The Battle of the Giants—Who Will Win?

Seemingly unnoticed, a titanic battle is underway between the world’s most powerful economies. U.S. overspending and a calculated gamble to take advantage of a devalued dollar is forcing other nations—the EU included—to pay the tab.

by Melvin Rhodes

It was a major crisis. Our business was closed down for a day by government decree. All employees had to work late to handle the constantly changing situation.

At the time I was working for a major British bank. It was November 1967 and the government then in power had announced on a Saturday night that the British currency, the pound sterling, was to be devalued by approximately 14 percent. Prior to that date, the pound had been valued against the U.S. dollar at $2.80 to the pound; now it would be $2.40. Regular television programs were interrupted in peak time to give this news.

The American dollar as of May 27, 2003, had fallen over 14 percent against the euro this year. Include last year and it has fallen about 45 percent (from 82 U.S. cents to the euro to over $1.18 at the end of May). But in sharp contrast to my experience in 1967, banks are not being closed and you don’t hear about people being asked to do endless hours of overtime. Additionally, little attention has been given to this "news" in the American media.

In stark contrast to Britain in 1967, where only the most reclusive or clueless citizen would not have been aware of the currency’s fall, few in America seem aware at all of the international crisis of confidence in the American currency.

Why the difference?

During the 1960s and into the 1970s Britain staggered from one economic crisis to another. Strikes were rampant, the trade deficit ballooned and the British currency continued to fall. All the former British colonies, except Canada, plus Jordan (one quarter of the world’s nations) used the British currency for their international trade. This trading bloc was known as "the sterling area." Its existence took considerable pressure off the dollar. The two currencies had been the world’s reserve (trading) currencies since the 1946 Bretton Woods agreement that set up the postwar economic order. It was absolutely essential that these two currencies be stable for international trade to bloom.

Read the full article at www.wnponline.org/wnp/wnp0307/index.htm

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