The Dollar: Down But Not Out
Derek Scissors /
The rumblings of the dollar’s decline are louder than usual at the moment, tied to speculation that oil producing countries are seeking to move to a basket of currencies in oil pricing, rather than using the dollar alone. There are genuine developments behind such rumblings, mostly concerning American economic policy. But there are also reasons to believe the dollar has staying power, especially if U.S. errors can be fixed.
If Arab and other oil producers are indeed looking to move away from the dollar, they have cause. The Federal Reserve has been too free and easy for years, pumping too many dollars into the world economy. Like anything else, too many dollars means each one is worth less.
Looking down the road, deficit spending is set to make matters worse. Unnecessary deficits under the Bush Administration have given way to colossal deficits under the Obama administration, plus a free-for-all Congress that seems to be in charge of economic policy. When a government can’t control itself, its economic partners deduce they can’t trust the value of that country’s currency. (more…)