Well, here we are. The Euro is on fire, and the USD can be had for 1.17 Canada.
A week ago I had someone show me a random article (which now I can't find) that was based off of a closed door seminar in which the head of a conservative investment banking firm stated the perils the USD is in, and the boom of T-Bills. He gave a 10% chance of the US actually avoiding a currency meltdown.
In any other country in the world, such a situation would have triggered a currency run and a default, Argentine-style, with the IMF and other such institutions coming to the rescue... The only reason this has not happened (other than the main foreign investors almost everywhere are Americans, and they are obviously not going to treat their own country the same as some godless foreign land) is that the Dollar retains its role as a trading currency, and the US has accumulated such a capital of trust in its currency that it can spend a lot of it before it has spent too much.
The difference now is that, for the first time, there is a credible alternative currency for both international trade and reserve: the Euro. It is backed by an economy and trading partner just as big as the US, and by institutions, despite all the criticism and nitpicking from the business press, that are fundamentally sound (rule of law, sound banking regulation, hawkish central bank, balanced trade, reasonable debt position).
At the same time, the US has gone on an amazing spending binge, fuelled by the dot-com bubble, then the real estate bubble and the Bush deficits. The binge has been made possible by Greespan's astonishingly loose monetary policy (and everybody's joyful embrace of debt) and a lot of it has been wasted in military spending which does not profit many and is certainly not recycled into the economy (the economic equivalent of armies and weapons building is to have the people involved dig holes in the sand and refill them - it does not create any value and it ties up a lot of people that could do better things. Up to a point, you can argue of its value as an insurance policy against trouble from the outside, but it is fair to say that the US are far beyond that point).
- the moon of Alabama .org
At present course, America consumes double what it produces. Therefore, without trade volumes in the USD, guess who is going to have to work twice as hard and spend half as much? Lemme give you a clue, not Bush's people. :-pSpeaking in France this weekend, Snow called the recent currency decline "fairly modest" and said the greenback's value should be determined by market fundamentals and public confidence. The statement was interpreted to mean that the Bush administration is indifferent to the weakening dollar.
The dollar stabilized somewhat after the initial shock wore off but the stock market was unable to recover its losses, despite statements from the Bush administration that a strong dollar policy remains in place.
A weak dollar tends to make U.S. exports more competitive in other countries, and some economists say Bush's economic team is content to allow the dollar to drop in a bid to help the sluggish economy.
"Snow's comments about the dollar are giving investors a good excuse to take some money off the table after the recent run up," said Peter Cardillo, director of research at Global Partners Securities. "But basically, this is just a lot of profit-taking." - CNN Money