Dollar going the way of the Dodo?

(apologies for the lack of posting; I've been absolutely slammed this week)

I'm sure most of you expats have noticed the precipitous decline in the dollar ($1.95 to £1 earlier this week) - well it looks like other countries are really starting to take notice now, and The Economist thinks that it will get worse before it gets better:

Many American policymakers talk as though it is better to rely entirely on a falling dollar to solve, somehow, all their problems. Conceivably, it could happen—but such a one-sided remedy would most likely be far more painful than they imagine. America's challenge is not just to reduce its current-account deficit to a level which foreigners are happy to finance by buying more dollar assets, but also to persuade existing foreign creditors to hang on to their vast stock of dollar assets, estimated at almost $11 trillion. A fall in the dollar sufficient to close the current-account deficit might destroy its safe-haven status. If the dollar falls by another 30%, as some predict, it would amount to the biggest default in history: not a conventional default on debt service, but default by stealth, wiping trillions off the value of foreigners' dollar assets.

The dollar's loss of reserve-currency status would lead America's creditors to start cashing those cheques—and what an awful lot of cheques there are to cash. As that process gathered pace, the dollar could tumble further and further. American bond yields (long-term interest rates) would soar, quite likely causing a deep recession. Americans who favour a weak dollar should be careful what they wish for. Cutting the budget deficit looks cheap at the price.

Comments

[jj]

about a year ago, when I warned about exactly this happening on this very same website, I was dismissed as being a gloom and doom naysayer. (I think it was Jim who couldn't resort to proper arguments and had to call me names.) I guess I was wrong, then....

[Maryann]

IBM and Nokia are both selling off parts of their manufacturing to China. Not in the traditional sense where they simply use the cheap labour, but actually selling the businesses to the Chinese, who want to start developing their portfolio to include their own China-based manufacturing concerns. The FT are now predicting (provided the economy doesn't grow too fast and overheat) that China will surpass everybody else in GDP by 2050. If I'm not mistaken I think their military spending is on par with the US, and we all know they have a bigger population than Europe and the US combined. I also read an interesting article recently about how the Chinese government was scooping up trade deals all over the place in Southeast Asia that the US is missing because the Bush administration is so obsessed with terrorism they don't try to engage with any of these countries. Time to start learning Mandarin?

[jj]

Actually, Maryann, chinese military spending is nowhere near to be being on par with us. We spend over $440B/year on the military (not including Iraq!!!) and the chinese spend only $63B last year. But China is modernizing its military, cutting down the size and bringing them up-to-date technologically. The recent chinses space missions weren't done for scientific purposes, they were done so that China doesn't fall anymore behind the US Space Force (yes, it exists, it is just not very publicized.)
But yes, the 21st Century belongs to China, no doubts about it. There is little Rumsfeld and Cheney can do to stop it and they know that. It is for this reason that they are so desperate to get in control of Iraq's oil fields (and those of the former Soviet republics such as Khazakistan).
And yes, in fact, I am learning Mandarin right now! It is the future of global business and I won't be left out.

[jj]

btw, the Chinese expect that, assuming continuing growth of their economy, they will be on par with our military in 2 decades.

There is an interesting little sidenote to this. I don't believe the Chinese are much of a military threat, however. The one-child policy which China had instituted in the early 80's has had the effect of Chinese children being the most spoiled and loved kids in the world. Nobody there wants to send their only chld to war so unless they are really threatened, I don't think China is as much of a threat as we think they are. Besides, the pro-war attitude of the US population is a much bigger threat to world peace than anything the chinese would be willing to muster up.

[Jeff]

JJ, as a resident of Asia, I wouldn't say that the one child policy results in spoiled children here anymore than back home. The parents not only shower their love and attention on that one child, but also put tremendous pressure on him to do better in school, after all, he's their one hope. So the strain is incredible... you have kids competing to get into elementary school. And I'm also being politically correct by saying "he" because this kid is going to have an awful time finding any girls to marry.

Back to the dollar, pretty cool article on fuzzy math. I'm glad to be earning the currency of a country that doesn't debase itself at every turn...

http://www.msnbc.msn.com/id/6724252/site/newsweek/site/newsweek/

Even more important fuzzy math... providing benefit to get votes now, screwing our kids later.

http://www.msnbc.msn.com/id/6724319/site/newsweek/

[Jane M. Kelley]

Found this site today; am searching for a place to emigrate to for at least the next four years of Bush. Not a rich American, my income is social security today with a small investment and an apartment I can rent for additional income.

I'm a retired nurse and addictions counselor who has done extensive research into nutrition and allied fields and could do some work in this area.

I welcome any advice on relocation to any place in Europe. I really don't want to go to the Far East, thanks.

Jane
casa.kelley@juno.com

[rodi]

jane:

If you are serious, may I suggest Canada. My wife is a Registerd Nurse; I left the San Francisco Bay Area in 2001 for Calgary. Alberta has the best paid and best educated nurses in the country. Pay for those with experience like you have will warrant from $35 to $40 an hour.

Even with the best union, the average age of nurses is 51 and there's a huge nursing crisis here, just as in the US

Immigranting as a nurse on a NAFTA visa would be very easy because there remains a desperate need for nurses. (As a spouse of a Canadian nurse I was granted immigrant status in 6 weeks, practically a new world's record)

Any work you'd be willing to do in the Calgary Health Region would be very generously received. I' sure you could work casual, part-time, contract or full time.

Here's the website for mor information:
http://www.calgaryhealthregion.ca/employment/workingwyou.htm

[Bob Mobino]

I don’t about you guys, but I am losing thousands of $$$ per transaction.Any expert remarks about the RISE of the dollar? I’d appreciate any remarks about the previously almighty USD!

[Jim]

This is all awesome news above!!! ;-)