Current Affairs

Bush’s Trip to Europe

Felix Rohatyn writes in this morning’s Washington Post about the importance of a dialogue with Europe’s business leaders.

Economically, Europeans view their investments in the United States through the prism of the significant devaluation of the dollar. If one were to assume an average of only 30 percent devaluation of the dollar vs. the euro (as opposed to the current 40 percent or more), present-day portfolio losses for the Europeans due to dollar devaluation would be in the hundreds of billions of dollars. Europeans are skeptical about our mantra that “the United States is for a strong dollar” as well as about our commitment to deficit reduction, since, as a practical matter, the Treasury and the Federal Reserve have acquiesced in a policy of cheap money and high deficits.

Separately, Paul Blustein writes in a longer article in the Post about the weakness of the US dollar.

No one can predict how this process will unfold. It could come in the form of a sudden sell-off of U.S. stocks and bonds by foreigners, which could throw the world economy into recession. Or it could be much more gradual, with foreigners demanding higher yields on the money they invest in the United States, which could drive interest rates upward.