So it's no surprise that I take issue, once again, with one of his columns. This time, it's not just that he's wrong (as with the average propensity to consume/marginal propensity to consume thing). It's that he's dishonest with his argument. I'll give him the benefit of the doubt and say that the dishonesty was not malicious or intentional. Instead, I'll just presume that his liberal sunglasses are just too dark for him to understand others' points.
Those who are bearish on the dollar right now have a simple argument: the massive federal deficit, which will only get larger, will lead to inflation, since to meet its debt obligations the United States will have to devalue the dollar. (Why? Since that makes our debt easier to pay. If, for example, we owe country A $100 in today's nominal terms, then by allowing the dollar to weaken, $100 will be worth less and therefore easier to pay next year due to inflation.) This devaluing of the dollar will cause international markets to lose faith in America's propensity to repay its debts for the real cost of them (instead of the devalued cost), which will lead them to favor more stable currencies. That's it. That's the argument.
Daniel Gross ignores the most important part of the above paragraph: the verb "will lead". Few are arguing that the dollar is excessively weak right now. In fact, though the dollar declined throughout early 2008 as the recession really set in (makes sense; in a recession, people don't want to borrow the recessionary country's currency), the moment it became a worldwide recession, international investors flocked to dollar, which, for all its own issues, remains the go-to currency in times of trouble. Everyone agrees with that. However, times have changed, and the world is changing. The dollar's decline may be nigh. Why?
- The dollar no longer has the dominant world share that it once did.
- The dollar has competition, partly based on the U.S.'s geopolitical competition. China is a rising power which depends on its trillions of reserve dollars. It wants the hegemony of the U.S. to be weakened (and its own fortunes to be less dependant on America's), so is pushing for a worldwide reserve currency. OPEC countries are doing the same.
- Deficit spending leads to devaluation.
- Investors don't like dollar devaluation because of the inflation that accompanies it.
Gross acts as though because the dollar hasn't already collapsed, all these people are wrong. But their argument isn't that it has collapsed, but that by government spending continuing apace, it will. He doesn't even address that, more salient nuance but simply pretends it doesn't exist, making him look the fool.
Oh, yeah. Then he blames it all on George Bush. So, half the article is about how people arguing for the likelihood of a future event are wrong because that event hasn't happened yet. The other half is about how it's George Bush's fault and that Obama's role increasing the deficit can't be blamed on him ($787 non-stimulating stimulus, anyone?). Not that George Bush has no culpability here (he certainly does), but maybe Mr. Gross could take two seconds to realize that the effects of deficits are very real and don't change depending on who's living at 1600 Pennsylvania Ave.