75 yen to the dollar?

A couple of international investor types asked me what I think will happen to Saipan if, or when, my predictions of an ugly slide in the U.S. dollar blaze into reality.

That’s not just an issue for the sophisticated set, it’s a bread and butter issue for the Saipan industry. Everyone from jet ski vendors to hotel managers tracks the number of the yen to the dollar, for example, since it directly affects the spending power of our Japanese tourists. Ditto for the won and Korean tourists…and, well, so on.

In a pure tourist spending power context, then, a serious fall in the dollar will be good news for Commonwealth businesses, since the CNMI will become a cheaper place to visit.

Beyond that, however, there will be a lot of bad news to absorb. The garment industry will be caught on the wrong side of the currency slide, having to accept weaker dollars for its product, thus having to pay more for its Asian supplies. Furthermore, if the dollar’s slide is as dire as my predictions, American spending power will slide into the abyss, and the high-quality garments that Saipan exports will face weaker demand.

Meanwhile, our Filipino and, probably, Chinese workers will find that their wages are worth less in terms of their home country currencies. As for the Chinese, this presupposes that the yuan decouples from its ties to the dollar, but this is a matter of inevitability. There’s no way that the Chinese are going to absorb massive losses just to underwrite what is going to soon be Uncle Sam’s $10 trillion (yes, trillion) in U.S. government debt at the federal and local levels.

That’s a lot of government debt—a world record—but it’s just the beginning. You think the Commonwealth’s got problems? They’re just an anthill compared to Uncle Sam’s situation. When you add it all up, the U.S. is built atop about $32 trillion (yes, again, trillion) in debt, and the government programs have grown so fast that there is a $35 trillion (possibly more) fiscal shortfall on the way. If you add, then, the debt to the coming shortfall, you’ve got about $67 trillion in money that has to come from somewhere eventually.

And where can it come from? Nowhere! I’ll skip the economics of it and cut to the chase: This kind of situation can only lead to a currency plunge.

I have absolutely, positively no idea why I’ve reached this conclusion and nobody else really has. Worldwide, most economists these days are just “econocrats,” third-rate bureaucrats who can’t forecast anything at all, yet insist on explaining things to us after, not before, they happen, but such is the corruption of living off the lush teat of bureaucracy no matter where you go. But for all the faceless legions of these mediocrities, there are still a lot of plenty bright folks out there, so what are they thinking? I don’t know, but I suspect that they’re bailing out of the dollar as fast as they can. Otherwise, I must be really missing the boat. Or my calculator must be broken. Or all that lead paint I ate as a kid is catching up with me….or I should lay off the butane whifferdills and martinis before I get to the office.

A fall in the U.S. dollar will leave the entire world shaken and stirred, but it will affect the Commonwealth less than it will impact the U.S. mainland. Meanwhile, If I was an alien worker, I’d consider keeping some of my savings in my home currency now, just to guard against a dollar slide. Such a slide might happen next spring…or next year…or in five years…or, well, I don’t know, there is no means that I know of to forecast such things.

And, sure, the dollar will probably strengthen a bit when U.S. interest rates rise, but that’s just a minor trading valuation thing, not a fundamental shift in the overall situation.

So, I don’t know when the big fall will come. But there is no “if” about it.

(Ed Stephens, Jr. is an economist and columnist for the Saipan Tribune. Ed4Saipan@yahoo.com)