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The incredible shrinking dollar


The U.S. dollar is taking a nose dive.

Some people think that's good news. When the dollar drops, everything we export to the rest of the world becomes cheaper to them -- which means they buy more from us. That's why a lot of American businesses are cheering as the dollar continues to drop -- and why the Bush administration seems quite content to let it plummet.

But there's another side to this story. As the dollar drops, almost everything you and I buy from the rest of the world costs us more.

I'm not just talking about your vacation next year in Italy, which is now probably about 20 percent pricier than when you planned it. It's also the clothing you buy that was cut and sewn in Latin America or the high-tech components in your CD that come from Germany or the precision instruments in your car made in France. All of these -- and a lot more -- are becoming more expensive as the dollar drops.

In recent days even the OPEC oil cartel has said it might raise oil prices to compensate for the falling dollar. You may remember that's exactly what OPEC did in 1973 in response to a falling dollar.

And as we learned back then, it's possible for prices to rise in the United States even when a lot of people here are still unemployed. In the 1970s, we called it "stagflation."

A falling dollar also causes global investors to get nervous. After all, who wants to be stuck with investments in a currency worth less and less? Even Warren Buffet says he's putting some of his fortune into euros. If major global investors start pulling out of dollars, you ain't seen nothing yet; there could be a run on the dollar, like the runs on old-time banks.

Behind the falling dollar is this simple reality. America is spending like mad and going deep into debt. Personal debt is at record levels. The federal government is awash in debt, and that debt is growing. Our trade deficit with the rest of the world is also huge, and it's growing.

Just to keep the dollar steady would require that foreigners to buy 1.5 billion dollars every day. But they're not going to do that anymore. Why should they? We're out of control, like a drunken sailor. And, after all, who wants to entrust their money to a drunk?

If you hadn't noticed, Republicans are now in charge of all branches of government. Republicans used to be in favor of fiscal responsibility. They worried about things like wildly unbalanced budgets. But this crowd doesn't seem to care. They enact mammoth tax cuts, mostly for the wealthy. Then they go on spending binges -- showering corporate welfare on their friends and mounting major wars.

Well, even if the American public is asleep, the rest of the world is wide awake -- and they don't like what they see. The plunging dollar should be the Republicans' wakeup call.

Robert B. Reich served as the U.S. secretary of labor during former President Bill Clinton's first term.

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