Krugman, in his NY Times editorial piece, tells of how Rubin has crossed over and now is talking about the upcoming dangers of a US economy out of control. Out of control in that the budget and trade deficits are looming over a weakened US economy. Like Rubin, Krugman does not believe the current administration can neglect to address the increasing problems of the deficits. To think that any administration can continue borrowing against the future generations or continue to allow trading partners to sell like madmen in the US, only begs for a disaster to occur. I believe the US economy can withstand a few more years of growing deficits as many of the non-US holders of US treasuries are foreign banks and governments. In effect, the rest of the world is looking after the greenback. As the world sells to the US, the world holds onto the dollar. The Japanese and the Chinese have a vested interested in ensuring that the greenback stay strong or relatively strong for the next few years. However, I would not be surprised if the Japanese and the Chinese allow the yankee dollar to fall another 10-15% by the end of the year. My outlook for the greenback: 90 yen to the dollar by year-end. The euro will be trading at 135 to the dollar. Yikes! (NY Times.)
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