Saturday, November 10, 2007

US Dollar-Rip?

"The dollar is 'losing its status as the world currency,' declared Xu Jian, a middling official at China's central bank, on Wednesday. 'We will favor stronger currencies over weaker ones, and will readjust accordingly.' ... French President Nicolas Sarkozy visited Washington and brought a dollar warning of his own. 'The dollar cannot remain someone else's problem,' he told Congress. 'If we are not careful, monetary disarray could morph into economic war.' ... Wall Street wants easier money to rescue the banks caught in the subprime crisis, never mind the risks of future inflation. ... Worst of all are the economists, who should know better, but have convinced themselves that the dollar must fall so that the 'trade deficit' can adjust. ... Treasury Secretary Hank Paulson mouths the ritual lines about a strong dollar, even as he keeps pressuring China to revalue the yuan", WSJ, 9 November.

I agree with the WSJ. As for the economists, I am reminded of a Brezhnev-era joke: The last exhibit in Moscow's May Day parade was a small truck containing three old, bald men. An American in the reviewing stand says, "I don't understand. The ICBMs, the tanks, the bombers, the fighters, the infantry, those I understand. But three old men?". His Russian host responds, "Their presence in our May Day parade is easily explained. Those are our economists and you would not believe the damage they can do". I wonder if Helicopter Ben (HB) was in that truck as an MIT graduate student? Currency devaluation aggravated the 1930s depression. Does HB know that? That France's president should be saying the same things Charles DeGaulle did in the 1960s is ironic.

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