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Sol Sanders Archive
Wednesday, September 21, 2011     INTELLIGENCE BRIEFING

In troubled times, a little common sense, the U.S.
and (yes) the dollar

It’s U.S. politicking season, a European financial crisis blossoms, Chinese domestic turmoil escalates, Japan is lapsing into catatonia, India is returning to torpidity — not an easy time to call on common sense. But nothing is more necessary when examining the roller coaster markets and, even more, the pronunciamiento of talking heads who have burned out their synapses.


No, it is not by any means the first nor the most notorious time when American politicians have called each other nearly unprintable names, contradicted themselves, misquoted their opponents and played “dirty tricks”. [How about Thomas Jefferson’s lieutenants “leaking” details of Secretary of the Treasury Alexander Hamilton’s 1792 adulterous affair with the wife of a United States Treasury employee, a blow in the contest between two Founders.]

Nor is the debate over current issues [and they are indeed arguments over fundamentals, not just partisan squabbling as President Barack Obama sanctimoniously pretends] any clearer or less critical to The Republic than similar arguments over the last 200 years. [Although debate had begun during the Civil War and the financial panic of the 1890s, the four-year fight over the income tax brought out every rampaging political, economic and regional complaint and spokesman before the constitutional amendment was shakily ratified in 1913.]

Also In This Edition

Cutting to that other but unfortunately linked chase, we find the Euro crisis is about fundamental European politics not just economics. The European Union, and therefore, the Euro, was concocted top-down by visionary politicians and consummate bureaucrats. They did not arise from studied compromises among Europe’s incredibly diverse societies as did the American union in the 1787 Philadelphia Convention. Now those differences have reasserted themselves because nanny governments chose burdens even their remarkable economies could not afford.

European opinion is divided mainly among those who want further economic integration and that majority who want to continue band-aid approaches. The latest flavor is moving national indebtedness into Eurobonds, which in effect, is a sugar-coated way of creating a “commonwealth” in which the reluctant northern Europeans, personified by the Germans with their disproportionately large economy, would pick up the tab for their lesser endowed neighbors.

A third position, abandoning the Euro, at least for bankrupt southern members of the common currency, is still largely seen as “unthinkable”. But it grows closer — if for no other reason than fierce austerity now forced on the Greeks from Brussels is not sustainable by any Athens government for the time needed to solve the basic problem of a 15-20 percent gap between consumption including public services and Greek workers’ productivity. So coming down the road could well be a choice between abandoning the Euro — with growing implications for the grander European Union structure as the crisis perpetuates — or watching social tension in the Mediterranean countries, as in the 1930s, lead to authoritarianism.

The latest fairy tale, of course, is that the Chinese with their over $3 trillion in foreign reserves are going to bankroll Europe. [It’s good to remember that this, too, is a pot of accumulated American debt.] Yes, it is true Beijing looks for an alternative world reserve currency. Yes, the Chinese would like to get away from a dollar losing purchasing power in no small part because of “quantitative easing” by Federal Reserve Chairman Ben S. Bernanke and an Obama Adminsitration restrained in “stimulus” spending only by a Republican House of Representatives.

However, the just announced joint central banks emergency three-month dollar loans to rescue European banks, hoping to calm the markets faced with a possible Greek default, confirms Beijing doesn’t really have a choice. If you were running the Chinese dollar hoard, would you now see the Euro as an alternative, even were its coffers large enough to hand such a “dump”? Picking up equity bargains among old if threatened European luxury brands [Club Med appeals to the new Chinese kleptocrats] is great fun if sometimes risky. But U.S. Treasuries bringing their lowest return in 70 years tells you what the Chinese and the rest of the world know: even with the circus in Washington: the U.S. and its dollar still remain the last, faint hope of the international investor.

So, as old Rudyard said:
If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too…

Sol W. Sanders, (, writes the 'Follow the Money' column for The Washington Times . He is also a contributing editor for and An Asian specialist, Mr. Sanders is a former correspondent for Business Week, U.S. News & World Report and United Press International.

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