Falling dollar? Don’t smile too much

Sometimes a little is good, but a lot is bad.

Which is a pretty darned good way to think about the continued weakness in the U.S. dollar. Sure, when it wilts, there are high fives in Saipan business circles. In fact, everyone in the Commonwealth, from cab drivers to hotel managers, knows that a weaker dollar makes our tourists instantly richer, as their native coin gains reciprocal strength.

OK, so a mild slide in the dollar is, overall, good news for Saipan. But what about a major slide?

Oh, that. Yes, the one I’ve been terrified about for the past few years. I’ll say now what I’ve said before: There is no way that Uncle Sam can shoulder the over $45 trillion, yes, trillion, in the future stream of unfunded government liabilities without letting the dollar get squished like a boonie dog on Middle Road. Depending on how and when you want to measure things, I’d say the dollar has fallen about 20 to 30 percent since I first predicted that it would fall, and I predicted it in this very column. It will fall much further, eventually.

Meanwhile, a red flag was raised a couple of days ago when the word hit the street that South Korea may start stashing some of its massive cash reserves in non-dollar currencies. This isn’t the first time that South Korea is a leading indicator of currency moves; money was moving out of there before the Asian currency crisis of 1997, and that was, in fact, the topic of the first memo I ever wrote to CNMI government officials (in February 1997), when I was a consultant to the Marianas Visitors Authority.

Watch South Korea? Yes. Always. There are some excellent economists in South Korea. If that country was bigger, and had more people, it would become one of the world’s dominant economies.

Things in international currency markets calmed down after the Korea revelation, but that’s like saying there are no cockroaches in your kitchen because the one you saw just scurried away. The dollar will zig and zag…but the fundamentals, I fear, all point one way: Down. The Korean factor will come back, maybe in Korea, maybe elsewhere, but eventually, dollars are going to get dumped by international bankers. At some point, a decline becomes a fire, as everyone runs for the exits.

And that kind of meltdown won’t be room for celebration at the Rotary Club, I fear. Why? Because it will signal a fundamental shift in the economic order of the world, and, quite likely, will mean sparks start flying between a fading U.S. economy and a rising Asian one.

And, on a community level, it will also mean that many of our retirees will wind up getting, essentially, quarters on the dollar on their pensions, at least in terms of real purchasing power. I hope this dark day never comes, since I want to see the U.S.A. stay as Top Dog. But the sad fact is that there is so much inertia behind the long-term economic factors that I’m tracking that optimism is not exactly overflowing from my computer. It is…well, downright spooky. And it is also the reason that I long ago broke open my piggy bank and sank my pennies and pocket lint into gold investments.

A moderately weak dollar can make the CNMI’s tourism industry smile, but when the dollar takes its inevitable big fall, it is going to rock the world. The CNMI might be uniquely situated to feel some whiplash, be it financial, economic, or even military.

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Many of you are aware that the father of Gonzo journalism, Hunter S. Thompson, committed suicide at his Colorado home on Sunday. Something tells me that Thompson would have loved Saipan. Many in Saipan certainly held him in high regard. And many of you have asked what I intend to say about Thompson in today’s column. Well, today, nothing, but I hope to have something in within the next few weeks, so please check this space, as always, on Fridays. And, as always, I’m happy to hear from you at Ed4Saipan@yahoo.com.