A CURRENCY IN DECLINE
SPIEGEL Magazine
By Christian Reiermann

A sea change appears to be taking place on the international financial markets. For years, global capital flowed in only one direction, with $2 billion going into the United States every day. Investors viewed the world's largest economy not only as a bastion of stability, but also as a place that promised the best deals, the most lucrative returns and the highest growth rates. The Americans, for their part, welcomed foreign investment. For them, it was almost a tradition to save very little and spend more than they earned -- essentially achieving affluence on credit. Foreigners financed the Americans' almost obsessive consumer spending, which spurred worldwide economic growth for years.

If German cars, machinery and services become more expensive, will the German economic recovery end before it has really started? The German government isn't worried yet, at least not officially. Nevertheless, experts in the finance and economics ministries have been keeping a close eye on developments. Although they continue to believe that the changes still fall within the scope of long-term averages, they don't rule out that the situation could worsen.

The decline in the dollar also has its advantages. For Germany , the greatest advantage is that Germans pay less for oil. The oil price is mainly set in dollars worldwide. If the dollar declines, the same amount of oil costs Europe fewer euros and the money the Europeans save can be spent on other goods.

A similar dynamic applies to exports from the dollar zone. If the decline in the dollar continues, computers, software licenses and machinery from the United States will become less expensive. Both developments would represent a windfall for companies and people in the euro zone, because the same amount of money would buy more goods.

The perils of a currency crash are not nearly as great as they were in the days of the dollar's absolute dominance 30 or 40 years ago. Globalization has led to the development of a number of growth centers in the world economy which share the burden of turbulence. Gone are the days when an American finance minister could boast: "The dollar is our currency, but it's your problem."

On December 17, 2006 Chinese told the visiting Bush administration officials they intend to dump One TRILLION U.S. Dollars from China 's Currency Reserves and convert those funds into Euros, gold and silver! They will not sit back and lose their shirts as U.S. Dollar collapses; they are getting out fast and large. China told the U.S. delegation they no longer have faith in U.S. Currency for several reasons.

1) The Federal Reserve Bank ceased publishing "M3" data in March, making it nearly impossible for anyone to know how much cash is being printed. China said this act made it impossible to tell how much a Dollar is worth.

2) The U.S. Dollar has lost upwards of thirty percent (30%) of its value against other foreign currencies in the recent past, meaning China has lost almost $300 Billion simply by holding U.S. Dollars in its reserves.

3) The U.S. has no plans whatsoever to reduce deficit spending or ability to pay down any of its existing debt without printing money to pay it off.

For these reasons China has decided to implement an aggressive sell-off of U.S. Dollars before the rest of the world does so. China reportedly told the US delegation; "we are the largest holder of U.S. Currency and if the rest of the world unloads theirs before we unload ours, we will lose our shirts." Early this week, in an unusual move, the Bush administration sent virtually the entire economic "A-team" to visit China for a "strategic economic dialogue" in Beijing Dec. 14 and 15.

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