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Thursday, November 18, 2004

You got poorer overnight

TOKYO (AP) -- The U.S. dollar tumbled to its lowest rate in years against key Asian currencies Thursday after a top U.S. official indicated the government wouldn't intervene to halt the American currency's recent slide worldwide.

The dollar fell to a four-and-a-half-year low against the Japanese yen, and a seven-year low against the South Korean won. The trend continued as European markets opened, and the dollar fell to a new record low against the euro.

The euro surged to US$1.3074, breaking the record set on Wednesday, as concerns about high oil prices and the U.S. trade and budget deficits continued to push the dollar lower.

Analysts attributed Thursday's plunge to comments by U.S. Treasury Secretary John Snow in London on Wednesday, that "no one has ever devalued their way to prosperity" but the "only way to get prosperity is to follow the marketplace."

Snow said the United States favors a strong dollar, but his comments were still interpreted as ruling out official intervention in currency markets and renewed the markets' view that U.S. President George W. Bush's administration is happy to watch the dollar fall.

Some Asian officials have been worried the United States will start relying on a weak dollar to fight the ballooning American trade and budget deficits.
The thing, as best as I can understand it, is that allowing the dollar to fall is more likely to be an accelerating, snowballing, positive-feedback (in the negative sense) trend, not a self-correcting one. Foreign governments, banks, and private investors hold trillions of dollars worth of T-bills, stocks, and other dollar-denominated securities which lose their value right along with the dollar. If the US admits it wants the dollar to fall, all of these folks will try to get rid of this stuff as fast as possible--which only means the dollar will fall further. OPEC and other oil exporters will once again talk of switching the oil economy to euros, and the dollar will fall even further. Our import-driven economy will implode (even agriculture, our one major export, is heavily dependent on oil imports).

The good news is that this coming depression will occur on Bush's watch. The other good news is that our current economic system is morally and actually bankrupt and unsustainable, and the sooner it collapses the better off the earth will be in the long run. The bad news is that for those of us who weren't around for the Great Depression, we're about to get our chance.