Since its creation in 2002, the "euro," a Frankenstein creation that replaced the currencies of 12 European countries like France, Germany, and Italy, has beaten the American greenback. When it first came out, the euro was worth the same as the dollar. It went down quickly to about 86 cents for each dollar.
So much for that. As of Veteran's Day in the United States, November 11, 2007, one euro is worth 1.46 dollars. Now, a single euro can buy 46% more than its American counterpart.
In this column, we've scratched our heads over the fall of the dollar. What is happening now has never happened before.
The dollar is worth less than the British pound than it was 26 years ago. It is now worth less than the Canadian dollar than it was 33 years ago.
What's going on that has sent the dollar into a free fall? "A strong dollar is American policy" has been the mantra of every American President and Treasury Secretary for the past hundred years. Both the current President and the current Treasury Secretary could recite the mantra by heart as recently as October 10, two weeks before the G-7 Summit.
"A strong dollar is in our country's best interest," said Treasury Secretary Henry Paulson, who used to be the head of Goldman Sachs.
The word "and therefore" is missing. In the past, when the value of the dollar dropped by a lot, strong steps were taken to fix the problem. In effect, the dollar was bought back to keep its value up. At the moment, there won't be a cavalry charge like that. In fact, some people have said that the current U.S. policy is a smug satisfaction that the fall of the dollar has increased exports by about 15% because our goods are now cheaper for foreigners to buy.
Which makes us all wonder out loud: What will happen if the dollar keeps falling? Is there a net to catch you?
Don't bet on it. Secretary Paulson has started adding a caveat to the old "strong dollar" mantra. "And we believe that currency values should be set in a competitive marketplace based on underlying economic fundamentals," he said.
These fundamentals are weak in the U.S. right now. The U.S. economy is almost at its limit for the time being because of the collapse of the mortgage market and the $576 billion cost of the war. We're now broke. We have more debt than any other country.
And what happens when we take some of our retirement money out in the form of dollars that have lost value? One hidden cost of letting the dollar fall is that once those retirement savings are turned into dollars, they can't buy nearly as much as they used to. Things are even worse because, unlike many people from other countries, Americans who want to keep their cash in euros can't do that at many US banks. Some German banks (Deutsche Bank) and online banks (everbank) have started giving Americans accounts in currencies other than the dollar.
Brother, do you have a euro to spare?
Check out "The Amazing Shrinking Dollar" at www.collectivewizdom.com.
