Advice From Afar

The Economist usually can be counted on to say what Tony Blankley wishes he could say. That is, if he had more time. And actually came up with the stuff. Erudition rarely erupts accidentally. But that aside, the comparison holds. Sometimes.



The point is that once more, they offer cheerful Athenian wisdom to their puckish Roman cousins. This time it’s on the dollar’s catastrophic collapse. The first part is actually a pithy, grim and concise summary of the events leading up to the crime scene. Then, the Economist veers into prime Tony territory by optimistically asserting that things in fact are not all that bad if:

[S]elf lf-interest and sensible policy can cut the odds of trouble. The first step is for American policymakers to pay more heed to their currency. For all their talk about a strong dollar, American officials have behaved as if they cared little about its worth. A reserve currency is supposed to be a store of value; by running a huge current-account deficit America has left the dollar vulnerable. At such a tricky time, benign neglect will no longer do. For the moment, this need mean little more than some carefully chosen words. If the slide becomes chaotic, it could demand currency-market intervention and a willingness to hold back interest-rate cuts for the sake of the dollar.

The other part of the solution lies elsewhere, particularly with those countries with dollar-pegging currencies. These economies need to allow their currencies to rise, both to curb inflation and encourage the rebalancing of the global economy. Appreciation would mean that these countries accumulated new dollar reserves at a slower pace. That in turn would lead to a loss of the dollar’s pre-eminence and the emergence of other reserve currencies: there is no rule to say you can have only one reserve currency. But this need not—and in today’s febrile environment must not—mean dumping existing dollar reserves. That would impose a far higher cost on everyone, including the dumpers.

The history of international co-operation on currencies is patchy. But China and the oil-rich Gulf states have ample reason to play their part in an orderly decline of the dollar’s dominance. Despite the opprobrium heaped on them, the Chinese do not want to see the Fed’s hands tied by a dollar crisis; nor do they want to see the euro zone, one of their best markets, slow sharply; and they have little interest in the external value of their existing dollar reserves plunging. Beyond all that, China’s leaders want to be taken seriously as responsible actors in the international system. Now is their chance.

Now, we are quite confident that the Economist’s upper management enforce a drug free workplace banning narcotics, hallucinogens and even crippling alcoholism. (Recall Conrad Black’s unkind observation that many if not most journalists he knows (on both sides of the Atlantic) battle the bottle now and then). We jest, Dear solicitors. Yet no responsible adult with even a casual understanding of recent history — and particularly recent American financial history — could type those words with composure. Those paragraphs are, to refer to recent comments here discussing America’s Most Important Columnist, beyond Friedman-esque. None of the proposed American actions will survive an election year race to the bottom. Two words: Walter Mondale. Nor does Beijing show or have any incentive to bail America out of a disaster of her own making. Quite the opposite, in fact. They have their own distractions and strategic timetables.

So what gives? One wonders in the end if there isn’t some quiet desperation going on. After all, what’s the point in being head cheerleader if your team’s willfully committing seppuku? There’s no “I” in dollar . . .