The Dollar Gets Stronger, Stumping Our Chattering Classes
Wall Street Journal. It was not so very long ago that the chattering classes were prophesying the end of the dollar’s role as the global reserve currency. In the FT, an economist worried, “The US will unavoidably account for a declining fraction of global gross domestic product, limiting its ability to supply safe and liquid assets on the scale required.” The WSJ published a piece entitled “Why the Dollar’s Reign Is Near an End.”But those eulogizing America’s currency spoke too soon. Caught up in their narrative of decline, our lose-lipped commentariat made the mistake of speaking with certainty about something as unpredictable as global financial markets. As the global economic crisis recedes everywhere except snake bitten Europe, the battered greenback is looking relatively good.Now, this isn’t happening because the United States is a model of good economic governance. There are times when, between fiscal cliffs, sequesters and the ever-growing piles of unfunded entitlement commitments, it looks as if Washington, DC, is doing its best to wreck the economy.But the dollar is blessed with weak competition. The euro is a disaster, the yen is a mess, and the renminbi isn’t ready for prime time. Compared to the rest of the world’s currency, the dollar looks pretty good; it’s the healthiest patient on the floor.The people who continually and habitually undersell the United States usually have a point when they note American weaknesses that could cause us trouble down the road. But they forget to weigh in the weaknesses and liabilities of the competition.Take the Europeans, who spent the last decade dissing America’s economic and political mistakes only to discover that in their vaunted euro they had created one of the truly great policy disasters in the economic history of the human race. Against gold, the dollar has been a disaster, falling from about $350 an ounce in the Clinton years to near $1600 today. But against other fiat currencies, the dollar continues to offer more stability, deeper markets and more competent and predictable stewardship from a better managed central bank.