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The Wall Street Journal on the potential for a dollar devaluation crisis:
There are plenty of troubling precedents. Over the past decade, a dozen smaller economies from Mexico to Thailand have gone from growth to deep recession when their currencies collapsed. Even rich countries like Canada have been forced to adopt austere budget policies to cope with currency-induced turmoil. “We are increasingly vulnerable to the kind of sudden stop, where the capital inflows dry up all at once, that’s been the bane of emerging markets over the years,” says Barry Eichengreen, an economic historian at the University of California at Berkeley.
Could it happen here? It certainly hasn’t yet. In a crisis, foreign investors dump stocks and bonds, fearing depreciation will cause further losses. Yet U.S. Treasury bond prices, and thus long-term interest rates that move in the opposite direction, have changed little in the last year — and stocks are higher. A review of past crises world-wide suggests the U.S. has enough going for it now to avoid a similar fate. Yet the magnitude of the imbalances hanging over the dollar is also without precedent, suggesting a crisis remains possible.
This from the newspaper of record for capitalism and an editorial supporter of the Bush Administration. In so many ways, the Bush Administration is undermining the economic foundation of the United States. Let them drive more value out of the economy by plundering Social Security and we’ll be just about back to the days after the Civil War, when currency, national debt and the banking system were tools of the rich rather than tools in the service of the people.
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