By Dave Lindorff

What nobody in the corporate media is mentioning amid all the
blather about the $700-billion Paulson bailout proposal is the impact
it will have on the US dollar.

We are told that this huge gift to the financial sector—the
assumption, at top dollar, of all the bad debt they’ve piled up--will
be at taxpayer expense, but that’s only the half of it. (Really only
the quarter of it because since the US government is technically
bankrupt already, spending more than it takes in each year, all that
money will be borrowed, and will be added to the national debt, meaning
that just as the real cost of the $500-billion Iraq War is closer to $2
trillion, the real cost of the $700 billion bailout will be more like
$1.5-2.5 trillion.)

But besides the direct bill handed to taxpayers for this gigantic
con, there is the fact that adding that much to the national debt is
also going to drive the dollar down precipitously against foreign
currencies. We’re already seeing that happen, even while they’re just
talking about the bailout. The dollar is falling against all major
currencies—the Euro, the Yen, the Renminbi and the British pound. And
it will continue to fall as the details of the bailout come out.

This will add to already powerful pressures in countries like Saudi
Arabia and China, which hold huge quantities of US dollars and US
dollar-denominated debt, to shift out of dollars and into other
currencies—particularly the Euro and the Yen. Last week, an article in
China’s People’s Daily, which like Pravda in the old Soviet Union, is
the official voice of the leadership in China, called for just such a
move. Russia is also calling for an end to the dollar as the
underpinning of the global economy.

For some years now, many economists have been predicting an end to
the dollar as the world’s reserve currency, but this latest plan by the
US Treasury will push such a shift forward from “some day” to “now.”

As long as the dollar has been the reserve currency—the currency in
which key commodities like gold or oil were priced, and the currency
that exporting nations stocked in their treasuries as a store of value
– it was protected against collapse. But once it loses that status,
there will be nothing to prop it up any longer, and it will quickly
slide to a value that it deserves. We got an inkling of what is going to happen today, as crude oil
prices leapt in the course of one hour by 25%, the biggest jump in the
history of the oil market. This was purely a move caused by loss of
confidence in the dollar. There was no oil supply disruption. In fact,
demand for oil has been sinking as the economic crisis grows. Oil
producers and traders simply realized that the dollar is going poof, so
they radically jacked up the cost of oil in dollars.

If you want to see what where the dollar is headed,, look to the
currencies of the debtor nations—countries like Mexico or perhaps
Mozambique. A nation that makes almost nothing, and that imports most
of its needs, cannot have a strong currency.

This might not matter much if we had a functioning domestic
economy, where people could find the goods and services they needed
without turning to sources from abroad. A big country like the US could
simply turn inward and function on by its own domestic economic
standards.

I remember back when the former Soviet Union was in a state of
economic and political free fall in the early and mid 1990s, the
currencies of the constituent countries, like Russia, Ukraine and
Belarus had had collapsed to virtual worthlessness on the international
market. A Byelorussian friend, an engineering professor from Minsk,
living and working near me in China at the time, explained that
although when he traveled the world, he felt like a pauper, things
weren’t so bad back home Belarus, where he and his family would go in
the summer. “My apartment only costs a few dollars a month to rent,” he
explained, “and our food is bought on the local market using rubles, so
it is very affordable.” The same was true for other needs, like
clothing and books for school, he explained. The only problem was
buying gas for his Russian Volga. “Gas,” he explained, “is priced as an
international commodity, so it takes me one month’s wages in Belarus to
buy the gas to drive once to and from our country dacha.”

You can start to see the problem. Since agriculture has been killed
off in most of the US, in favor of giant agribusiness enterprises
situated in the western part of the country and some parts of the
Midwest, most people elsewhere will not have local produce available,
and the cost of transporting food from California to places like New
York or Pennsylvania will be prohibitive once the dollar collapses,
since oil is priced internationally. Meanwhile, goods like TV sets,
computers, phones, cars (or at least the key components of cars),
clothing, etc., are no longer even made in the US, and will thus be
completely unaffordable. As for the service jobs that are supposed to
have replaced our old manufacturing sector, no one will be interested
in buying what they’re offering, because they’ll be scrimping just to
buy the key staples they need to survive, so of course joblessness will
soar.

Eventually, of course, entrepreneurially minded people will begin
establishing local farms again where they once flourished generations
ago, and small factories will be built to provide key essentials, but
all this will take time, and will have to cater to a market of people
operating at a much lower standard of living.

The banking sector, meanwhile, which is the proximate cause of this
monumental disaster, won’t mind any of this, for it will continue
operating on the international stage, shifting its focus to lending
money (no longer dollars, though), to growing economies in Asia and
Latin America and eastern Europe. And this is what, in truth, the
“rescue” of Wall Street is all about.

It’s not about saving Main Street, as Paulson claims. Main Street,
under the bailout, is toast. It’s about helping the banks and
investment banks and insurance companies that brought on this crisis to
ride it out in style, their astronomical losses bankrolled or absorbed
by the American public, so that they can shift their operations
overseas and continue with their rape and pillage of the global economy.

The US will be left behind, a smoking ruin, with Americans, like
Weimar Germans before them, going shopping with wheelbarrows full of
worthless green paper to exchange for a few days’ groceries.
_____________

DAVE LINDORFF is a Philadelphia-based journalist and columnist.
His latest book is "The Case for Impeachment" (St. Martin's Press, 2006
and now available in paperback edition). His work is available at www.thiscantbehappening.net