This could get ugly

For more than a year, I've been posting on the subject of the prospect that the nations (Japan, China and Europe, chiefly) that have been purchasing and holding assets in dollars, including our federal debt instruments and stocks in American companies, would tire of doing so as the value of the dollar against other currencies declines. The Bush administration has telegraphed that it wants the dollar to decline so that foreign nations will be able to afford our products, thereby causing increasing sales of US goods abroad. This may benefit the corporations that export, but the decline of the dollar has a distinct downside for American consumers, namely, that the cheaper dollar can buy fewer imports (cars, computers, everything, actually), so that price inflation begins to take hold in the US, coupled with interest-rate increases as the US must increase the interest rate on its debt in order to attract buyers on the instruments.

It looks like the dollar is losing out to the euro lately in terms of foreign holdings. Will the nightmare of inflation, increasing interest rates and less purchasing by consumers then follow, causing a catastrophic decline in the condition of the US economy?

If I were a betting man, I'd say, buy euros.