Despite attempts by the Fed, or because of it, the dollar is sliding further still and gold, always a haven for confidence lost, has gone beyond $1,000 an ounce. The Fed’s rate cuts have created some impressive rallies, but don’t appear to be fixing the problem. Making the American dollar yield less is no way to attract investment. There is grumbling through the byzantine channels of international finance that America, as a republic, might well be facing the mother of all margin calls. Like Bear Stearns last week, and the hedge funds that have fallen since the summer, investors are demanding more collateral to put money into America.
Gloomy to be sure, but the economy has yet to sink to the seventh circle of hell. The weak dollar has it’s strong points. Tourism is up because foreigners can afford to go abroad and Americans can’t. Offsetting the lack of investment, the same foreigners are coming stateside to shop-till-they-drop at good dollar denominated prices.
It rankles the pride of American globetrotters, long used to treating the rest of the world like a huge version of Disney’s “It’s a Small World” exhibit, to suddenly be the victim of camera wielding, foreign people asking the silly questions we used to ask them. “Are you Southern Gent?” the Russian asked me in broken English.
“Do you whistling Dixie?”
“I can, but I won’t.”
“Had one for breakfast, Dmitri.”
“Do you hate blacks? Have you lynched a black man?”
“NO! Can I go now?”
A year ago an Irish disciple of Elvis told me that Memphis surprised him because he thought Southerners didn’t wear shoes. I asked him, politely, where his green bowler was. Dtente achieved, we had a beer, a Guinness for me and a Bud light for the son of Erin.
More importantly, American exports are booming. Excluding the high price of oil, our enormous trade account deficit has narrowed sharply. Commodities producers enjoy high prices created by the ravenous demand of people who, until recently, were too poor to demand much of anything. For the first time in living memory, farmers are doing well. This may not be enough to eliminate a recession, but it just may soften the blow.
There is a fundamental shift in economic power when an economy goes from being so rich it can buy without concerning itself with selling, to being forced to sell at bargain basement prices. The global economy will certainly slow on a US recession, but the emerging economies appear to have enough steam to spend their way through it. The American consumer, stretched and tired from having softened the last two global downturns through over the top spending, ought to draft behind the roaring engines of Asia and South America, and take the time to regain his financial footing and regain his confidence.
The boom in exports and commodities is coming from abroad. Those who fear globalization would do well to remember that.