Sunday, January 31, 2010

Can we project stability, please?

Thomas Friedman points out that the US seems to be losing its shine of stability.  Other countries might love us, or hate us, but the stability has never been doubted.  But, not now.  On the one hand the sense of a "permanent revolution" does inject life into democracy, and upends any business as usual approach.  But, on the other hand, it is a fine line that separates a healthy democracy from chaos and anarchy!  No, we are nowhere near anarchy. Thankfully.
Anyway, Friedman writes:
“Political instability” was a phrase normally reserved for countries like Russia or Iran or Honduras. But now, an American businessman here remarked to me, “people ask me about ‘political instability’ in the U.S. We’ve become unpredictable to the world.”
...
We’re making people nervous. 
After that great start to the column, Friedman kinds of drifts off ....

Well, if fiscal issues are already driving the dollar down, I wonder what the perception of a loss of stability will do:
You can debate all you want about the advantages and disadvantages of a declining dollar. But the question is no longer whether it will happen but rather when, and how. Thus, it pays to prepare. A change from a dollar-centric world to something else could create financial instability everywhere. To prevent that from happening, the U.S. should be working on designing a new rule-based global monetary system, in which the dollar plays a strong role alongside the euro and eventually the Chinese RMB, plus a new currency issued by the International Monetary Fund. Many American companies will do well to expand their operations overseas, where their earnings in foreign currencies can make them stronger and more profitable. Investors will need to diversify their assets internationally to a much greater extent than most have.
I'd much prefer to be predicting a strong dollar, one befitting a great nation on the rise. Right now, however, that seems like a hallucination.

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