regime change

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This topic was somewhat pre-empted in the comments on the last post, but I have been thinking about fleshing it out, so here goes.

Much ado about nothing regarding parity with the US$, there is a much bigger story brewing just under the surface.

Some of you more interested types may have already read this, but I have redacted it below for your edification.

The dark cloud? The U.S. economy
BARRIE MCKENNA

From Saturday's Globe and Mail
September 21, 2007 at 11:04 PM EDT

WASHINGTON — If the United States were a patient, a doctor might look at the tumbling dollar like a sudden drop in blood pressure. It's a symptom...of a binge.

For too long, Americans have been gorging on cheap credit and foreign oil, and all things that go with the lifestyle – monster homes, big cars and big-screen TVs. For 15 years, the U.S. economy has been a magnet for global products and credit.

Now the patient is overindulged; his credit card maxed out.

The dollar is falling in large part because foreigners are no longer willing to pay for all this excess...And this week, Ben Bernanke and the U.S. Federal Reserve injected a new concern into the mix – that cutting short-term interest rates could fuel inflation.

This is isn't a story about the Canadian dollar...it's all about the United States.

The greenback is tumbling against virtually every currency that isn't pegged to the dollar...

“During this period of extreme turbulence, when our attention is riveted on near-term events, it's easy to miss the startling fact that since Bretton Woods ended, the U.S. dollar has never been this low,”...

Over the past five years, the dollar has lost roughly a quarter of its value...the United States could even cede its role as the world's reserve currency...

This week, Saudi Arabia opted not to match the lower U.S. interest rates, even though...the riyal – has been pegged to the dollar since 1986. The move suggests the Saudis may soon abandon the peg, setting off a stampede out of the U.S. dollar by oil-rich Gulf states...

Two of Saudi Arabia's neighbours, the United Arab Emirates and Kuwait, have already said they want to cut their U.S. dollar reserves...
“Because the oil-rich nations are paid in an increasingly falling U.S. dollar, their purchasing power diminishes and their imported inflation surges,”...“Economic realities are making the current arrangement increasingly untenable.”

There is an estimated $3.5-trillion (U.S.) of Arab money parked in U.S. dollars. If Saudis and their neighbours decide they no longer need to hold U.S. dollars (or price their oil in dollars), the greenback's decline could become a rout.

In an ideal world, a lower dollar should eventually ease the U.S. trade deficit...But at more than 5 per cent of gross domestic product, the trade and current account deficits remain exceptionally high by historical standards.

...Together, China and oil account for roughly 80 per cent of the U.S. trade deficit.

So unless the price of oil falls substantially or China moves quickly to revalue the yuan, the trade deficit is fated to remain high – even as the dollar falls.

It looks like a deep pile of doo-doo for the US economy (and GM went on strike today), and there have been rumblimgs of pricing oil in Euros for some time (some say that that was a big motivator for invading Iraq), and it looks as if that might be closer to a reality every day.

The Iranian President addresses the UN today, Harper? Hmmm. North-west Passage. Alberta oil reserves. High loon. Over-extension of the US military. Blackwater kicked out of Iraq. Big history in the making?