Greenbacks and Greenspan
Slowly but surely, Americans may be waking up to the fact that our twin budget and trade deficits are a lurking danger. It was just so surprising to hear Fed Chairman Alan Greenspan be so utterly cavalier about the downward pressures on the dollar:
"It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point."
The impact of Greenspan's unusually candid assessment was immediate. The Dow dropped 115 points, and the dollar dropped once against the Euro and the Yen.
As we wrote back in June, the United States simply cannot ignore the implications of the plummeting dollar and the concommittant rise of the European Union as economic competitor:
The next American president and his countrymen won’ be able to ignore the EU any longer. While its political integration proceeds in fits and starts, the European Union will be both America’s geo-strategic partner and a growing economic competitor. The continued strength of the Euro relative could well jeopardize the dollar’s unique role as the world’s reserve currency. If the United States does not manage its out-of-control trade and budget deficits, it could lose the leadership role – and benefits – that the dollar denominated world economy has offered Americans since World War II. Working with our European counterparts to accommodate EU economic power and guide the global economy is essential to American economic security.
Don't expect action by the Bush administration any time soon, or even at all. After all, it was Dick Cheney who stated that Reagan proved that "deficits don't matter.'
Just add this to the long and growing list of policy disasters Democrats will have to fix for America in 2008.
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