Hostage to Our Ideology and Currency Traders

The trade deficit of a record $665.9 billion for 2004 could be exceeded by another $100 billion this year. That alone is terrifying in its implications for the U.S. economy. But here's the part of the report that really made my blood run cold.

The Bush administration has pressured China to allow the value of its currency to be determined by open markets.

The dollar has fallen significantly over the past three years against the 12-nation euro, the British pound and the Canadian dollar, but that improvement has not shown up in an improving trade deficit because of the currency manipulation in Asia, analysts said.

In other words, our currency is being artificially supported in the Asian currency markets, which in turn keeps our exports priced higher. So? Well, what is scary is that currency traders seem to have us by the short hairs, because they could trigger an even more precipitous fall in the dollar worldwide, and since our appetite for foreign goods is unquenchable, the effects rippling through our markets will be near cataclysmic. Stocks plunge, interest rates rise to lure back those foreign investors, and the prices of goods inflate. The average working American gets screwed again. Better get a third job.

How much power does this give the Chinese? Ironic, isn't it, that we should end up as dangling from a commie thread of financial support?

It's time to start looking at Euro-denominated bond funds, at least for yours truly.