Tuesday, May 20, 2003

OK, the General couldn't let this one pass: "euro showed today how thoroughly it has taken on its latest role: shock absorber for the world's leading currency." What exactly does this mean anyway? That the dollar's fall is being cushioned by the euro? After all, the shock absorber in my car allows me to hit those potholes oblivious to the conditions on the road because it takes the hit from the tires without transmitting them to me in the driver's seat. So the dollar is me, the euro is the shock absorber -- so what's the pothole? US deflation? US recession? I don't think anyone really believes the euro is heading off either of these dips in the road ahead. A fall in the dollar is not going to make much of a dent at all in the US current account deficit. With Germany, Italy and the Netherlands in recession and most of Asia pegged to the dollar, who exactly is going to be buying US products and services now but wasn't in 2002? After all, the broad dollar index fell in 2002 by 3.6% (Feb. '02 to Dec. '02) but the current account deficit continued to soar -- mostly because US exports dropped pretty handily. So is Canada going to pull the US exporters' fat out of the fire??


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