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Decline or fall

October 19, 2009 in Economics

An ominous sign of future developments, the decline of the dollar. As foreign buyers buy fewer and fewer dollars and more and more euros and yen, the excess of dollars will put further pressure on the currency and on interest rates. If this continues, and there is not reason to believe it will change, the Fed Chairman will be put in an increasingly tenuous position. He will have to take the higher interest route to bring back the dollar and throttle the economy. Or, he will have to print money and risk inflation that will cause tremendous economic dislocation and eventually lead to raised interest rates that will throttle the economy.

This is the more optimistic forecast, one that merely predicts a long, slow downward drift for the dollar. This is the intermediate view about the fate of the dollar. With very few reservations, the vote is in favor of a weakened dollar caused by deficit spending and leading to an economic decline for the U.S. The Bush administration did not do enough to maintain a strong dollar, as shown by the rise of gold and other currencies in relation to the dollar. But, just as with deficit spending, they were pikers. This is far worse. For someone like me who believes in King Dollar through careful control over the money supply, government spending restraint, and low taxes, the Obama administration is an unbridled disaster.

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