The threat to the dollar

Sandy Levinson

Several weeks ago, in response to a posting on whether increasing Chinese ownership of American debt posed any threat to the US economy, there were many postings celebrating the economic rationality of the Chinese, as good capitalists, and how they had a vested interest in maintaining a strong dollar, precisely because they owned so many of them (and, of course, depended on a strong dollar, relative to the undervalued Chinese currency, to finance the trade of Chinese goods to the US). So what are we to make of the fact tht the dollar crossed what analysts view as the psychologically significant $1.30 to the Euro mark? There is no immediate news that would trigger the selling of dollars, as Floyd Norris points out in the Times, so one might consider the role played first by the increasing trade deficit of the US and rumors that the Chinese, who have no trust in the competence of the current US government (my words, not his), might hedge their dollar funds by buying some Euros. Economic rationality might not, after all, counsel hanging on to the dollar for dear life.

Should the dollar collapse, one wonders what impact that might have on the complacence of Wall Street with regard to the acceptibility of the Bush White House. It's one thing, after all, if children of the lower orders lose their lives in Iraq; that has no influence on the obscene profits (and bonuses) made by hedge fund managers and other Wall Street barons. But a vivid collapse of the dollar might lead some of them to lament the fact that there's no way to dump the current Chief Executive (who gives no indication that he has ever thought seriously about economics, though we do know of his proclivity for firing anyone who dares to speak any truth about the costs of his policies, whether the Iraq War or the cost of his subsidy for the pharmecutical industry, also known as prescription drugs for the elderly) in favor of someone more competent. Though, of course, perhaps Secretary of the Treasury Paulsen, a Wall Street King, can beg and cajole Beijing into continuing to serve US interests, though one wonders, of course, what the price will be. But, hey, this is capitalism, and we all know that the invisible hand always works out for the best!

In response to my earlier postings along this line, Anne (from Holland) has suggested that the real problem is the presidential system, that parliamentarianism solves the problem of what to do with a leader in whom the majority has lost confidence. Perhaps he's right and that our fundamental error was to go the presidential route in the first place (in part, no doubt, because we had George Washington as a model of what a noble president would look and act like, which in many ways turned out to be the case). But how many of our 42 presidents since Washington have discernably contributed to leaving the country better off (as compared, say, with the various British Prime Ministers since William Pitt or the various Canadian Prime Ministers since 1866).
Posted 3:28 PM by Sandy Levinson [link]