Marketplace, November 24, 2004
The holiday buying season is upon us. You might as well spend your
cash
now because the dollar is dropping like a stone in international
currency markets. It's dropped nearly 30 percent since 2001, and is
now
at a record low. Even without the recent dour pronouncements of Alan
Greenspan and Treasury Secretary John Snow, the greenback is likely
to
fall further. And the reason is simple: We're living beyond our
means.
American consumers are deep in debt. The nation is importing more
than
we're exporting. Most importantly, the federal budget deficit is out
of
control.
Nearly all of the increase in public debt over the last four years --
some 1 trillion dollars -- has been financed by foreigners, lending
us
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, are
starting
to wise up.
American exporters are cheering because a lower dollar makes
everything
they sell abroad cheaper. But it's bad for the rest of us because as
the
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 high
on
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'd
suspect
the White House had an ideological agenda to starve the government so
it
can't do much of anything in the future except wage war. But whatever
the motivation, the deficits are driving the dollar down and
subjecting
America to huge economic risks. The sensible move would be to roll
back
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 you
can
give a friend or loved one is ... gold. But you better move fast. As
the
dollar drops, the price of gold is soaring.
