The Real
Issues: Economics
A Dollar Rout? A Response to Iceland
By Charles Kirchofer, Nov. 8th, 2008
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It may surprise many readers, but some of us were worried until just
recently about the prospect of a dollar rout! The dollar was declining
steadily, inflation was on the rise, the U.S. was in the middle of the
largest financial crisis since the Great Depression, and a recession
seemed unavoidable. The Euro reached a value of over $1.60 at the peak,
largely due to the dollar's decline.
Then came the next surprise: the U.S. economy continued to grow despite
all the problems due to the export sector. The Fed and the U.S. gov't
reacted quickly, and suddenly the dollar seemed a safer bet than any of
the smaller currencies. Plus, the overvalued Euro looked ready to come
down now that the credit crisis was hitting Europe and a recession was
expected there as well. For a while there, many began thinking the
unthinkable; even the Economist mentioned the term "dollar rout" once
or twice, albeit always in the range of stretched possibility.
Many thought the prospect of a dollar-rout unthinkable, and they were
right... this time.
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