Monday, March 05, 2007

Dollar Crisis?

How will the enormous indebtedness of not only the U.S. government (Thanks Bush) but the American people start to be addressed? People do not change their habits/addictions with ease. Sadly, it is usually through some crisis that people come to terms with reality, then they get down to business. May we have a real president when/if the crisis hits.
clipped from
Longer term, however, the risk of U.S. dollar crisis (essentially a sharp depreciation of the dollar against other currencies) should not be overlooked. We've fed a habit in recent years whereby the U.S. has run enormous trade deficits with China and Japan, and these countries, in turn, have lent us back the money (by accumulating U.S. debt securities) so that we can maintain our standard of consumption through increased indebtedness. This is not an equilibrium, and disequilibrium situations have a tendency to produce painful adjustments.

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