Tuesday, December 14, 2004

The 'Almighty Dollar" $liding toward disaster...

In the latest edition of his excellent weekly column World Views, San Francisco Chronicle columnist Edward Gomez explores international reaction to the plight of the US dollar. Economists and money managers around the globe take the Bush administration to task for a fiscal policy which seems destined to drive the world's most respected currency to failure.

"America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago." The Economist fumed.

In a commentary published in The Taipei Times, Princeton University historian Harold James noted that these banks "have accumulated vast foreign-exchange reserves .... The problem is that almost all of it is in U.S. dollars ...." What should these institutions do now? James noted that all the options their directors face right now "appear equally unattractive."

"If they do nothing and simply hold onto the dollars," he explained, "their losses will only increase. But if they buy more, in an attempt to prop up the dollar['s value], they will only have a bigger version of the same problem. If ... they try to diversify into other currencies, they will drive down the dollar faster and create greater losses. They are also likely to encounter the same sort of problem with other possible reserve currencies." James' advice: "Today's big-surplus countries do not need large reserves. They should reduce their holdings as quickly as possible, before they do something really stupid with the accumulated treasure." (Taipei Times)

For foreign observers like Fawaz Turki, the dollar's free fall is symptomatic of another ill, too. "Economics ... is linked ... to politics in an intimate, systemic way," he wrote. "Because there was something rotten in American politics over the last four years, there was something equally rotten in American capitalism, for surely if a giant corporation like Enron turned out to have been built on some kind of Ponzi scam, what would you expect? Corporate malfeasance doesn't grow in a vacuum. The neocons, who run Bush's administration, have not only savaged American foreign policy, but the American people's work ethic as well. These ruthless ideologues, wrapping themselves in the flag, will ride high over the next four years, imbuing Americans with pride in their country's adventurism abroad. But, hey, we all know what pride goeth before." (Arab News)


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