ON FRIDAY, the exchange rate of the dollar plunged down against other major world currencies and gold rose by 1.2 per cent to $638.5 an ounce.
The euro went up 1.2 per cent reaching a 19-month high at $1.31, the yen was up 0.5 per cent and sterling up by 0.9 per cent to $1.93. The dollar dropped two per cent against the euro last week, down 10 per cent this year.
One of the triggers for the dollar drop was a statement from Wu Xiaoling, the Deputy Governor of the Bank of China, who said that the dollar’s recent decline increased the depreciation risk for Asian foreign currency reserves.
China’s holds more than $1,000bn in reserves, the largest in the world, and this was a hint that China and other Asian countries may diversify their foreign exchange holdings in order to defend their purchasing power.
All commodities are priced in dollars, so their prices rise as the dollar falls and buying them with dollar holdings makes them more expensive. In the wake of Friday’s fall in the exchange rate of the dollar, not only did the price of gold go up, but copper rose by 2.5 per cent to $7,155 a tonne and oil went up by 1.1 per cent to $59.9 a barrel.
The underlying weakness of the US economy is an open secret.
It has a huge trade deficit with the rest of the world, more than $800bn so far this year, and the deficit with China is the largest.
At the same time, President George Bush’s administration is running a record budget deficit, $554bn in 2005. This is funded by both domestic and foreign investment in US Treasury Bonds. China and other Asian states are the biggest investors.
It is not only US imperialism’s trading relations with China, Japan and Europe that have undermined the dollar, because of huge trade deficits. The latest domestic indicators reveal a growing crisis in America.
It was no accident that the dollar fell on ‘Black Friday’, November 24. This is an important sales day after the Thanksgiving holiday when retailers take stock of their Christmas sales drive. The increase in sales this year is expected to be well down on 2005.
This forecast of retail sales came at the end of a month in which all key US economic indicators have been down.
On November 1, the Centre for Economics and Business Research, based in Britain, said it expected the situation in the US would be ‘one of a controlled economic slowdown’. The growth rate in the GDP fell to 1.6 per cent, the lowest level for three years.
It was also reported by the US Commerce Department that the selling price of new homes in September was 9.7 per cent down on the same month in 2005.
The slowdown in manufacturing, in the growth of GDP, falling house prices and reduced retail sales are all indications of the growing recession in the US that will hit capitalism hard throughout the world.
Stock markets, that have been propped up by low interest rates and cheap credit, reacted immediately to this situation on Friday. New York’s Dow Jones Index was down 0.38 per cent, the Nikkei in Japan dropped by 1.13 per cent and London’s FTSE100 fell 0.37 per cent.
The US economy that has been sustained by credit is turning into its opposite, an economy brought down by debt.
The dollar is world capitalism’s only trading currency and the financial crisis in the US is having a devastating effect throughout the world.
This crisis is leading to a huge sharpening of the class struggle in the US between the working class and the major corporations, backed by the Bush regime, as factories close, credit-card debts are called in and government budget cuts result in the decimation of education, health and welfare.
This world crisis will drive forward even sharper class struggles in Japan and the European Union states, including Britain, because capitalism is even weaker there.
The Bush regime is also driven to initiate even more barbaric wars by capitalism’s desperate crisis. So the Palestinian, Afghan and Iraqi peoples are being joined in revolutionary struggle by other oppressed peoples fighting imperialism.
This world capitalist crisis is driving forward the world revolution. The working class and labouring masses require the revolutionary leadership of the International Committee of the Fourth International today to overthrow capitalism and complete the World Socialist Revolution.