Dollar Daze

It’s only a matter of time before the U.S. loses the dollar as the global reserve currency. Inertia helps us. As do the tatters of the goodwill since Bretton Woods, the Nixon shocks and Reagan deficits notwithstanding. We should prepare for it. So far, we aren’t.

To call this weekend’s dollar slide an international conspiracy and attack is dramatic. But it did happen. And for the first time, finance ministers and markets are talking about a transition date, the admittedly nebulous 2018 summoned out of the air apparently in a thinly sourced column.

When it happens Americans will be stunned anyway. ‘How does it feeeeeeel’ indeed. For the new, less psychologically subservient Japanese government, the Chinese, Germans, and the Arabs, the time to wish for American fiscal sanity is long past. Russians and other emergent or disruptive powers are also interested in exploring this American weakness. Finessing a joint move from the dollar to either a new currency or so-called ‘basket’ we all know must be done gingerly. The U.S. today has our creditors in a mutual suicide pact. So today’s Asian move to shore the greenback makes sense. Have to keep the junkie afloat and calm to allow a graceful get away and freedom.

Dollar Daze Are Here Again, I Said It's Alright, You Know It's Alright

Chinese comments at G-20 and elsewhere make their strategy clear in long term goals while opaque in actual enactment. Contrary to Simon Johnson’s bald claim that a sliding dollar is Obama’s ‘Secret Weapon’ to keep the House in 2010, no one in or out of government believes that existing, locked-in U.S. federal and trade deficits can be addressed in even trivial terms by U.S.-led export growth. That’s part of the problem when a society gives up making things. But you can see why the Dali Lama got dumped on Nancy Pelosi this week in D.C.

Who could blame those holding either dollars or IOUs from the Treasury? When they look at the U.S. economy in basic input output terms and manner the U.S. addressed 2008 and budgets going forward, its pretty easy to conclude the U.S. political system will fall to the lowest common denominator/easy way out: inflate our way out of debt. In earlier years when U.S. capitalism was more than financial engineering the U.S. would make the same call – from our private sector leadership to government officials.

Whether it is 2018, who knows. Frankly, no one whether in Beijing, Moscow, Riyadh, Tokyo or Frankfurt can tell us when. But anyone there who tells you that they are committed to the dollar as international reserve currency also lies when they say ‘hello’.