Thinking about dollars

COUNTRIES GO broke gradually, by borrowing so much money that creditors lose confidence in their ability to pay the debt back. Then, they go broke suddenly as creditors stop lending.

This has happened to more than a dozen Third World nations, who had the additional misfortune of having to borrow in dollars. As their own currency lost the confidence of world markets, they lost value against the dollar. This only increased their real debt burden. The optimists say, ''It can't happen here."

First, we're the people who print dollars. So if the dollar is losing value, it just means the money that we owe the rest of the world is getting cheaper. Lucky us.

Second, we enjoy a codependency with our creditors. For instance, China, which keeps lending us money to finance our deficits, may be accumulating dollar credits that are losing their real worth. But China needs us to keep absorbing their products, so China will go right on lending.

And third, the United States remains the anchor of the world economy. So even though other nations may not like America's immense trade and budget deficits, nobody is going to risk pushing the world into depression by crashing the dollar.

That, as I say, is the optimistic view. Well, dream on.

Yesterday, the bipartisan Congressional Budget Office, possibly the last intellectually honest government agency in George Bush's Washington, reported that our fiscal situation is even worse than expected.

Read on...