More on that dollar of yours

Supplemental to my earlier post...

Steve Clemons of Washington Note posts:

I have written before that America has its head in the sand when it comes to its quickly deteriorating economic portfolio.

On the one hand, I hate to see America pointing itself in a direction which will make the nation overall a much poorer country -- but there are days when my frustration that Congress is failing to curtail the naturally expansive powers of the White House that seeing the dollar fall through the floor might be the only constraint the President pays attention to. It's tough to support George Bush's pretensions in the world while so dependent on foreign financiers, particularly China, to keep our economy chugging.

Economist David Hale has just sent me his latest paper, "Economic Risks in 2005." It is not available online, but I am going to post a long-ish excerpt from this superb survey of potential economic potholes ahead on the East Asian Central Banks.

Here is the excerpt:

The East Asian Central Banks

The east Asian central banks now have $2.4 trillion of foreign exchange reserves or over 66% of the global total compared to 30% in 1990.

[...]

As the November trade data demonstrated, the risk is high that the U.S. current account deficit will continue to expand during 2005 because of the strong growth rate of U.S. domestic spending.

These factors suggest that the dollar could slump further during the next few months.

[...]

The odds are high that [China] will [...] accumulate at least another $100 billion of forex reserves during the next six months.

The most likely time for an Asian currency adjustment is late 2005 or early 2006, when the U.S. external deficit will be close to $700 billion and Asian forex reserves will be approaching $2.8 trillion.

The appointment of a new Federal Reserve chairman could also influence attitudes. One of the leading contenders for the job is Harvard Professor Martin Feldstein. He favors a large dollar devaluation to reduce the external deficit.

[...]

Feldstein, if appointed, may pursue an ever weaker dollar strategy that finally breaks the dam, raising the cost to Americans of Chinese goods -- but it will also create significant pain in Europe and lower the quality of life for Americans used to the narcotic of cheap goods abroad.

I don't see many ways out of America's economic mess that don't negatively impact the living standards of average Americans -- but I do think that we need something from the Bush administration that looks and sounds like serious economic strategy.

Read it all here. But you know Simple Simon's answer to the problem....

"There's a trade deficit. That's easy to resolve: People can buy more United States products if they're worried about the trade deficit." - George W. Bush, December 15, 2004

Update 6:40pm: And while we're on the subject of overspending...

WASHINGTON - Vice President Dick Cheney said Sunday that the U.S. government could borrow $754 billion in the next decade to help finance private accounts for Social Security without hurting the U.S. economy with higher budget deficits.

[...]

The projected shortfall of payroll-tax revenue to pay Social Security benefits can be financed by rolling back a third of Bush's $1.85 trillion tax cuts, set to expire in 2008, Sen. Edward Kennedy, D-Mass., said on NBC's Meet the Press. "The president's program to make his tax cuts permanent is three times what's necessary to fix Social Security."

In his State of the Union talk last week, Bush "never mentioned what his answer was" to Social Security problems.
  Arizona Central article

But you can bet it wasn't to roll back rich folks' tax cuts.