Spend it While it's Still Worth Something

"The buck slides here" seems to be this administration's variant of a famous presidential credo.

The dollar's value skidded Monday as concerns about record oil prices, the health of the U.S. economy and the tight presidential race dimmed the appeal of the buck compared with other major currencies.

The dollar dropped to a 12-year low against the Canadian dollar, an eight-year low against the Swiss franc and nearly matched its worst level against the euro since that currency was introduced in January 1999. [Dollar Hits Lows Against Key Currencies 10/26/04 subscription] (Story links open in new windows)

And this administration is encouraging the slide:

Analysts also pointed to recent comments by some U.S. and foreign economic policymakers suggesting that a weaker dollar might do more good than harm. Those comments have encouraged speculators to sell the currency, experts said. [Ibid. 10/26/04 subscription]

A weaker dollar can help in some circumstances by lowering the cost of American-made goods and increasing exports.

But that's not happening.

Instead, we're see the worst trade deficits in history. So much of what is consumed in America is imported that imports must continue in spite of the higher cost when paid for by the weaker dollar.

This is further compounded by the fact that oil is denominated in US dollars, and as the dollar slides, the oil producing nations raise their prices to keep their revenues up in terms of world currencies. Oil prices that have doubled have an effect on individuals (regular unleaded is as high as $2.999 in parts of California) and on the ability of American businesses to compete.

We - and the world - are headed for serious trouble.

Perhaps the major issue is that the deficits have been financed by foreign borrowing. Foreign countries own trillions of dollars of US debt.

Soaring trade and budget deficits have made the United States extraordinarily dependent on foreign capital to keep the economy going. A falling dollar devalues foreigners' holdings of U.S. assets — such as Treasury bonds — raising the risk that they might dump those assets rather than incur more losses on paper. [Ibid. 10/26/04 subscription]

The risk is real, and if they do start dumping their assets, a recession is a distinct possibility, with consequences for the entire world. (Bushonomics: Not Conservatism But Feckless Fiscal Folly 10/22/04).

Article Author: Hal Pawluk

Visit Hal Pawluk's author page — Hal Pawluk's Blog