Marketplace, November 24, 2004
The holiday buying season is upon us. You might as well spend yourcash now because the dollar is dropping like a stone in international currency markets. It's dropped nearly 30 percent since 2001, and isnow at a record low. Even without the recent dour pronouncements of Alan Greenspan and Treasury Secretary John Snow, the greenback is likelyto fall further. And the reason is simple: We're living beyond ourmeans. American consumers are deep in debt. The nation is importing morethan we're exporting. Most importantly, the federal budget deficit is outof control.
Nearly all of the increase in public debt over the last four years -- some 1 trillion dollars -- has been financed by foreigners, lendingus the money. But who wants to lend more and more to a drunken sailor? Foreigners are bailing out of dollars. Even the Chinese and Japanese, who have kept lending so we'll keep buying their exports, arestarting to wise up.
American exporters are cheering because a lower dollar makeseverything they sell abroad cheaper. But it's bad for the rest of us because asthe dollar drops everything we buy from abroad -- including oil --becomes that much more expensive. And these higher prices will ripple through the economy, threatening inflation and higher interest rates -- and, ultimately, reducing our living standards.
It's one of the oldest of economic laws: When you're living too highon hog, eventually you're gonna fall off and find yourself in pig slop. Riding highest on the hog right now is the federal government, with a budget deficit of over $400 billion this year. Surprise, surprise! It turns out that cutting taxes while waging an expensive war and doling out corporate welfare leads to red ink. If I were cynical, I'dsuspect the White House had an ideological agenda to starve the government soit can't do much of anything in the future except wage war. But whatever the motivation, the deficits are driving the dollar down andsubjecting America to huge economic risks. The sensible move would be to rollback the Bush tax cuts, but don't hold your breath.
In the meantime, enjoy the holiday buying season, folks. And here's a buying tip: With the dollar dropping, the nicest and safest gift youcan give a friend or loved one is ... gold. But you better move fast. Asthe dollar drops, the price of gold is soaring.
