The dollar comes under increasing pressure
[D]escribing the dollar as a “safe haven” seems dubious. Indeed, the weakness of American fundamentals has revived the longstanding bearish case against the currency. Some cite the American budget deficit, expected to be 13.5% of GDP this year. There is little sign that the Obama administration has a plan to reduce it, and health-care reform may add to it. In addition, there have been several comments from Chinese and Russian officials expressing a desire to diversify their reserves away from the dollar, or implying that the American government needed to do more to support its currency.
It is hard to think of a parallel in history. A country heavily in debt to foreigners, with a government deficit it is making little attempt to control, is creating vast amounts of additional currency. Yet it is allowed to get away with very low interest rates. Eventually such an arrangement must surely break down and a new currency system will come into being, just as Bretton Woods emerged in the 1940s.
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