Wow. The NYT finally figured out that running giant deficits might not be such a great idea..
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The Importance of Being Earnest
Published: February 14, 2005
For all its talk of deficit reduction, President Bush's 2006 budget is a map of reckless economic policies and shows how they have backed the United States into a precarious position in the global financial markets.
Mr. Bush needs to convince foreign investors that he's serious about cutting the budget deficit. Here's why: Each day, the United States must borrow billions of dollars from abroad to finance its enormous budget and trade deficits. Without a steady stream of huge loans, the country would face rising interest rates, higher inflation, a dropping dollar and slower economic growth. The lenders want to see less of a gap between what the government collects in taxes and what it spends, because a lower budget deficit always eases a trade deficit. A lower trade deficit also implies a stronger dollar. And a stronger dollar would reassure foreign investors that dollar-based assets remain their best choice.
As it is, their belief is being sorely tested: in 2003, the European Central Bank lost $625 million to the weak dollar and reportedly stands to lose $1.3 billion for 2004. Japan's central bank, which has the world's largest foreign stash of dollars - some $715 billion - could lose an estimated $40 billion if the dollar weakened to around 95 yen, a level many analysts expect to see this year.
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In circles less glamorous than those occupied by Oscar and the NYT, we call this shutting the barn door after the horse is already out. But, hey, everyone got to spend their tax cut at Walmart, right?
