--Commentary by Dr. Robert J. Polack
The deadly combination of rising deficits together with decades of trade imbalances now threatens a significant devaluation of the dollar. It seems that the Saudis, Japanese, and others who typically finance our chronic overspending are growing skeptical of our ability to repay our debts.
Partly because of its historical stability, the dollar also has been the primary reserve currency of the global market. This status could change in literally a moment. There is little standing in the way of a shift toward the euro, and there are mounting pressures for this to occur. The results, which I increasingly view as more a matter of "when" rather than "if", will be devastating.
It would be unfair to blame this impending crisis entirely on President Bush who inherited a virtual recession, long standing trade imbalances,and a massive debt, but he has done nothing to slow the avalanche of contributing factors. In fact, a wide range of Bush policies have now pushed the situation toward an increasingly certain crisis. My personal assessment is that we will not continue on the current path, with existing trends, for more than 8 additional years.
Editor's note: At noon in Europe today the euro was trading at $1.3308 against the dollar, shrinking the dollar to .6692 cents. The 12-nation currency broke an all-time high last Tuesday of $1.3470 before the dollar rallied. Several economists see the rapid rise of the euro from around $1.20 in September more as a sign of dollar weakness than euro strength and attribute this strength to nagging concerns over the U.S. trade and budget deficits.