Honey, I shrunk the dollar

This administration is content to let the dollar fall and bet that the global markets will glide the greenback lower in an ‘‘orderly’’ manner.

Right. Ever talk to someone who trades currencies? ‘‘Orderly’’ is not always in the playbook. As the former Clinton Commerce Department official David Rothkopf notes, despite all the talk about Social Security, many Americans are not really depending on it alone for their retirement. What many Americans are counting on is retain their homes and increase their value. And what’s been fueling the home-building boom and bubble has been low interest rates for a long time. If you see a continuing slide of the dollar you could see a substantial, and painful, rise in interest rates.

‘‘Given the number of people who have refinanced their homes with floating-rate mortgages, the falling dollar is a kind of sword of Damocles, getting closer and closer to their heads,’’ Rothkopf said.

Why is that sword getting closer? Because global markets are realising that we have two major vulnerabilities that this administration doesn’t want to address: We are importing too much oil, so the dollar’s strength is being sapped as oil prices continue to rise, and we are importing too much capital, because we are saving too little and spending too much.

‘‘The US pulled in 80 per cent of total world savings last year largely to finance our consumption,’’ said Robert Hormats, the vice-chairman of Goldman Sachs International. That’s a big reason why some ‘‘43 per cent of all US Treasury bills, notes and bonds are now held by foreigners”.

And the foreign holders of all those bonds are listening to our debate.

The New York Times