The dollar and its dilemmas

...A truly depressing view...

...The trade affair is a publicly noted onebarely— but by no means a public scandal, even though it deserves the name more than do the flimsy Monica or Lincoln bedroom affairs...

...1.5 trillion of debt in 1999 or roughly 16 percent of the U.S...

...spending on research and development and far outpacing R&D's yield of patented innovations...

...PATRICIA CAYO SEXTON is the author of a dozen books on community education, women, and labor...

...We are told not to speak bad or sad words about the economy...

...After all, the total size and shape of its eleven supporting nations is roughly similar to that of the dollar's parent...

...Have we rushed too far and too fast into globalization...

...Falling profits at Chrysler and elsewhere underscored such complaints...

...Parallel to these complaints were the even louder laments 34 • DISSENT / Spring 2001 PLAN B of U.S...

...If and when the dollar slips from its state of grace, we will be entitled to suspect that debt will be giving it a big shove...

...The economy, elevated so much by hype, is in large part a confidence game, built on a fragile base of deceit and misguided trust...

...The question is, will the strategy continue to work...

...Buyers of stocks often buy 36 n DISSENT / Spring 2001 PLAN B shares on margin or on credit...

...Consumer buying and confidence are, as we know, key economic indicators simply because they sustain and grow the economy...

...Some still ask, should the dollar have helped the euro back to health...

...And they borrow routinely from various sellers and money lenders, often with easily available credit cards or simply "on account...

...The sliding euro, the multis said, was hurting their dollarized profits, their stock prices, and even the stock market itself...

...Citizens borrow huge sums from government and banks in the form of mortgages...

...Yes, but far more to the new economy than to the old one of industry and exports...

...The old one liked a humbler, cheaper dollar, nice for exports...

...Corporate America has been described as being over borrowed, overspent, and over capacity...

...In 2000, personal filings rose 10 percent to 1.26 million, with another estimated increase of 15 percent in 2001...

...In 1999, this deficit grew an astonishing 53.6 percent over the 1998 figure...

...2) indebtedness, global and domestic...

...A rescue might have endorsed the euro as a safe harbor for investments, perhaps safer and better than the dollar, and that would not do...

...Federal Reserve Board chief Alan Greenspan puts it this way: "The best insurance against nasty surprises in a complex system is to limit the amount of debt in the system...

...The average credit-worthy household now holds thirteen credit cards and $7,500 in credit card balances...

...Although the public learns of deficit figures in dribbles, it is saved from confronting the cumulative or total debt figure—this year's deficits plus all those remaining from past years...

...in 2000, imports were 30 percent greater than exports, compared with 20 percent in 1999 and 12 percent in 1998...

...Occasionally, small notes DISSENT / Spring 2001 n 35 PLAN B are posted in the media about the annual deficits...

...But in response to any citizen alarms set off by the scary news, the word goes out from on high: "not to worry...

...However, that binge of near-calamities rocked the very ground on which we stand, as the currency dominos fell around the world...

...The confidence index lost thirty points in five months of 1990 and took three years to return...

...Its value as a currency is affected by forces previously described— by public and private strategies, foreign competitors, and by the real economy, most notably in recent years by high tech and the securities markets that sell high tech...

...Former secretary Summers added that such debt "distorts the patterns of domestic economic activity...

...The dollar did not rush to pick it up...

...Factored into their thinking, of course, should be the sound and familiar idea of greatly extending our export economy...

...Government and business borrow huge sums from bond buyers...

...A twelve-member bipartisan congressional commission, after two years of study, issued a 350-page report unanimously endorsing, in effect, all the above statements...

...it] is the single biggest threat to the current expansion of the economy...

...but by the new millennium, it had taken an almost fatal fall of 30 percent since its birth date...

...9.2 trillion GDP...

...Recessions are almost always preceded by a decline in consumer confidence, which can be quickly lost but only slowly recovered...

...On the cheerier side, high-tech apostles flourish, but they cannot deny the big hits taken by tech stocks and the subsequent slippage in the real economy...

...The High•Tech Affair The deified dollar is in many respects more like a pawn than a god, moved as it is by forces largely outside its control...

...In the 1920s, lavish credit and wild spending led to a collapse of banks and other big lenders in 1929—and to the Great Depression of the 1930s...

...The loudest laments came from giants such as Intel and Nike...

...we know that shocking story...

...Presumably cued by computers to just-in-time planning, the information age either neglected to cue the computers or the computers failed to respond...

...Likely result, he says: few start-ups, slow growth, the usual plague of trouble—and depression...

...They wanted a euro rescue, and they finally got it—despite the strong opposition of congressional conservatives...

...The "Free Trade" Affair Of more pressing concern for the dollar than the euro affair is its dalliance with the nation's grossly obese trade and current account debts—the import duties, in effect, on our lust for foreign goods and money...

...It was a happy blend of public sector initiatives and private sector money—infinitely fairer than the usual one of private troublemakers and public treasury payouts...

...Some skeptics claim that the euro scare was not an anomaly, but the result of a calculated act of the giant hedge funds that bet against weakening currencies, then try to disable them—a charge also made during the fall of Asian and other currencies...

...Debt is at a level, she concludes, that makes the economy vulnerable to a fall in the dollar's value, a rise in inflation and interest rates, and a growth slowdown...

...DISSENT / Spring 2001 n 37...

...The domestic market is awash in credit and debt, much of it useful and necessary but also, in excess, dangerous for the dollar and the economy...

...As for the dollar, it is clearly on a depression's hit list, yet its glory and its buoyancy cannot be forgotten...

...Debt everywhere sorely afflicts the dollar...

...The dollar's role as a pawn in all these happenings is varied and central, especially in the grossly misused and virtually unregulated power of money markets—in stocks and securities (as in the tech shock), in the multiple misuses of credit debt at home and abroad (Asian and other debacles for which we still pay), in the manipulation of currencies, in the zeal to penetrate (and control...

...Since wars are fought over it, it is hard to remember that the dollar is just a bit of printed paper that in bad times is hardly worth the paper it's printed on— like its forebear, the Continental...

...The smaller players and the innocent are least likely to hear them when they're hushed...

...It also needs a dollar strong enough to lure from abroad the huge flow of capital that helps pay for these imports and, again, for a surging economy...

...At any rate, we have seen grave distress afflicting two major industries—auto production and finance (both banking and securities...

...Indeed, it is the debt's chief victim, according to Catherine L. Mann's report Is the U.S...

...The United States has run a current account deficit for twenty years, with steep rises in recent years...

...If you have answers to these or other puzzling questions, please write...

...economy could be a killer...

...Bankruptcy, of course, is the terminal point of unpayable debt...

...If the euro rises, how far (if at all) will the dollar fall...

...Trade deficits also rocketed upward, along with our global aspirations...

...A strong dollar, as Summers said, "is in our national interest because it has helped to hold down inflationary pressures and capital costs...

...it's only a small part of our GDP [Gross Domestic Product]" (4.2 percent in 1999, for instance...

...This debt is bad news for the dollar...

...We are by now well acquainted with happenings in the anarchic tech-stock arena and with the big bears, risen at last from hibernation to warn us about dangers...

...Credit is a proven but unheeded destroyer...

...Three references to the dollar's "affairs," as I call them, might give us some sense of the setting in which the dollar—a truer emblem of the nation's strength than the stars and stripes—may be humbled and some of the forces that may do it...

...When the surge slows down, however, the strategy of delivering the previously unheard-of combination of low inflation plus low unemployment is challenged...

...This much-applauded strategy, fine-tuned by its makers, has led us closer to a full-employment economy than we've been in half a century, a journey about which we can surely rejoice—never mind the quality of jobs, the turmoil, the costs of rising inequality...

...The three affairs involve (1) competing currencies and backlash from our own multinationals...

...People might hear, get scared, and lose their confidence...

...The Bank of America reported U.S.$1 billion in bad loans in the fourth quarter of 2000, and distress was found but barely reported throughout the banking industry...

...In a final global twist, and despite the secretary's warm regard for the dollar, a shrill "yes" drowned out his "no," the "yes" coming from our very own globalized presence in Europe— the multinationals, big and small...

...Endorsements of her view come from others...

...As of 2001, both the euro and the European Union were staging comebacks and raising questions about whether the euro might yet qualify as a world leader...

...100 billion into start-up firms, a sum rivaling U.S...

...Although the Russian crisis inspired no significant rescue (a huge challenge, to be sure), a bailout followed the Long Term crash with stunning speed and success, as the Federal Reserve pushed the private sector into financing a revival...

...Is it OK to injure or ignore trading partners in order to keep foreign money flowing into our own pot, or is that counter-productive...

...European capital has been reversing its flow out of the United States and back to its euro roots...

...Among euro zone supporters, the Economist insists that the euro's economic base is strong, that shrinkage in the euro was an anomaly, and that "contrary to popular belief, it is the euro area, not America, that is more likely to see faster growth and better investment opportunities over the next decade...

...A total disaster was averted by a rescue from abroad...

...As recently as 1995, it was only 38 percent...

...THE DEBT can't be sustained, economist Fred Bergston says, "without ultimately facing a very sharp fall in the exchange rate, which in the current circumstances of the U.S...

...Trade" here refers to our annual deficit of trade in goods and services (U.S.$265 billion for one year alone, 1999) and "current account" to our deficit in trade and money (U.S.$338 billion in 1999), a broader measure of deficit...

...Clearly, far more questions than answers remain about the affair...

...Other big debts that drag on the dollar economy—acutely when they can't be paid off— are more domestic than global...

...Now the game appears far harder than even, say, championship chess, given the incipient weakness of both the dollar and the new economy—and also the sharp conflict between the two for the favors of the Federal Reserve Board...

...Perhaps the desire to protect the pure reputation of globalized "free trade" inspires the semi-secrecy of these figures...

...What we know is that crashing currencies can ignite global conflagrations...

...The Euro Affair The dollar's enduring romp with the euro has shown both its global power and its emerging fragility...

...and (3) distress in financial markets (securities and banking) and in the "fundamentals" of the real economy...

...Don't bet on anything...

...Can our supreme dollar and our potent global corporations live together happily...

...global financial markets, in the often negative influences on the real economy, in the effort to portray interest-rate manipulation as an elixir of all economic ailments, and so on...

...securities and acquisitions ($167 billion in the first nine months of 2000 alone) have abated...

...We should know more, but, alas, the touted global information age has failed to inform us properly about these globeshaking matters...

...he may lack believers, however, until he shows them the money to finance new stars...

...Supreme Court, we have lost the team that devised the game, knew its rules, and might have improvised ways to keep winning it...

...All we know for sure about these highly secretive funds is that currency speculation is a main occupation, and that some of them are big and rich enough to tip over currencies...

...Do the challenges matter...

...Trade Deficit Sustainable...

...Michael J. Mandel's grisly volume The Coining Internet Depression offered the worst-case scenario: what had been touted as our designated saviors of the new economy, high tech and high finance, he says, have failed us—as tulip zealots did in the seventeenth century—and their failures may end it all...

...None of the afflicted areas fully recuperated, but few have crashed (yet...

...multis operating stateside, this time about the dollar...

...It was far too strong, giants such as auto said, and it was crippling sales...

...Maybe the Supremes and their protege will save the day, perhaps with military solutions...

...not, it would seem, out of concern or conviction, but out of a need to rationalize an attempt to jar a sluggish economy by the most dubious means—heaping enormous tax rewards on his wealthy political backers...

...On the downside, at the command of the U.S...

...In Japan and the Asian Rim, credit played a similar role during the 1990s...

...Mandel's free-fall scenario features a sharp retreat in the venture capital funds that had put an annual U.S...

...The euro was poised by its makers to challenge the dollar as the world's leading currency, or at least to become a sturdy second...

...The Asian collapse led to the Russian devaluation, which in turn caused the loud crash of our own pride and joy, Long Term Capital Management...

...The new economy needs a dollar strong enough to buy up the mountains of cheap imports that keep consumers happy, inflation low, and the economy growing...

...In a sense, the economy is built on credit, IOUs issued by virtually all sellers and lenders...

...A simple spark, for instance, in the householder's ability to meet mortgage payments, can set off a fire in banking and bring down the whole house of cards...

...The craze has produced the "securitization of credit," a late and remarkable innovation, involving the buying and selling of credit debt...

...One point to make about the euro is that globalization suffers from symptoms not yet properly diagnosed or treated...

...Business debt stood at 46.1 percent of GDP in 2000, higher than ever before...

...In 1997, the devaluation of the Thai baht sparked a fire that swept across Asia and major world currencies...

...Our nonelected president chooses to violate the rule...

...and late in 2000, a Wall Street Journal survey found that 43 percent of Americans expected a recession within thirteen months—a 17 percent rise in just two months...

...A mine of potential tech stars remains out there, the optimist says, to put the show back on the road...

...Securities were the first to tumble...

...These soft words may calm panic, but they don't tell the whole story...

...The failure of the commission to agree on solutions, however, indicates that the managers of the new economy need to return to the drawing board...

...Predictably, Clyde Summers, then treasury secretary and able lifeguard of the dollar, said "no" to helping revive the euro and an emphatic "yes" to letting it plumb its lower depths...

...It is doubtful that even a wealth of charming smirks from the Oval Office will give us the answers we need...

...Flows into U.S...

...This illusive and amazing figure is available, however, and it is called the Net International Investment Position, a total of some U.S...

...The celebrated Robert Rubin, former treasury secretary, noted that "the international system cannot sustain indefinitely the large current account imbalances...

...The mounting personal and household debt reached U.S.$1.3 trillion in 1998, or some 12 percent of GDP...

...Beyond that, some said, it endangered our need for stable trading partners...

...Personal savings for the first time in the postwar era entered the red, so that now, as a collectivity, Americans have less than no savings...

...In December 2000, a University of Michigan survey of consumer confidence reported the fourth largest drop in the history of its surveys...

...Yet facts and truth must have their way, if only we can make them clear...

...Though it has soared this past decade, the dollar now faces rising domestic and global forces that seek to humble it...