Suddenly, it’s as if all the talking heads and spouting
mouths have cottoned to the fact that the dollar is very strong-which it has
been for about seven years-and that this represents a clear and present danger
to the political economy of this great Republic. Most commentators seem to be
under the impression that the dollar’s strength is the consequence of policies
hatched in Washington, and that the reversal of those “policies” will bring our
currency back in line with norms that economists-especially those of the Op-Ed stripe-would
deem more rational.
This column has, as readers know, for some considerable time
now made the argument that it has been the unique, powerful situation of the
greenback, and not the Greenspan, that essentially underwrote the great 90’s
boom in the economy at large and in the capital and securities markets. The
Great G. merely mouthed off in a manner calculated to promote the view that he
was in charge of, and in some fashion responsible for, a trend in monetary
events that he may have understood-although he has, in fact, given little indication of that-but certainly had no control of.
He has, in other words, been the perfect Op-Ed chairman of the Federal Reserve,
blathering away uselessly in the foreground while the great world, like the
vast ocean in Moby-Dick , rolls on.
The question has been asked (and answered) in this space as
to what conjunction of forces, heavenly and otherwise, has allowed our
circulating paper to rise and rise and rise in the face of practices that would
have condemned-and historically have condemned-any other realm’s coin to
currency perdition. Among these have been: record trade
deficits, fiat reduction after reduction after reduction in the official
interest rate, a slowing economy. None of these has had the slightest
effect in checking the dollar’s strength. So what can it have been, then? Federal policy? But it is the foregoing that have been
federal policy, if anything has been, and these moves have been wholly in the
direction of easing a currency that insists on growing stronger in the face of
them! One person who understands this is Treasury Secretary Paul O’Neill, whose
mind is clearly looking forward to a point in the future beyond the
contemplation of the think tanks and the National Association of Manufacturers.
Common sense-a habit of mind almost wholly absent from the
Op-Ed pages of our greater journals-suggests but one answer. In a globalized
economy that is conjugated in trillions and large fractions thereof, there is
at present, among all the stores of value known to man, no acceptable alternative to the dollar. I use the word “acceptable”
to denote real-world, real-time, real-money consumer/user preferences, as
opposed to the windy theories of the dismal scientists. The dollar, if I may
borrow a useful phrase from my admired friend Jim Grant, is the world’s
What are the alternatives? Not the yen, sterling, gold, the
euro, the renminbi. The central banks and finance ministries that call the
shots with respect to yen, euro and renminbi are either not trusted or
sufficiently seasoned; there is not enough gold out there to underpin the
footings; as for sterling … well, I don’t have to comment.
That there is no alternative to the dollar should not be
interpreted purely in terms of economics. Which is not to say
that powerful economic forces haven’t been at work. Here’s a rather apt
summary from a review in the July 27 Times
Literary Supplement by Northwestern professor emeritus Harold Perkin of a
book, Goodbye America!: Globalization,
Debt and the Dollar Empire by Michael Rowbotham, that sounds half-cracked
but still interesting: “… American trading success would be perpetuated in
permanent export plus investment-income surpluses, inevitably entailing
permanent debt for other countries, which would therefore become its dependent
clients. The consequent loans were funded not by matching savings in the
advanced countries but by creating credits in effect out of thin air. This was,
in effect, the creation of money, not so much by governments … but by the banks
that bought their scrip.”
It started back in the 70’s with “petrodollar recycling.” By
the end of that unhappy decade, The Bank
Credit Analyst would observe (an observation I have frequently repeated in
this column) that no one had any idea, within
$350 billion -which, back then, was a whole bunch of money-how many
Eurodollars, petrodollars, Asia dollars, etc., were
outstanding. This was money created by Citibank et al. in overseas offices
beyond the regulatory reach of the Fed that was, for all practical purposes,
fully convertible. It is a practice that continues unhindered today, a
quarter-century later, and emphasizes anew the pertinence of Martin Mayer’s
comment that a country which can’t control its currency will eventually be
unable to control much else about itself.
There is a point, I think we can safely say now, at which
the flood of dollars unleashed upon the world ceased to be a means of financing
trade and became a trade in itself: an export for us, an import for others. In
some countries, such as Argentina,
boards were set up to “dollarize” the economy. In others-the former Soviet
Union, for one, or Jamaica-the
dollar became the dominant component of the cash economy. The dollar let us buy
whatever we wanted wherever we pleased, including a considerable share of
overseas productive capacity.
A terrific state of affairs, really.
And all due to one circumstance: There is
no acceptable alternative out there.
And until there is, the dollar will reign supreme, and there
will be a keening and rending of garments at Brookings and elsewhere.
Now, the questions thus become: 1) Is
this a desirable state of affairs, and (2) might a “challenger” arise?
Nothing that wholly distorts equilibrium is a good thing if
it continues indefinitely, since disequilibrium must ultimately produce chaos.
This is, I believe, an issue to which Secretary O’Neill, chief economic adviser
Bruce Lindsey and others near to the pulsing heart of America
must be devoting a certain amount of thought. If not, they should be. If only because,
as I am morally certain, the tyranny of the dollar has given rise
to real antipathies in many a world capital that we need to confront and deal
with. These days, we walk loudly and proudly, and instead of a big stick we
brandish a fat bankroll-and we rule the earth, and
large sections of the earth hate us for it.
As for an alternative-a “challenger,” if you will-I think
there is one lurking behind the arras. An alternative whose longer-term
consequences for the dollar, and for this economy as it is presently
structured, could be grave. Let me put it to you very simply.
Next year, the euro will become something it hasn’t been so
far: real money. Notes and coins in the pockets of human
beings, and not merely digital entries on the hard drives of computers. Tangible specie that will gradually take on a reality in the minds
and hands of hundreds of millions of people that the virtual central-bank
currency of today lacks.
I believe that this new reality will give the euro a
perceptual legitimacy, an authenticity that will change the game. I can see a
day when OPEC will agree to invoicing in euros. Money
must be real in the minds of people, and it doesn’t become so until they can
get their hands on it, roll in it physically, stuff it into mattresses, slide it onto a green-baize table. Do stuff you can’t do
When that day comes-when the euro acquires a populist
reality (for lack of a better word)-I think we may find the game has changed. And not for the better.