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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (122280)	12/28/2003 10:59:05 AM
From: GST	Read Replies (1) \| Respond to of 281500

Looking at the interest rate of a single currency is meaningless -- what matters is the interest rate spreads. The dollar has lost nearly a third of its value against the Euro in the last year or so -- this is a disaster for European investor in US financial securities. The injection of massive fiscal and monetary stimulus produces the illusion that the economy is doing just fine -- but it will not be fine with a current account deficit in the range of $500 billion dollars per year and massive government debt issuance which is now in the pipeline to finance the war and the tax breaks. That is why the dollar is being sold -- and it has already been very seriously sold. The question is whether or not it simply erodes in value or whether it falls apart completely. Either way, the potential for markets to extend the run on the dollar is high. As the dollar shrinks, goldilocks turns into an old hag, as we import inflation and lower our standard of living. Our children inherit the debt. Great economic policy -- if your are on the receiving end of the lavish gifts from the government that are being marketed to the public as "tax fairness" or if you are on the receiving end of big fat contracts from the war. But as the dollar goes from weak to pathetic it will become more obvious why a strong dollar policy was an key essential to financing what by any measure is an unsustainable current account deficit. Bush is counting on cheap oil and cheap money and a cheap dollar to rev up the economy -- but is a sucker's bet.