for your future needs.

The demographics of labor is such that fewer people are needed to produce our goods and services; and they are doing so at lower wages, resulting in payment of less taxes; while a very large portion of our middle class, the baby boomers, are beginning to retire and make financial demands on our economy for their support. This looming crisis is running head-on into the demographic of multiple social debts; i.e., national debt; states, cities, and counties debts; unfunded pension debt; consumer debt; housing debt; student loan debt; corporate debt; all of this debt arises from some persons having a surplus, when others are in need, and making loans to satisfy social needs. These loans are made for profit, which requires that debt be increased in order that profits increase; and so it has. The crunch comes when social needs meet financial obligations; the politicians have made laws that favor debts accrued in the past over contemporary needs. Food, shelter, medical care, will all increase in cost and decrease in quantity and availability for our society so that we can continue to service past debts. The failure of our economy, our society, our political system, is an absolute given; the structure of our political system will not allow a remedy to our economic plight. The weakening of our currency, to provide false funds to pay our debts, will simply result in the inflation (devaluing) of the Dollar, such that costs for every consumable will rise until only a relative few can afford to purchase life's necessities.

The current effort (Dec. 2011) to continue the payroll tax reduction is politically sensitive, because this particular tax funds Social Security and Medicare, but Congress wants to pay for the deficits created by this tax reduction with spending cuts in other areas. No one in Congress has suggested using a tiny portion of the several trillion dollars held in the Social Security Trust Fund to pay for this tax reduction shortfall, because Congress knows that the Social Security Trust Fund was from its inception, and is still today, a complete fraud, devoid of any money or other assets. Well Wall Street is the same way; it is not a trust fund for 401K's and IRA's; there are no guarantees of profit for investors. A relatively small amount of investment money flows out to current retirees; 5, 10, 20 years from now, retirees will get a portion of any money flowing into the financial markets over and above Wall Street expenses; and if less money is flowing in, less will be paid out. The arithmetic of retiring baby-boomers, from payers to receivers, guarantees the failure of Social Security, Medicare, and Wall Street. Quantitative easing by the Federal Reserve to help Wall Street continue to fool the middle class will only continue weakening of the Dollar through inflation.

All money is pocket money; i.e. all money is in someone's pocket (or bank account). When you take money out of your pocket and exchange it for stocks, bonds, commodities, food, clothes, real estate, automobiles, etc. you are acquiring physical objects and your money (i.e. your liquidity) is now in someone else's pocket. There is a wide-spread miss-perception by the middle class that when money is invested in Wall Street, it remains there in a large repository, available to be withdrawn by those selling their investments; this simply is not the case; there is no money in these markets. It is silly to say that your money is in stocks, bonds, etc.; you may be able to convert these items into pocket money at a profit, or loss, in the future, but until you do they are not money and if you are caught holding them when the music stops, your only money will be whatever is left in your pocket.

Our activities here on earth are not a zero-net-sum; we harvest the minerals and produce of the earth to sustain ourselves at a profit, because our lives and societies live on by consuming the produce of the earth. It is how we divide and consume the earth's finite amount of produce that is a zero-net-sum, in the sense that more for some requires others to receive less; the bounty of the earth is not evenly distributed. The bounty of the earth is controlled both in production and distribution, just as medical care, education, and political power are also controlled; to maintain a social pyramid of wealth and political power to preserve wealth for a relative few supported by poverty and political impotence of the majority. The control of the earth's resources and produce by dominant economies necessarily requires the control of banking and investment markets, to reap profits, manage politicians, and control lesser developed economies.

When one major currency like the Euro gets weaker, other currencies will also weaken somewhat, because economies worldwide will be required to pick up the slack in reduced trade, bankruptcies, purchasing European government bonds, and forced austerity in government budgets that increase unemployment and reduce domestic consumption and trade, while being funded by that weakening (inflating) currency; in a world economy all currencies are tied together. The problems of one country get disbursed throughout other economies; while civil unrest, civil war, even world war are all possible outcomes if failing economies are abandoned by the world economy. Demand for a currency like the Dollar does not make the Dollar stronger; it may make it scarce and therefore dearer to those seeking to borrow Dollars, but this represents a situation that weakens economies and future economic conditions, certainly not a strengthening of the Dollar. The flight to US Dollars around the world does not signal Dollar strength; but rather economic weakness and despair around the world. The hoarding of liquidity is really a reduction of liquidity, which will slow economic activity; and the demand by governments, banks, and businesses to hold a particular currency will eventually make that currency less relevant in international economic activity.

The hoarders of US Dollars are choosing to disengage from economic interaction, preferring to go to the sidelines, but their demand for Dollars hurts those who remain in active trade and production by driving up the cost of borrowing Dollars; which weakens everyone and will eventually weaken economic activity around the world; no currency is strengthened by a depressed world economy.

When the economic train wreck of 2008 was getting underway the Dollar became so weak, by being hoarded around the world, that the Federal Reserve temporarily pumped 14-trillion Dollars into world economies to keep the world economy from collapsing due to an inability to conduct production and trade; and also to facilitate many governments need to increase debt to meet the requirements of contemporary budgets, when their income dropped due to business losses, reduced profits, and thereby reduced tax collections. For the Dollar to strengthen, it requires two coincident activities; a reduction in the number of dollars available to businesses everywhere and continuing economic activity, in Dollars, at a stable pace (not greatly increasing or decreasing). It is productive economic activity and international trade that determines currency strength, more than currency quantity and/or hoarding of cash.

These weekly cycles of market kiting in Dollars is silly; because the Dollar is actually weaker in the long run when the demand to hoard is greater and stronger when extra Dollars are in play bringing about more economic exchanges. A flight to Dollars in today's world economy is a sign of stress and inaction that weakens all currencies, especially since those hoarding Dollars are not receiving interest on those Dollars to make up for lost economic activity.

The Dollar (or any other currency) is strong when it is exchanged internationally on a continuous basis at a stable exchange rate. Hoarding Dollars, like hoarding gold, does not strengthen the Dollar, it only causes people without Dollars to use other currencies and barter in place of Dollars. It is wrong to equate scarcity with strength. Gold is scarce, it also commands a high price to own, but it is economically weak and internationally impotent in affecting government economic policies around the world.

Just as France and Germany are becoming economically weaker by the handouts being given to Greece, Italy, and soon Spain; the economies of the other major currencies will be required to give handouts to the whole Euro-zone, including France and Germany, to keep their financial woes from spreading around the world. This will weaken the other major currencies including the Dollar, not strengthen them. The current aberration of stocks, bonds, and commodities moving apposite the Dollar in value, is strictly a result of market manipulation and investor ignorance. Obviously if you increase the number of Dollars in the marketplace, interest rates should fall to increase borrowing demand, and sellers of goods will raise prices to consume those Dollars, so that stocks, bonds, and commodities will all rise in price to a new stable relative equilibrium. If you decrease the number of Dollars in the marketplace, then interest rates will rise to decrease borrowing demand, and the price of stocks, bonds, and commodities will fall to a new stable and relative equilibrium; but these are long term economic realities, not short term aberrations and market manipulations. The Dollar is weakened when there are additional dollars added to the world economy and it is strengthened when Dollars are removed from the world economy. If interest rates are not changing, but demand for Dollars is increasing, then the Dollar is weakening, because those hoarding Dollars in place of stocks, bonds, and commodities are causing economic slowdown around the world which will result in reduced profits, which leads to greater unemployment and reduced growth, which leads to increased debt, which requires money creation, which leads to inflation and the weakening of the Dollar by reducing its purchasing power. Unless interest rates are rising the Dollar is either stable or weakening; worldwide demand to hoard Dollars is a negative sign for Dollar strength not a positive sign.

A good example of the problems of hoarding liquidity has been playing out in the United States for over two years now; and that is the 2+ trillion Dollars, in cash, held by US businesses. It gets no significant return such as high enough interest to offset inflation; it is not used to expand business or grow the economy; it is being eroded by inflation, and yet it sits there doing nothing. Actually that is not true; many of these Dollars are being forced to sit idle to protect businesses, while demonstrating that the Dollar is not strong, nor even desirable enough for the world economy to pay sufficient interest to lure those Dollars into expanding production and trade worldwide, let alone doing so in the United States. So who or what is forcing those Dollars to sit idle? Many corporations in the United States must defend themselves against being destroyed by speculative raiders operating in financial markets around the world. The method these raiders use is a combination of naked-short-selling of stocks, buying large quantities of credit default swaps on corporate bonds, and then letting out rumors on relatively strong and profitable target banks or businesses that starts their stock on a downward trend. A target company is so weakened in stock value that it must sell to a competitor for a fraction of its value to our economy, or face bankruptcy.

Naked-short-selling is the process of selling-short without borrowing a stock from a broker; you simply create (counterfeit) that stock out of thin air and sell it, then you create more of that stock out of thin air and sell it, continuing this process until there is such a large quantity of stock for sale of the target company, that its stock price falls to near zero; at which point it is taken over by its creditors and sold to cover its corporate debt held by those creditors (usually a bank). The main ally of naked-short-selling of stocks is the purchasing of credit-default-swaps on the corporate bonds of the target company, which along with negative rumors about the financial condition of the target company become a fatal weapon, capable of destroying even very large and profitable companies. In 2008 big banks, big insurance companies and big industrial companies were attacked, many were crippled, and a few put into bankruptcy; causing the Federal Government and the Federal Reserve to expend vast sums of taxpayer money to fend off these attacks.

The raiding process starts by selecting a target company and purchasing credit-default-swaps on that company's corporate debt; credit-default-swaps being relatively low cost insurance against a default on a corporate bond, such that if the company failed to repay its bonds those holding credit-default-swaps on those bonds would be paid in full. This makes sense for a bank loaning money to a large corporation to insure those bonds with credit-default-swaps; but since credit-default-swaps are not regulated by any government agency, the Federal Reserve, or any Wall Street regulatory commission, anyone could create and sell credit-default-swaps on any bond created by any bank or insurance company. When more and more CDSs on any corporate bond are sold, the price goes up, because the seller is taking on more risk with each additional CDS the seller must payoff in a default; and this price rise for any particular CDS sends a signal to the markets that the target company, liable for bonds associated with higher-cost CDSs, is probably less financially stable, which encourages speculators to sell that company's stock and bonds short; rumors are let out that the target company has financial problems and then rampant naked-short-selling is instigated against that company's stock, which forces large declines in the value of its stock, which causes its bank to require the company to use its cash on hand to support its stock and bond values; but further rumors and naked-short-selling drive the target company's stock value even further down; the company cannot protect itself because it has been forced into serious cash flow difficulties that will lead to default on its corporate debt, causing its stock to drop to an insignificant value, which causes the bank to foreclose on the company and take it over or force its sale to one of its competitors for pennies on the dollar. Meanwhile, if there is enough defaulted debt owed to that company's bank, it now becomes a target for rumors and naked-short-selling of its stock to drive down its stock price and force it to merge, sell, or go out of business.

These corporate raiders make their profit by selling large amounts of stock at prices in the neighborhood of $100 per share and then driving that price down to a few Dollars per share; when the victim company is declared insolvent or bankrupt, and its stock is worthless and non-active in the financial markets, these raiders will buy for pennies the amount of stock sold for many dollars, clearing themselves from the market relative to that victim, making huge profits, and moving on to another raid.

This economic raiding not only weakened the U S economy, it is still in place as a framework that can destroy businesses in the future if they cannot defend themselves. The chief defense against these short-selling attacks is that corporations and banks must hold a large reserve of cash; while keeping corporate debt at a minimum. This requires companies to entrench, streamline, and not expand; and this prolongs the recession we are in, because we refuse to regulate short selling, credit-default-swaps, and prosecute rumor mongering. Apparently the politicians do not mind having all of that cash sitting idle and prolonging the current recession.

Similar to industrial corporations and businesses holding 2+ trillion Dollars in cash, the banks have likewise built reserves of 2+ trillion Dollars, in cash, to protect themselves as well. It used to be that banks had to loan money to businesses to earn their income; then government borrowing increased to where banks could make good money buying government bonds to provide their income, allowing them to make risky speculations in markets around the world. After the 2008 crash, with interest rates near zero, government bond yields very low, and lending to business very risky, banks needed help to stay in business, while doing nothing for the economy; this was accomplished by the Federal Reserve, through the payment of interest, to banks, on their Dollar reserves held by the Federal Reserve. So banks now make money on their reserves which has caused them to increase those reserves to a healthy 2+ trillion Dollars; since the Federal Reserve receives its income by charging fees for services it provides to banks, this recent action to pay interest on reserves would be a zero-net-sum to banks if the Federal Reserve charged the banks higher fees to cover this cost; so the Federal Reserve takes money from its profits that are owed to the U S Treasury to pay this interest profit on bank reserves; with the approval and permission of Congress. Our economy, businesses, and taxpayers are saddled with more debt from reduced income, while banks are feted to unearned profits in the manner of corporate welfare; which ultimately increases our national debt.

This 4+ trillion in bank and corporate cash, here in the United States, is a stagnant hoard that but for a few regulations on predatory actions in the investment markets, would be freed up to expand the US economy and stimulate the world economy. The status quo will only allow for the continuous slowing of the world economy into worldwide depression. Just banning any form of naked-short-selling and reinstating the Up-tick Rule on regular short-selling, which could easily be done by the Securities and Exchange Commission in a matter minutes; not days, weeks, or months; along with a law from Congress limiting the selling of Credit Default Swaps to one and only one CDS being sold on any bond and only the holder of the bond could buy and hold a CDS on that bond, which would also need to become regulated by the SEC; these actions would take the pressure off large banks and businesses and allow them to take on the risks associated with business expansion, without having to worry about being mugged and robbed in the investment markets.

Our investment markets are not free markets; they are very much managed. Supply and demand setting a price on goods and services has given way to supply control to maximize profit on unlimited demand. Controlled markets lead to continuous increases in costs to consumers, because corporations experience pressure to increase their profits every year; and the competition amongst various industries to get more of the consumer's income will only destroy the consumer and the economy.

Near zero interest rates to banks demonstrate a weakening Dollar and impotence of the Federal Reserve to spark the economy. Economic growth requires stability and reward for risk; but the investment markets are now addicted to volatility, and returns on loans are too small to support the inherent risk. The Federal Reserve is boxing itself into a corner where it can only manage liquidity of currencies in world markets; by constantly feeding Dollars to the cash hoarders to prevent them, from freezing the world economy. Eventually the cash hoarders will have to use that cash in place of economic productivity causing too many Dollars to be spent on too few goods, which will bring rampant, uncontrollable inflation, and the further demise of an already very weak Dollar.

The Federal Reserve is managing the Dollar toward its death; the large investment banks are managing Wall Street toward its death; the international oil companies are managing our consumption driven economy toward its death; the politicians are facilitating this destruction at every turn; and the American voter struggles to maintain sufficient ignorance necessary to prevent political solutions to our economic problems.

Our managed economy is being whipsawed by energy costs, and those costs are dictated by the international oil companies, not by supply and demand. We tend to forget that oil prices surged in early 2008 to $145 per barrel; sucking all of the discretionary cash out of consumers and small businesses, precipitating the problems on Wall Street and Main Street. One year later oil was selling as low as $35 per barrel, while world consumption changed very little over that time. Greed and unregulated actions of energy companies nearly collapsed the entire world economy; and we have no national energy policy and no controls over the action of international oil companies. Oil companies lease vast amounts of mineral rights from the US taxpayer; then they drill wells to harvest our oil and gas and receive huge tax reductions from the US taxpayer to do that drilling. They are finding more oil in Texas, Oklahoma, Louisiana, Wyoming, the Dakotas, and the Gulf of Mexico; yet they want taxpayer concessions in building the Keystone Pipeline from Alberta Canada to the Texas gulf coast to transport crude oil, while the Canadians are also planning a pipeline from Alberta, over the Canadian Rocky Mountains, to the central coast of British Columbia, for the express purpose of exporting crude oil to Asia. The Keystone pipeline is not going to transport crude oil to American refineries for our consumption; that oil and products refined from it is for export to world markets. The international oil Companies want us to believe that this pipeline will help us achieve energy independence, and yet in the third year of our very weak economy they are refining crude oil here and exporting gasoline, diesel fuel, and jet fuel to other countries, to keep their profits, and costs to US consumers of those products, as high as the market will bear, without regard for our economy. If you do not feel the oil companies poking you in the backside when you fuel up your car, check your pulse, you may not need to worry yourself about corporeal matters. Our economy is being screwed by the international oil companies, year in and year out; they can create economic recessions and sway elections to get the political climate necessary to pass laws that minimize their costs and maximize their profits.

In the future, Canadian oil, and our oil under our land, will be exported for profit regardless of the needs of our economy; the energy markets have been managed for at least 100-years; and every president and executive administration since WW1 has lacked either, the brains, the balls, or the integrity to harness our energy for our benefit. Consider that the Trans-Alaska Oil Pipeline, built in the 1970's, initially required by law that its oil be processed in US refineries; the law was changed in 1990's allowing the oil companies to sell our Alaskan oil to anybody, for their exclusive profit; the Keystone Pipeline will be the same scenario; initially they will transport and refine Canadian oil in Texas, but sooner or later they will export any crude oil, and any refined products, regardless of the source and regardless of our needs or the condition of our economy; if we cannot afford their products they will be sold to other nations.

Our economy is a playground for the international oil companies, the international banks, foreign governments, and organized crime around the world; thank God the politicians have not taken sides in this free-for-all, or we would be a bankrupt third world economy, with the Army supervising our own famine, civil war, and dismemberment. If our economy is to remain weak and impotent, our Dollar will become weaker and more impotent. Our economy is not being managed to increase our wealth, but drained of its wealth to support foreign banks, businesses, and societies. The Dollar will continue to weaken, and weaken, and weaken, until equity, in every form, is reduced to zero; enough already about the strength of the Dollar.

© January 2012

Craig D. Hanks

This article is taken from a chapter of my book SOCIAL BENCHMARKS. Other excerpts can be viewed at http://beyondfarenough.blogspot.com/