Thursday, December 23, 2004

Dollar may keep falling, reality says

Two facts explain why the dollar will keep falling for another generation at least.

Americans don't like saving. Japanese like saving.

This is cultural. This won't change.

If anything, this cultural gap will widen over the next 50 years as the Japanese population ages terribly and becomes even more thrifty.

But what does American indulgence have to do with the dollar?

A currency is like a reality check. It's one of the few things the government can't influence directly (unless they do something to influnce it directly).

Every time Americans swipe their credit cards at the cashier they're chipping away at their nation's credibility with overseas investors.

The only way to make up the monthly payments is to attract foreign money and this attraction rises when the dollar becomes cheaper.

And so the market bids down the dollar, every day.


The dollar should only weaken as a last resort. After all, it's the currency most people use around the world to facilitate transactions and a weaker dollar is reducing the incomes of people around the world.

This is bad for the world, by the way.

There is no feasible solution to the problem other than to impose upon Americans the idea that by spending more than they earn will hurt them, their friends, family and future generations.

The odd frown shown upon those who spend too much would be a cracking start...

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