Democrats & Liberals Archives

On Edge

An interesting thing happened Tuesday. South Korea - the fourth largest holder of US debt - announced it would start selling it off and reinvest in other currencies.

It turned out they didn't - technically - but the rumor alone led to a decline in the value of the dollar, which led OPEC to raise prices to offset the declining value of the dollar (I saw George Soros that night on CNN betting OPEC would switch to Euros), which caused the dollar to decline further, which led to speculation that other US debt-holders would sell off dollar investments... You can see where this all may lead.

A similar little panic happened last week when early reports of an explosion in Iran speculated the cause was a missile strike. The combination of trade deficit, budget deficit, and threat of war has international investors completely on edge. And rightly so.

A recent GAO report was highly critical of President Bush's fiscal policy. The Comptroller General of the United States wrote,

In my role as lead partner on the audit of the U.S. government's consolidated financial statements and the de-facto Chief Accountability Officer of the United States Government, I have become increasingly concerned about the state of our nation's finances.

Simply put, our nation's fiscal policy is on an unsustainable course...

Regardless of the assumptions used, all simulations indicate that the problem is too big to be solved by economic growth alone [Bush's solution - AP] or by making modest changes to existing spending and tax policies.

Over the last couple years, more and more economists have been predicting President Bush's risky fiscal policies would make the dollar worthless. The scenario always starts with one country selling off dollars, then everyone else sells theirs in a panic, not wanting to be left holding worthless green paper when the music stops.

Billionaires Warren Buffett and Bill Gates both got rid of their dollar-based instruments recently. "I'm short the dollar," Mr Gates told television interviewer Charlie Rose this weekend at the World Economic Forum in Davos, Switzerland. "The ol' dollar, it's gonna go down."

I wish I knew how to "short" the dollar. I'd like to cash in on the Bush economy, too.

Posted by American Pundit at February 24, 2005 3:31 AM