Jeff Faux notes that if the dollar crashes, it will take our economic cushion down with it:
The word from Washington and Wall Street is that the worst is over.
Sure, it will take a while for jobs to recover, for housing to come back, and for wages to rise. But we are definitely on the road to recovery from the biggest debt-bubble collapse since 1929.
Maybe. There were actually two debt bubbles. One was driven by Americans borrowing against unsustainable inflation in housing prices. The other was driven by America borrowing against unsustainable inflation in the price of the U.S. dollar. One more bubble is left to pop. When it does, our unique economic cushion — privileged access to the world’s savings — will deflate. Like overvalued housing prices in the run-up to the 2008 crash, the dollar is headed for a substantial fall. The question is whether our political class can minimize the hit to working Americans’ already-battered living standards. On the available evidence, the answer is, “No.”
The central threat here is not the currently rising federal deficit, which despite the theatrical hysteria from Republicans and Blue Dog Democrats is a necessary remedy for the collapse of private spending. True, foreigners are financing the fiscal deficit, but because it is stimulating growth, it is ultimately self-liquidating. Rather, the core problem is the accumulating debt that the U.S. economy as a whole owes to the rest of the world, a result of a more chronic condition: 25 years of buying more in the global marketplace than we have been selling — and borrowing to make up the difference.
