A falling dollar wouldn't just hurt the US, we'd suffer too.
What else should we be worried about in 2008?
Else? Haven't the headlines already been filled with enough fearful forecasts from financial experts apparently keen to outdo each other in their expectations of Armageddon?
Correct, but unfortunately it never rains, but it pours...
...and Yes, there's another nasty out there, a time bomb waiting to nuke the dollar and shake the UK.
The US national debt.
At a towering $9.13 trillion, up from $2.7 trillion in 1989 and $5.7 trillion when President Bush arrived in the oval office in January 2001, the sum that America owes has grown from about 35% of national output in 1975 to almost 68% today. Now equivalent to over $30,000 for each man, woman and child in the States, it's ticking up at some $1.4bn a day, nearly $1m a minute.
Scary numbers. And getting scarier all the time.
Firstly because demands on the government purse are escalating...with the number of ‘65+' Americans expected to double within the next 25 years, and the working population growing less quickly, what is already the biggest bit of state spending will need more and more funding.
Secondly, without getting too political, the cost of ongoing conflict in Iraq and Afghanistan is more than the States can really afford, with a potential cost of some $2.4 trillion over the next ten years.
Yet with some analysts forecasting that the total deficit could exceed 300% of national output by 2050 unless the politicians call a halt, it can't go on forever. In the meantime, the interest bill keeps piling up. At $430bn last year, debt interest payments are already four times government spending on education.
What contains its own problem. Funding the deficit through selling short-term Treasury bills is OK while it lasts. Though in current credit conditions there's a risk of rising money market rates. Remember how a certain Newcastle-based mortgage lender found itself squeezed between two hard places?
Whilst the US isn't going to go bust - it can, after all, turn on the money printing press - the credit crunch could force interest payments on the national debt to rocket upwards.
And as debt repayment strains increase, there are risks that other government spending could be put under pressure. Eventually either services get chopped or tax goes up. Or both.
But what is likely to bring the deficit problem to a head?
Again, two answers:
First: the not-so-minor matter of who owns all that US debt.
Second: that economic recession that all of America knows is looming but no one much wants to talk think about.
Foreign investors now hold some $2.25 trillion, some 44%, of all publicly held US debt. That's up 11% from a year earlier.
Japan tops the table with $582bn, followed by China with $400bn and Britain on $266bn. The oil exporters account for $126bn.
The so-called ‘trade weighted' value of the greenback is down about 35% since the end of 2001. The more the US currency declines, the less is the appeal of US debt to foreigners.
The Chinese have already been making grumbling noises about the value of their dollar investments. One day, the risk is that they press the sell button in earnest.
As for recession...matters could come to a head very fast.
Few incumbent politicians like admitting the long-term fiscal issue and even fewer want it on the political agenda. Presidential candidates may be good at talking deficit reduction, but when?
Almost certainly not until it is forced on Congress.
The great American public doesn't like the idea of loading up future generations with debt, yet isn't too keen on paying those bills now. But irrespective of who wins the White House race, either major spending cuts or tax increases, or both, are no longer an option but a necessity, if only to stop the buck sliding.
And a dollar collapse wouldn't just be bad news for the States.
Britain would be rocked too. Soaring dollar-denominated oil and wheat prices would force up our fuel and food costs. And UK companies earning their revenues in dollars would be hit too.
Interest rate policy would be in tatters...and Sterling could be next on the hedge fund hit list.
We may think it's been getting tougher over the last few months. But if the dollar really nose-dives, we ain't seen nothing yet...
