US risks a downhill dollar disaster

[CHIMO]

George Bush's foreign policy is simple: don't mess with America. The same, it appears, applies to economic policy as well. On Friday, the dollar fell sharply against the euro. That was unsurprising, since the downward lurch followed comments from Alan Greenspan which - by his own cryptic standards - were unambiguous.

Europe got the message. Eurozone policymakers are growing increasingly alarmed about the fall in the value of the dollar, since it threatens to choke off exports - the one area of growth in the 12-nation single currency zone. They would like nothing more than to wade into the foreign exchanges in concert with the Fed and the central banks of Asia to put a floor under the greenback, but they know that Washington has no interest in such a move.

According to this interpretation, the Americans are now simply bowing to the inevitable. Stephen Lewis, of Monument Securities, says the markets have finally lost patience with the laxity of Washington towards the twin trade and budget deficits, pumped up by cheap money and tax cuts. "The truth is that the US fiscal and monetary excesses, which have been essential to keeping the global economy afloat in recent years, are no longer tolerated in the foreign exchange markets," he said. "The status quo is not an option. The only question is how the pain of adjustment will be apportioned."

Washington, in other words, is relying on a soft landing for the dollar. History shows, however, that there is a better than even chance of this process ending in a full-scale crisis, as it did in the mid 1980s, when the weakness of the dollar culminated in the stock market crash of 1987. And that, of course, was at a time when the G7 was acting in concert. As Lewis said, the crisis could be triggered by a seemingly minor event, as when the Nigerians precipitated the run on the pound in 1976 by switching into dollars.

http://www.guardian.co.uk/business/story/0,3604,1356683,00.html

They make the story and others write about it. Well when it comes to $$ maybe others will make the story?

[matt819]

1. All politics is local

Same with economics, I suppose. My business relies almost exclusively on imports from Europe. While the weak dollar hurts European exports, it also hurts American businesses.

Since we're not a multinational, we don't seem to count.

[Warpy]

2. We'll have to wait and see what happens at the next round

of bond auctions. If no other countries want to assume an increase in US national debt, this country will have to start getting its financial house in order.

Bush, being an idiot, will probably try to raise taxes on the poorest. In the meantime, the job market will continue to contract as people who spend money have less of it to spend, thus reducing demand for goods and services. That will increase the rate at which incoming revenue declines, and with that the country will be verging on bankruptcy.

How slow or rapid a slide this might be is the only speculation left. We know it will happen. We just don't know how rapidly it will happen. Hot air and wishful thinking have been powerful forces thus far. We'll have to see if the financial leaders of the world remain as delusional as Bush's followers are.

[stopbush]

3. The one thing we can be certain of: more tax cuts for the rich.

It will go something like this:

1. We've gotta spend the money to fight the terrarists. Don't forget we inherited a recession.

2. Deficits don't matter. That's just those furriners complaining because *their* citizens are buying American goods like crazy.

3. We're givin more tax cuts. You need the money NOW.

4. Oops. Looks like we got a big problem on our hands in...er, Iran. War 2, here we come.

5. We want to help the economy, but those damn Dems are blocking all our well-intentioned plans in Congress. They hate the little guys. (RW echo chamber slams into gear). The best way to help us get your money to you is to vote out these remaining Dems in '06.

6. Don't worry, Jeebus is coming back soon...

[neverforget]

4. This gives the Right an excuse to do wha they've always wanted

to do: eliminate social programs and non-defense/security spending.

[indepat]

7. We the people will have richly earned the inevitable consequences stemming

from the known policies and actions of its elected government and the policies and actions surely to follow. Let the party begain and, for God's sake, let there neither be whining, wimpering, knashing of teeth, nor complaining over these inevitable consequences.

[Fovea]

9. Don't you wonder

what the tipping point will be?
I figure when the keep withdrawing SS while cutting benefits to nothing.

Or maybe when Aunt Millie dies on the street from pneumonia or malnutrition. She will go to her unmarked pauper's grave carried by six Enron energy traders.

[muriel_volestrangler]

5. Here's a quote to give you confidence

"It has to be acknowledged, however, that you would be hard pressed to find a financial analyst who believes Snow is capable of this level of sophistication. After his performance in London last week, one said: "I would sell the currency of any country of which he was the finance minister." "

[Blue Wally]

6. Would a dollar meltdown be bad????

Suppose the dollar declined precipitously against other currencies?? Would this necessarily be a bad thing??

1. American workers would become more competitive thus slowing the movement of jobs overseas.

2. Foreign industries would build more US assembly plants as the japanese did when the dollar moved against down the yen in the early eighties.

3. Imports would become more expensive thus inducing more of us to "buy American".

4. Oil import prices would spike making domestic exploration/exploitation and alternative energy more competitive.

5. Farm exports would increase reducing our need for farm subsidies.

[Lydia Leftcoast]

8. That's the theory, but in fact, previous dollar devaluations have

raised the price of foreign raw materials, raised the price of oil (which is already going up), and induced corporations to go even lower-waged countries (e.g. from Mexico to China) to do their manufacturing instead of keeping it in the States. At this point, not much is manufactured in the U.S. compared to what was manufactured here 20 years ago.

Previous devaluations made the U.S. a more attractive destination for tourists, but I wonder if that would still be true, seeing that Bushboy has alienated the whole world. Even a foreign tourist who did decide to come here on vacation might be scared off if he or she encountered a few freeperish types.

[Fovea]

10. No

Tell me that again when oil is sold in Euros, and gas is $7.76 a gallon.

[PurityOfEssence]

12. Don't be silly; that's an energy disaster, and that means economic horror

Yes, we need renewable energy, and it's the biggest problem facing the world today, but THAT TAKES TIME. A fall in the dollar will reverberate in ways people who know cringe to think about, and those who don't will tremble in awe at when it happens.

Some of your analysis is right: it'll reduce imports and outsourcing, but inflation will come back with a vengeance.

To accurately predict the forces at play, one has to factor in lag time, and for this, the energy costs will cause panic.

The cheery assumption of exports improving also takes an unseen hit: transportation costs will rise steeply, and the ill-will engendered in the rest of the world will dampen enthusiasm for our goods.

The bottom line is this: we're nowhere near as important to the rest of the world as we think we are, and if that's coupled with our perceived weakness, it could go very hard for us.

The dynamic of timing is everything, and since a major bright spot of your analysis is energy realignment, I think you're off track. Just to be a snot, too, I have to say that increases in domestic production are a fairytale. We've sucked ourselves dry. Hey, let's burn more coal! (There's at least one good outcome there: the resurgence of acid rain in the Northeast will get rid of Republicans like Collins and Snowe...)

You raise valid points, but energy's going to kill us.

Hey, energy's all the Democrats' fault anyway: Deadeye Dick couldn't pass his fabled energy bill; that would have solved everything.

[BrklynLiberal]

11. related to another thread I posted

What You Didn't Know About the Dollar & Iraq
by Mark Owen
"In November 2000 Saddam Hussein tried to barter Iraq's oil directly for euros. This would have cut America out of its enormous subsidy and started a stampede of other OPEC members to embrace the euro. This simply would not stand. 9-11 was the pretext used to boot Saddam. Bush couldn't get America's moms to sacrifice their children for dollar hegemony and the terrorist bogey was activated."


http://69.28.73.17/thornarticles/dollariraq.html

[Dancing_Dave]

13. "Don't Blame Me, I didn't vote for Bush!"

Now where can I get THAT bumpersticker?