A Coke Costs $8 in the UK -- Europeans are Having a Ball in U.S. Shopping Malls

"A Coke Costs $8 in the UK -- Europeans are Having a Ball in U.S.
Shopping Malls". That's according to a report on CNN a couple of days
ago.

"Last week, the US dollar fell to an all-time low against the Euro, a
new milestone in a steep decline that began more than six years ago.
The Euro hit a record high of $1.3682 on April 27th, up from $1.20 a
year ago and as little as 83 cents in October 2000, when the rally
against the dollar began. The British pound is hovering near $2 area,
and the Australian dollar fetches 82.50 US-cents, both at 15-year
highs.

Since the beginning of the year, 50 of the world's currencies have
risen against the dollar while only eight have declined. Behind the
falling US dollar is a changing global economy. China and the US are
the locomotives in the global economy, accounting for 60% of all the
global growth in the last five years. But now, the $12.5 trillion US
economy is sputtering, due to a slumping housing sector, while the
$2.5 trillion Chinese economy is overheating, expanding at a
blistering 11.1% pace in Q'1

India's elephant, China's dragon, and other dynamic economies, such as
Russia and South Korea are expected to contribute more than 50% to
world economic growth in 2007, with China's contribution alone being
30% and India's 10%. In comparison, the US contribution to world
growth is expected to fall to 12%, after its economic output halved to
1.3% in Q'1, the smallest gain in four years.

Every time US year-on-year GDP growth has dipped below 2% since 1960,
a full-blown recession unfolded. In contrast, the Euro zone economy is
expanding at a 2.6% clip, its best performance in six years, and the
European Central Bank is aiming to lift its interest rate in June,
thus making the US dollar less attractive next to the Euro. As such,
many foreign central banks have been reducing their exposure from the
US dollar to the Euro and British pound over the past year. . .

"Axis of Oil" Chipping away at US Dollar's Base of Support

The "Axis of Oil" led by Russia, Iran, and Venezuela, is slowly
chipping away at the US dollar's status as the world's "reserve
currency." Russia, the world's second largest oil exporter demands
rubles in exchange for its Urals crude oil, and Iran, the world's
fourth largest oil exporter is earning most of its revenues in the
Euro. Venezuela's central bank began shifting its FX reserves to Euros
in 2005.

The "Axis of Oil" seeks to draw China into its sphere, exploiting
China's huge thirst for oil. Iran became China's top oil supplier in
January, providing 2.14 million tons of crude, up 13% over the same
month last year, and tripling that of December's supply of 740,000
tons. China aims to establish 625 million barrels of strategic
petroleum reserves to be able to cover 90 days of net oil imports by
2015.

China's state-run Zhuhai Zhenrong, the biggest buyer of Iranian crude
worldwide, began paying for its oil in Euros late last year. Japanese
refiners who buy 500,000 bpd of Iranian crude, or a fifth of Iran's
2.4 million-bpd shipments, continue to pay in dollars but are willing
to shift to yen if asked.

A major share of global trade in commodities belongs to crude oil,
which is widely transacted in US dollars. That forces oil importers
and central banks to buy US dollars, regardless of the direction of US
interest rates. Last month, world-wide oil consumption rose to 85.5
million bpd. By 2030, crude oil demand is expected to reach 118
million bpd, so the dollar-crude oil link is vital to maintain the
dollar's "reserve currency" status, and allowing America to live
beyond its means.

Right now, the only serious threat to the US dollar's international
dominance is the Euro. The gross domestic product of the Euro zone is
roughly the same as that of the US, and its population is 60% bigger.
Europe is the Middle East's biggest trading partner, is a major oil
importer, has a comparable share of global trade as the US, but its
external accounts are much better balanced. The Euro zone ran a
current account deficit of only 3.2 billion euros ($4.2 billion) over
the past 12-months.

But the "Axis of Oil" could topple the US dollar, if it demands
payment for oil sales in Euros. In November 2000, Saddam Hussein
insisted that Iraq's oil be paid for in Euros. When the value of the
Euro rose, Iraq's oil revenues increased accordingly. The economic
threat this represented to the US dollar might have been one of the
reasons why the Bush administration was so anxious to topple Saddam.

Russian Bear Leads the Assault on the US Dollar

But a greater threat to the US dollar's hegemony is the "Axis of Oil."
Russia is the #1 producer of natural gas and the #2 producer of crude
oil and much of its vast energy assets are still under exploration.
Each up-tick in the oil price pumps billions of additional dollars
into the Kremlin's coffers. One year ago, on May 10th, Russian kingpin
Vladimir Putin declared that Russian Urals blend crude oil would be
traded for Russian rubles, instead of US dollars, and made the ruble
fully convertible.

One month later, on June 8th, 2006, the Russian central bank said it
had cut the share of US dollars in its reserves by 5% to 50% and
boosted the Euro's share to 40%, with the rest in sterling and yen.
Due to soaring oil revenues and an appreciating Euro, Russia's foreign
exchange reserves have mushroomed to $361 billion today, the third
largest in the world, behind China and Japan. . ."
http://www.marketoracle.co.uk/Article903.html

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". . .The U.S. is starting to look like it is entering just such a
death spiral. It is foretold not simply by the large and growing
deficits, nor by the fact that their carrying costs will rise quickly
as interest rates rise. Rather, it is the fact that these trends are
becoming irreversible, a structural part of the U.S. economy.

When the ultimate collapse will occur, whether it comes with a bang or
a whimper, how it will be triggered, and how severe it will be are as
yet unknown. But as Herbert Stein, Chairman of the Council of Economic
Advisers under Richard Nixon was fond of saying, "Things that can't go
on forever, don't."

The first signs of impending trouble are the exploding budget deficits
themselves. They began, of course, under the parlous economic
stewardship of Ronald Reagan. Reagan cut the marginal tax rate on the
wealthiest of Americans from 70% to 38%. He promised it would spur an
orgy of investment and rocket the economy to new levels of production
and prosperity. Instead, his "supply side economics" did the exact
opposite. It produced the deepest recession since the Great
Depression.

Output fell 2.2% in 1982 while budget deficits soared. When Reagan
took office in 1981, the national debt stood at $995 billion. Twelve
years later, by the end of George H.W. Bush's presidency, it had
exploded to $4 trillion. Reagan was a "B" grade movie actor and a
doddering, probably clinically senile president, but he was a sheer
genius at rewarding his friends by saddling other people with debts.

Bill Clinton reversed Reagan's course, raising taxes on the wealthy,
and lowering them for the working and middle classes. This produced
the longest sustained economic expansion in American history.
Importantly, it also produced budgetary surpluses allowing the
government to begin paying down the crippling debt begun under Reagan.
In 2000, Clinton's last year, the surplus amounted to $236 billion.
The forecast ten year surplus stood at $5.6 trillion. It was the last
black ink America would see for decades, perhaps forever.

George W. Bush immediately reversed Clinton's policy in order to
revive Reagan's, once again showering an embarrassment of riches on
the already most embarrassingly rich, his "base" as he calls them. He
ladled out some $630 billion in tax cuts to the top 1% of income
earners. In true Republican fashion, they returned the favor by
investing over $200 million to ensure Bush's re-election. Do the math.
A $630 billion return on a $200 million investment: $3,160 for $1.
I'll give you $3,160. All I ask is that you give me $1 back so I can
keep the goodness flowing. Do we have a deal? Republicans know return
on investment.

But the cost to the public has been a return to the exploding deficits
of the Reagan years. Bush blew through Clinton's surplus in his first
year. The 2004 deficit reached $415 billion, a record. Still, its real
size is masked by the fact that Bush has shifted $150 billion from the
Social Security trust fund in order to make the shortfall look
smaller. It's like pretending you're richer when you move money from
one pocket to another. Both sums have to be repaid, so the real amount
borrowed is the $415 billion "nominal" deficit plus the $150 billion
from Social Security or $565 billion. . ."
http://www.commondreams.org/views04/1022-26.htm

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When Bush leaves office, he's not only going to leave us with the mess
in Iraq, he's also going to leave us holding the bag for huge deficits
and some serious economic problems.

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