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’.

Comments

  1. Comment says

    You don’t have to read too deep between the lines to see what really unsettles some msm media types and so-called liberals about Obama’s Nobel win – One of the consistant themes is that it is a “mixed blessing” for Obama to win. Why? Awards are good, so why pretend otherwise? Because these people think it will play into GOP Euro-hating, nativism, and general anti-foreigner sentiment. Alas, that is their concern – But from Obama’s perspective, this is good – because the numbers of haters are not so large and it turns off the moderates in the GOP – So why is media uneasy? They just want these teaparty people to be invisible for aesthetic reasons. That’s all – They just do not want to deal with large swaths of American opinion – save in the abstract.

    It’s all so obvious – they keep saying the prize wil hurt Obama with peeople who already hate Obama. It’s always a give-away when people pretend to be concerned with the opinions of people they don’t agree with -

  2. Comment says

    Besides Shat being canadian, Rich was just wrong to dis Shat in anyway by pseudo comparisons to others. This was a small example of Rich’s bad habit of sneaking in cheap shots that end up detracting, rather than adding, to his overall argument.

  3. Comment says

    Yeah Rich is sometimes careless and often lazy and fashionable, but this one was pretty good save your points.
    McCain is – somewhat ironically – now a recipient of an affirmative action of sorts – McCain often babbles and is never called on it.
    Today on CNN – the newsreader said, without affectation:
    “Senator McCain *warned* barack Obama that his Presidency is on the line if he does not follow the recommendation of his Generals”

    The whole thing was both stupid and revealing

  4. Dr Leo Strauss says

    Agree, Rich assembles a concise reminder (although the Shat is still a Canadian, not American, and I am not sure Fitzgerald considered their life prospects). Rich needs to be more careful — Malkin et al. would focus on that slip to bury the whole thing as erroneous ‘old news.’

    It seems like Lt. Rich just went through war the last 8 years and turns to his men and yells ‘Load n’ lock!’ Oh well. The bullpen is what it is.

  5. says

    A recent CNN television broadcast gave the impression that Esperanto aims to be a single global language. The comparison was with a global reserve currency instead of the US dollar.

    See http://jeffreyhill.typepad.com/english/2009/09/video-global-currency-global-language.html#tpe-action-posted-6a00d8341d417153ef0120a5a17e4b970b

    May I put the record straight? Esperanto intends to be an auxiliary language, or a second language for all. Please see http://www.lernu.net for confirmation.

  6. says

    Meanwhile, an interesting project: http://thegopspeaks.blogspot.com

    He’s sending a questionnaire to every county and state Republican chairman and blogging the results; he’s got 20 in so far, and it’s already shaping up as a valuable resource – a sort of sample of the movement’s collective unconscious.

    Themes: fear fear fear, of course, projection, of course. They’re all convinced that Obama is somehow anticonstitutional – no specific policy or action is ever mentioned, it’s his entire being that is anticonstitutional, or at least the proportion of it that extends about 3mm in from the surface. But the “trampling the constitution” meme complex obsesses them.

    A lot of them are blatantly crazy, but the interesting bit is the degree of memetic discipline. The intensity of the paranoia varies, but not its quality. It’s also interesting how many of the responses descend into stream of consciousness and, to be frank, semi-literacy; cognitive load tends to affect performance on concurrent skill tests, so I theorise that the syntax mangling and bad spelling reflects emotional turmoil. Certainly it correlates with extreme views.

    Some very unstable personalities, I think; very Max Blumenthal/Eric Altermeyer. But I would say that.

    • Dr Leo Strauss says

      Alex, thank you for posting this. Fascinating stuff. Hope it’s ok – am planning on testing some mischief and shuffling this feedback into the Movement grandees and see what we hear back. It will be, however, likely drowned out by furor at the fascist loving Swedes.

  7. says

    To get my MacMillan on for a moment, I very much doubt the UK lost very much at all from the end of sterling’s reserve status – but we did lose quite a lot from pursuing stupid policies intended to maintain it.

  8. Hunter says

    “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.”

    I’m not sure he’s saying what you argue against. I read him not as saying that whatever manufacturing we bring online will have any effect on the trade deficit, but as saying that the huge trade deficit will cause some increase in manufacturing. This increase (modest though it may be in terms of the trade deficit) means a (potentially substantially) lower unemployment rate here at home, and thus a better chance of reelection (presidential approval ratings inversely tracking unemployment rates as well as they do).

    • Dr Leo Strauss says

      Hunter, not sure that we don’t disagree – for Obama to ‘secretly’ plan to weaken the dollar to increase American employment meaningfully for 2010, the increase in American exports in the current global economic climate would have to be non-trivial. Sure the mantra is ‘jobs, jobs, jobs’. GIven the evisceration of American manufacturing even before the 2008 collapse, it’s hard to see how the recent dollar slide is a ‘secret jobs program’ that will scale enough to impact the House. Compared to the macro-economic damage it will do. (As opposed to paper profits as most American ‘hardware’ companies long ago outsourced their actual manufacturing and R&D investment is increasingly following, say ala Intel in China and India).

      Obama elected to eschew a WPA-oriented jobs program would have had more impact. Or had Obama said we are going to create a new manufacturing sector in future industry X and made that a major sectoral focus for government, banks taking federal bailout money, tax policy, etc.

      The scale of job loss this Great Recession isn’t the traditional shop floor assembly folk that while unlikely but still be possibly candidates for exports but white collar service jobs aren’t going to be selling to the Chinese (the best economy weathering the last year by most accounts).

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