For many Latvians, drastic economic conditions mean they have to turn to charities for survival. Formerly the fastest growing European economy, today the only thing thriving is unemployment, and recovery is a promise many believe the government is incapable of keeping.

Can this be a view of the West’s future if things continue on their downward slide?

The global financial crisis is playing out like a slow-moving, highly predicable stage play. In the current scene, Western governments are caught between the demands of entitled welfare beneficiaries and the anxiety of bondholders who fear they will be stuck with the bill. As the crisis reaches an apex, prime ministers and presidents are forced into a Sophie’s choice between social unrest and bankruptcy. But with the “Club Med” economies set to fall like dominoes, the US Treasury market is not yet acting the role we would have anticipated.

Our argument has always been that the US benefits from its reserve-currency status, allowing it to accumulate unsustainable debts for an unusually long period without the immediate repercussions of inflation or higher borrowing costs. But this false sense of security may be setting us up for a truly monumental crash.

There is fresh evidence that time is running out for the dollar-centric global monetary order. In fact, central banks outside the US are already making swift and discrete preparation for a post-dollar era.

To begin, the People’s Bank of China has just this week decided to permit a wider trading range between the yuan and the dollar. This is the first step toward ending the infernal yuan-dollar peg. While the impetus behind this abrupt change remains a mystery, I have a sneaking suspicion that, as my colleague Neeraj Chaudhary explained in his commentary last week, the nationwide labor strikes were a prime motivator.

In response to the 2008 credit crunch, the Fed printed so many dollars that the People’s Bank of China was forced to drive Chinese inflation into double digits to maintain the peg. The pain has fallen on China’s workers, who have seen their wages stagnate while prices for everything from milk to apartments have skyrocketed. This week’s move indicates that, regardless of its own policy motives, the Communist Party can no longer afford to keep pace with the dollar’s devaluation. The result will be a shift in wealth from America to China, which may trigger a long-anticipated run on the dollar, while creating investment opportunities in China.

Just days before China’s announcement, Russian President Dmitry Medvedev rattled his monetary sabre by telling the press of his intention to lead the world toward a new monetary order based on a broad basket of currencies. Giving strength to his claim, the Central Bank of Russia announced that it would be adding Canadian and Australian dollars to its reserves for the first time. Analysts suggest that the IMF may follow suit. While Russia floats in the limbo between hopeless kleptocracy and emerging economy, it does possess vast natural resources and a toe-hold in both Europe and Asia. In other words, it will be a strategically important partner for China as it tries to cast off dollar hegemony.

Speaking of Europe, the major powers there are moving toward a post-dollar world by rejecting President Obama’s calls to jump on America’s debt grenade. The prescriptions coming from Washington translate loosely to: our airship is on fire, so why don’t you light a candle under yours so that we may crash and burn together. Given that dollar strength is largely seen as a function of euro weakness (as Andrew Schiff discussed in our most recent newsletter), debt troubles in the eurozone’s fringe economies have created a distorted confidence in the greenback. However, as you might imagine, Europe has higher priorities than being America’s fall guy. Led by an ever-bolder Germany, the European states are wisely choosing not to throw themselves on our funeral pyre, but to wisely clean house in anticipation of China’s rise.

In another ominous sign for the dollar, the Financial Times reported Wednesday that after two decades as net sellers of gold, foreign central banks have now become net buyers. What’s more, more than half of central bank officials surveyed by UBS didn’t think the dollar would be the world’s reserve in 2035. Among the predicted replacements were Asian currencies and the euro, but – by far – the favorite was gold. This is supported by Monday’s revelation by the Saudi central bank that it had covertly doubled its gold reserves, just about a year after China made a similar admission. There is no reason to assume these are isolated incidents, or that the covert trade of dollars for gold doesn’t continue. To the contrary, this is compelling evidence that foreign governments are outwardly supporting the status quo while quietly preparing for the dollar’s almost-inevitable devaluation. What people like Paul Krugman believe to be a return to medieval economics may, in fact, be the wave of the future.

In peacetime, hardened troops will likely tolerate a blowhard general for an extended period; but when the artillery opens up with live ordnance, an ineffectual leader risks rapid demotion. The newspapers are now riddled with hints that foreign governments have lost faith in Washington and the dollar reserve system. It seems to me only natural that after a century of war, inflation, and socialism, the next hundred years would belong to those people who hold the timeless values of hard money and fiscal prudence. Unfortunately, our policymakers are not those people.

John Browne is senior market strategist for Euro Pacific Capital.

Sen. Judd Gregg (R-N.H.), along with other members of Congress and leading financial experts, is warning that the United States is in danger of being in the same dire situation as Greece – national bankruptcy — in seven to 10 years unless the federal government radically curtails spending.

Last month, Gregg, the ranking Republican on the Senate Budget Committee, said the United States will “essentially be where Greece is in about seven years.”

“If we continue to spend much more than we take in,” he says. “We’ll double our debt in five years and triple it in 10 years and essentially be where Greece is in about seven years,” Gregg told the Fox Business Network in May.

Rep. Paul Ryan (R-Wis.), the ranking Republican member of the House Budget Committee, has also said that the United States has been making decisions similar to that which caused Greece’s debt crisis.

“We’re on this trajectory where we will have more takers than makers in society. We’re going to have more people taking from government than living on their own, paying taxes and contributing into it. That is a dangerous position to be in, that’s the position Greece is in,” Ryan said in a radio interview on News/Talk 1130 WISN in May.

Brian Riedl, lead budget analyst at The Heritage Foundation, agrees that unless the federal government radically curtails spending, a debt crisis as severe as or worse than that now happening in Greece will erupt in the United States in as soon as seven to 10 years.

“We can say that we will be at about the Greek level of debt probably in the next seven to 10 years,” Riedl told CNSNews.com. “There is no reason that with the same economic policies at the same level of debt, that the United States won’t face the same economic and financial crisis as Greece.”

But for Reidl, who recently issued his own report on federal spending, seven to 10 years may be too optimistic.

“It’s very tough to predict when a financial crisis will hit, because much of it depends on bond market psychology,” Reidl said. “As soon as the bond market decides the U.S. may not be able to fully service its debts, they will respond with a flight from our currency. When the bond market makes that decision is really anybody’s guess. It could be two to three years from now, it could be 10 years from now.”

Given the relative economic strength of the United States compared to many other nations, and President Obama’s promises of job creation thanks to the Recovery and Reinvestment Act, it may strike some as unfathomable that the United States could sink to the level of Greece’s economy.

Still, the current numbers are frightening. The U.S. national debt now stands at more than $13 trillion, according to the U.S. Treasury Department. In addition, the estimated U.S. federal deficit in 2009 was $1.5 trillion.

In order to compare the economic situations between countries, economists often look at the figures as a percentage of each country’s Gross Domestic Product (GDP). GDP represents the value of all of the goods and services produced by a country within a given year.

When Greece started to admit its debt problems last November, the government estimated its deficit last year was 12.7 percent of its GDP – a figure that Eurostat, the European Commission’s official statistics agency, said was too low and which it revised to upward 13.6 percent. … Continue Reading

While Thailand’s “Red Shirt” rural poor have been in bloody confrontation with troops in central Bangkok for nearly three months, there have been similar rebellions all over Asia by people who believe they have been left out of, or excluded from, the region’s economic miracle

Maoists Demonstrate in Kathmandu

On Monday, India’s Maoist rebels known as Naxalites ambushed a bus and killed 24 civilians and 12 special police officers.

Early in March, guerrillas of the Philippines’ Maoist New People’s Army killed 11 soldiers in an ambush.

At the beginning of this month, 100,000 Maoists from rural Nepal invaded the capital Kathmandu and brought the city to a halt as they demanded the government be replaced.

The Maoists, who won power in 2008 elections after a long civil war and subsequently withdrew from a coalition government, are now preparing for May 28, when the political dispensation expires.

And, of course, in China there have been the usual “mass incidents,” which average over 250 a day, as rural and urban poor protest the predations and sheer thievery of corrupt Communist party officials and their entrepreneur allies.

Some of these uprisings are holdovers from a previous age. The Philippines’ rebellion by the New People’s Army, for example, is about to celebrate its 41st anniversary and has its roots even further back than that in the fight against the Japanese occupation during the Second World War.

What these uprisings have in common, however, is a reaction to the massive inequality and disparity between the poor and the wealthy elites that have grown up since Asia set out on market economy reforms 30 years ago.

Even where there have not been sustained insurrections, such as in Indonesia and Malaysia, there has been civil unrest in protest at inequity and the perceived efforts by ruling cliques to limit democratic reform.

Organizations such as the Asian Development Bank have warned again and again of the potential in many regional countries for social upheaval stemming from the gap in investment between the urban and rural areas.

In several reports over the years, the bank and other international organizations have catalogued dangerously widening rifts between the expectations and quality of life between the cities and the countryside.

In most cases, these divides have arisen because the political classes and their allies have been fixated on crude economic growth and the benefits to their partisan interests.

There has been little attention to institution-building or ensuring benefits flowed to the most vulnerable and disadvantaged members of society.

In India this neglect has led to the Naxalite insurgency, which started as a peasants’ revolt in the West Bengal village of Naxalbari 40 years ago, becoming by far the greatest security threat to the nation.

We hear a lot from India about Muslim terrorists, homegrown or from Pakistan, and separatists in Kashmir. These do not begin to match the threat posed by the Naxalites who now operate in 20 of India’s 28 states and control large areas of eastern India.