Not long ago, a post on the Canadians in the US list reminded expats earning Yankee dollars that the US dollar had climbed to an all-time high, and now would be a great time to pay off Canadian student loans and credit-card bills.
How the dollar has fallen! Charlie Stross, recently retired from writing for a British magazine to write novels full-time, largely for US publishers, notes that the US dollar has hit an 11-year low against the UK pound. In the past couple months, I've watched my own purchases on trips to London get 4-5% more expensive, as the rate went from $1.7 to $1.8 to the pound. For Charlie — earning US dollars, spending UK pounds — this is a 4-5% pay-cut, courtesy of the world currency markets.
Writing in the New York Times, Paul Krugman notes that the US dollar's ride down the toilet has not occurred in a vacuum. Rather, it is the consequence of the current administration's tax-the-poor-and-not-the-rich-and-spend-in-Iraq fiscal policy, which is sending the US debt and deficit into unprecedented levels.
Unprecedented in the US, that is. The economic policies of the Bush administration do have a solid precendent further south, in Argentina, where "business-friendly, free-market policies would…allow the country to grow out of…budget and trade deficits," but where, instead, the economy collapsed spectacularily.
Remember the pictures of women in fur coats smashing ATMs in Buenos Aires after the banks froze everyone's accounts? The miles-long barter markets that took up positions down the middle of the national highways, allowing refugees to swap their meagre possessions for the necessities of life?
Krugman says that the Argenitinification of the US economy is a serious possibility, and discounts the fuzzy Schwarzzenegarian deficit plans ("I will examine the books!") as a plan in "flat defiance of the facts."
"Substantial ongoing deficits," they warn, "may severely and adversely affect expectations and confidence, which in turn can generate a self-reinforcing negative cycle among the underlying fiscal deficit, financial markets, and the real economy. . . . The potential costs and fallout from such fiscal and financial disarray provide perhaps the strongest motivation for avoiding substantial, ongoing budget deficits." In other words, do cry for us, Argentina: we may be heading down the same road.
