About time. Wake up & smell of coffee.

[jaguar]

The Economist 4/12/04, leading opinion piece.

The dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted. If America keeps on spending and borrowing at its present pace, the dollar will eventually lose its mighty status in international finance. And that would hurt: the privilege of being able to print the world's reserve currency, a privilege which is now at risk, allows America to borrow cheaply and thus to spend much more than it earns, on far better terms than are available to others. Imagine you could write cheques that were accepted as payment but never cashed. That is what it amounts to. If you had been granted that ability, you might take care to hang on to it. America is taking no such care and may come to regret it.

The dollar is not what it used to be. Over the past three years it has fallen by 35% against the euro and by 24% against the yen. But it's latest slide is merely a symptom of a worse malaise: the global financial system is under great strain. America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago. This makes the dollar devaluation inevitable, not least because it becomes a seemly attractive option for the leaders of a heavily indebted America. Policymakers now seem to be talking the dollar down. Yet this is a dangerous game. Why would anybody invest in a currency that will almost certainly depreciate?

-couple of paragraphs skipped because my hands are getting tired-

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 foreigner's dollar assets.

The dollar's loss of reserve-currency status would lead to 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 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.

I've been saying it for a long time, finally the economist echoes my view. You're on the brink. Let me put this as bluntly as possible, you idiots and by idiot, i mean every republican voter in the US have just re-elected a man who has brought your economy to the edge of disaster and shows no sign of backing off. I almost hope you reap the whirlwind just so the lesson sinks in.

the public has long since cast off its cares; the people that once bestowed commands, consulships, legions, and all else, now meddles no more, and longs eagerly for just two things -- Bread and Circuses.