As long as foreigners keep buying, the day of reckoning will be postponed, probably until later this decade, and certainly well after the 2004 presidential election, many international economists say.
"Everyone agrees these deficits are unsustainable; at some point, something has to give," said Nouriel Rubini, an international economist at New York University's Stern School of Business. "I'm not sure if it's in two years or three years, but it will be in the medium term, not around the corner."
In truth, the big question about the U.S. dollar is not necessarily why it has fallen to a record low against the euro, but why it remained so strong for so long while the United States was racking up a widening trade deficit.
Typically, one way to reduce a current account deficit is to have a recession in which consumption and investment fall, and so fewer goods and services are imported. Another is to have the value of a country's currency decline, so that its exports become cheaper on world markets, its imports become more expensive and gradually the trade deficit shrinks.
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For politicians entering an election year, the question is when. There are pessimists who believe the fallout has already begun. Super-investors Buffett and George Soros have already begun snapping up foreign currencies in anticipation of a continuing dollar slide, something Buffett said he has not done before in his 72 years of life.
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"Why do people want to keep buying the dollar?" Black asked. "It's been living off the vapors of its past credibility. This is mass psychology, and once everyone agrees there's a problem, there's a problem."
