The more I read about the housing bubble, loose lending, consumer spending, US debt, trade deficits, outsourcing, and rising inflationary pressures, the more I wonder if the collapse of the US Dollar is upon us.

We don’t have a “resilient economy”, as Bush often states. Our good fortune is due solely to the power and benefits that go with having the world’s reserve currency.

Today, foreign central banks own $2.4 trillion USD in Treasuries. One must reasonably ask why FCBs would want to own so many Treasuries, and what will happen to the USD when they eventually start to sell some of them, or cut back on purchasing more.

The already weak USD is preventing US companies from being able to bid successfully on sales of our own companies. Thus, ownership of US companies is moving abroad. We know about offshoring, but I had no idea we were selling our business capital so quickly.
$1.3 Trillion of American companies have been sold to foreigners in the last 10 years. The Bureau of Economic Analysis will confirm that list of 8600 companies which we have sold to foreigners. Why are we selling our companies to foreigners at such a high rate? “According to the Financial Times, UK company BAE Systems is adding to its growing defense portfolio by acquiring the American company United Defense Industries, makers of Bradley tanks as well as guns and missile launchers. The offer at $4.2B trumped bids by American companies Lockheed Martin and Northrup Grumman.” The American companies were disadvantaged in their purchase offers due to the weaker dollar. To what extent has the already weakened USD given the foreign companies an advantage in purchasing American companies? Is this a bad thing?

Large chunks of American industries are already owned by foreigners. I give the list here, because I think it’s so surprising and it is evidence that the dollar is already weak.
Foreign Control of US Industry
Motion Picture and Sound Recording Industry 69%
Plastics and Rubber Manufacturing 47%
Nonmetallic Mineral Product Manufacturing 43%
Pipeline Transportation 38%
Financial Securities Companies 36%
Machinery Manufacturing 32%
Petroleum and Coal Products Manufacturing 30%
Chemical Manufacturing 30%
Mining 29%
Transportation Equipment Manufacturing 27%
Heavy Construction 22%
Publishing Industry 21%
Printing 20%
Food Manufacturing 18%
Computer and Electronic Product Manufacturing 17%
Insurance Carriers 17%
Primary Metal Manufacturing 15%
Total Across All Industries 13%

Source: Internal Revenue Service tax statistics reports on 2001 RETURNS OF ACTIVE CORPORATIONS WITH 50 PERCENT OR MORE FOREIGN OWNERSHIP and 2001 RETURNS OF ACTIVE CORPORATIONS

The final prop on the USD has been the housing market, which is running out of steam. The housing sector has been the driver of the economy for the last 3 years. Consumer spending from MEW has given America one last rush on that special tonic that keeps people in delusion. The liquidity for this last party probably came from the Central Bank printing presses. The debt for housing was packaged by Fannie Mae into MBS, and held by most Americans in their retirement fund. Fannie Mae will probably go the way of Enron. Their accounting problems are bigger than any of us can even fathom. As housing values and Fannie Mae go down, so go the retirement dreams of many Americans.

The government sees the writing on the wall. Thus, the recent warnings by the government regulators to tighten up reins at the GSEs, and warn consumers that housing is unwinding and they will do nothing about it. The government does not have a master plan. They will pick up the pieces later. And when they do, the USD will have lost most of its value and another currency will be the world reserve currency.

The USD is already weaker. When we went to Europe 3 years ago, 1 USD was equal to 1 euro. The USD has lost about 15% of its value since then. Has anyone wondered why? Has anyone wondered if the forces which caused the USD to lose value could be aggravated, to cause further devaluation, or if they can be reversed? And if they could be reversed, why hasn’t the Fed been able to steer the markets so that this happens?

Although everything is cyclical, have we had any periods of time in the last 3 years, since 1$=1euro, that the USD was worth more than the euro? Or is it always worth less?

How dependent is China on the US consumer? Since China imports almost as much as it exports, will China go into a recession when the US consumer stops shopping?

Will the US recession cause a worldwide recession? If so, what currency would emerge as the new reserve currency? The euro has a good shot at it.

Does anyone reading this have a reason that this would not happen? I would rather believe it cannot happen, and I would welcome any holes in this idea that the USD will collapse.

Does Bush, or the Fed have a plan to deal with the consequences of our big spending spree, our lavish party? Since he’s not addressing SS, Medicare, why would he bother addressing an even worse problem of the USD? Isn’t his inaction a sign of how he approaches problems: do nothing, wait for an implosion, and then pick up the pieces.