The plummeting dollar
Brought to you by Dubya and Co.
Something ominous is happening when the United States reports its biggest surge in productivity in 20 years, as it did Wednesday, and yet the dollar plunges to an all-time low against the euro.
The dollar is sinking these days on good news and bad, and the explanation is pretty simple: Investors around the world are worried that the Bush administration’s policies are eroding the value of the U.S. currency. So they’re rushing to unload greenbacks, in what could soon become a full-blown financial crisis.
“I’m appalled at what’s happening to the dollar,” says investment banker Felix Rohatyn, a former U.S. ambassador to France. “A basic responsibility of a government is to maintain the value of its currency.”
The nightmare scenario: Between them, China and Japan now hold more than $1 trillion in U.S. Treasury bonds, the trader estimates. But with the declining dollar, the Asian giants have suffered severe losses on these portfolios. If they decided to hedge just 20 percent of their dollar exposure, they could drive the dollar down from this week’s low of about $1.21 against the euro to $1.35, contends the trader, and other sellers would trigger a further weakening to $1.45 or so. Facing that sort of decline, the Fed would have to boost interest rates to protect the currency. And higher rates, in turn, would drive down the U.S. stock market.
The Bush administration seems comfortable with a cheaper dollar because it’s a way of stimulating demand for American products abroad and sustaining the U.S. economic recovery. In other words, it’s good politics.
And fuck everyone and everything else.