By Steve Greenfield, Featured Columnist, CollectiveWizdom.com
Since its creation in 2002, the “euro” ----a Frankenstein creation that replaced the former currencies of 12 European countries like France, Germany and Italy--- has beaten the socks off the American greenback. Back then, the euro limped out of the gate at a parity with the greenback. It quickly dropped to around 86 cents for every dollar.
That was then. As of November 11, 2007, Veteran’s Day here in the U.S., the euro is worth 1.46 American dollars. A single euro now buys 46% more than its American peer.
The dollar has fallen to a 26-year low against the British pound. It has fallen to a 33-year low against the Canadian dollar.
What has happened to put the dollar in a free fall ? Throughout the last century, every American President and every American Treasury Secretary has repeated the mantra that “a strong dollar is American policy”. As recently as October 10, two weeks before the G-7 Summit, both the current President and the current Treasury Secretary recited the mantra by heart.
“ I feel very strongly that a strong dollar is in our nation’s interest,” stated Treasury Secretary Henry Paulson, formerly Chairman of Goldman Sachs.
What’s missing is the “and therefore”. In the past, severe drops in dollar values have brought strong corrective actions, a buy back of the dollar in effect to prop up the value. No such cavalry charge is coming in the current climate.
Which leaves all of us to wonder aloud—what happens if the dollar’s free fall continues? Is there any safety net down there?
Don’t bet on it. Secretary Paulson ha started adding a caveat to that ol’ strong-dollar mantra. “and we believe that currency values should be set in a competitive marketplace based on underlying economic fundamentals.”
Those underlying fundamentals are weak now in the U.S. A mortgage market meltdown, coupled with an economy strained by the $576 billion cost of war have all but tapped out the U.S. economy for the time being. We are now in hock. We are the largest debtor nation on earth.
And what happens when we take out some of our retirement in the form of those weakened dollars? A hidden costs of letting the dollar sink is that the buying power of those retirement savings ---once they are converted to dollars –is getting pretty pitiful. Worsening the situation is that, unlike savers in other countries such as Japan, few US-based banks offer Americans the option of holding their deposits in the form of other currencies. Only recently, a few German banks (Deutsche Bank) and on-line banks (everbank.com) have begun letting Americans open accounts in non-dollar currencies.
Brother, can you spare a euro?
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