December 3, 2004


Debtor Nation

By Robert B. Reich

The holiday buying season is upon us. You might as well spend your cash now because the dollar is dropping like a stone in international currency markets. It’s dropped nearly 30 percent since 2001, and is now at a record low. Even without the recent dour pronouncements of Alan Greenspan and Treasury Secretary John Snow, the greenback is likely to fall further. And the reason is simple: We’re living beyond our means. American consumers are deep in debt. The nation is importing more than we’re exporting. Most importantly, the federal budget deficit is out of control.

Nearly all of the increase in public debt over the last four years — some 1 trillion dollars — has been financed by foreigners, lending us the money. But who wants to lend more and more to a drunken sailor? Foreigners are bailing out of dollars. Even the Chinese and Japanese, who have kept lending so we’ll keep buying their exports, are starting to wise up.

American exporters are cheering because a lower dollar makes everything they sell abroad cheaper. But it’s bad for the rest of us because as the dollar drops everything we buy from abroad — including oil — becomes that much more expensive. And these higher prices will ripple through the economy, threatening inflation and higher interest rates — and, ultimately, reducing our living standards.

It’s one of the oldest of economic laws: When you’re living too high on the hog, eventually you’re gonna fall off and find yourself in pig slop.

Riding highest on the hog right now is the federal government, with a budget deficit of over $400 billion this year. Surprise, surprise! It turns out that cutting taxes while waging an expensive war and doling out corporate welfare leads to red ink. If I were cynical, I’d suspect the White House had an ideological agenda to starve the government so it can’t do much of anything in the future except wage war. But whatever the motivation, the deficits are driving the dollar down and subjecting America to huge economic risks. The sensible move would be to roll back the Bush tax cuts, but don’t hold your breath.

In the meantime, enjoy the holiday buying season, folks. And here’s a buying tip: With the dollar dropping, the nicest and safest gift you can give a friend or loved one is ... gold. But you better move fast. As the dollar drops, the price of gold is soaring.

Robert B. Reich is the Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University, and was the secretary of labor under former President Bill Clinton. Published November 24, 2004, in Tom Paine Common Sense (

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