ALERT: "THE END OF NATIONAL CURRENCY"

Link to complete article--are they getting ready to pull the plug?

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http://www.foreignaffairs.org/20070501faessay86308-p0/benn-steil/the-end-of-national-currency.html

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The End of National Currency

By Benn Steil

From Foreign Affairs, May/June 2007

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Summary: Global financial instability has sparked a surge in "monetary

nationalism" -- the idea that countries must make and control their own

currencies. But globalization and monetary nationalism are a dangerous

combination, a cause of financial crises and geopolitical tension. The world

needs to abandon unwanted currencies, replacing them with dollars, euros,

and multinational currencies as yet unborn.

Benn Steil is Director of International Economics at the Council on Foreign

Relations and a co-author of Financial Statecraft.

THE RISE OF MONETARY NATIONALISM

Capital flows have become globalization's Achilles' heel. Over the past 25

years, devastating currency crises have hit countries across Latin America

and Asia, as well as countries just beyond the borders of western Europe --

most notably Russia and Turkey. Even such an impeccably credentialed

pro-globalization economist as U.S. Federal Reserve Governor Frederic

Mishkin has acknowledged that "opening up the financial system to foreign

capital flows has led to some disastrous financial crises causing great

pain, suffering, and even violence."

The economics profession has failed to offer anything resembling a coherent

and compelling response to currency crises. International Monetary Fund

(IMF) analysts have, over the past two decades, endorsed a wide variety of

national exchange-rate and monetary policy regimes that have subsequently

collapsed in failure. They have fingered numerous culprits, from loose

fiscal policy and poor bank regulation to bad industrial policy and official

corruption. The financial-crisis literature has yielded policy

recommendations so exquisitely hedged and widely contradicted as to be

practically useless.

Antiglobalization economists have turned the problem on its head by

absolving governments (except the one in Washington) and instead blaming

crises on markets and their institutional supporters, such as the IMF --

"dictatorships of international finance," in the words of the Nobel laureate

Joseph Stiglitz. "Countries are effectively told that if they don't follow

certain conditions, the capital markets or the IMF will refuse to lend them

money," writes Stiglitz. "They are basically forced to give up part of their

sovereignty."

Is this right? Are markets failing, and will restoring lost sovereignty to

governments put an end to financial instability? This is a dangerous

misdiagnosis. In fact, capital flows became destabilizing only after

countries began asserting "sovereignty" over money -- detaching it from gold

or anything else considered real wealth. Moreover, even if the march of

globalization is not inevitable, the world economy and the international

financial system have evolved in such a way that there is no longer a viable

model for economic development outside of them.

The right course is not to return to a mythical past of monetary

sovereignty, with governments controlling local interest and exchange rates

in blissful ignorance of the rest of the world. Governments must let go of

the fatal notion that nationhood requires them to make and control the money

used in their territory. National currencies and global markets simply do

not mix; together they make a deadly brew of currency crises and

geopolitical tension and create ready pretexts for damaging protectionism.

In order to globalize safely, countries should abandon monetary nationalism

and abolish unwanted currencies, the source of much of today's instability.

THE GOLDEN AGE

Capital flows were enormous, even by contemporary standards, during the last

great period of "globalization," from the late nineteenth century to the

outbreak of World War I. Currency crises occurred during this period, but

they were generally shallow and short-lived. That is because money was

then -- as it has been throughout most of the world and most of human

history -- gold, or at least a credible claim on gold. Funds flowed quickly

back to crisis countries because of confidence that the gold link would be

restored. At the time, monetary nationalism was considered a sign of

backwardness, adherence to a universally acknowledged standard of value a

mark of civilization. Those nations that adhered most reliably (such as

Australia, Canada, and the United States) were rewarded with the lowest

international borrowing rates. Those that adhered the least (such as

Argentina, Brazil, and Chile) were punished with the highest.

This bond was fatally severed during the period between World War I and

World War II. Most economists in the 1930s and 1940s considered it obvious

that capital flows would become destabilizing with the end of reliably fixed

exchange rates. Friedrich Hayek noted in a 1937 lecture that under a

credible gold-standard regime, "short-term capital movements will on the

whole tend to relieve the strain set up by the original cause of a

temporarily adverse balance of payments. If exchanges, however, are

variable, the capital movements will tend to work in the same direction as

the original cause and thereby to intensify it" -- as they do today.

The belief that globalization required hard money, something foreigners

would willingly hold, was widespread. The French economist Charles Rist

observed that "while the theorizers are trying to persuade the public and

the various governments that a minimum quantity of gold ... would suffice to

maintain monetary confidence, and that anyhow paper currency, even fiat

currency, would amply meet all needs, the public in all countries is busily

hoarding all the national currencies which are supposed to be convertible

into gold." This view was hardly limited to free marketeers. As notable a

critic of the gold standard and global capitalism as Karl Polanyi took it as

obvious that monetary nationalism was incompatible with globalization.

Focusing on the United Kingdom's interest in growing world trade in the

nineteenth century, he argued that "nothing else but commodity money could

serve this end for the obvious reason that token money, whether bank or

fiat, cannot circulate on foreign soil." Yet what Polanyi considered

nonsensical -- global trade in goods, services, and capital intermediated by

intrinsically worthless national paper (or "fiat") monies -- is exactly how

globalization is advancing, ever so fitfully, today.

The political mythology associating the creation and control of money with

national sovereignty finds its economic counterpart in the metamorphosis of

the famous theory of "optimum currency areas" (OCA). Fathered in 1961 by

Robert Mundell, a Nobel Prize-winning economist who has long been a prolific

advocate of shrinking the number of national currencies, it became over the

subsequent decades a quasi-scientific foundation for monetary nationalism.

Mundell, like most macroeconomists of the early 1960s, had a now largely

discredited postwar Keynesian mindset that put great faith in the ability of

policymakers to fine-tune national demand in the face of what economists

call "shocks" to supply and demand. His seminal article, "A Theory of

Optimum Currency Areas," asks the question, "What is the appropriate domain

of the currency area?" "It might seem at first that the question is purely

academic," he observes, "since it hardly appears within the realm of

political feasibility that national currencies would ever be abandoned in

favor of any other arrangement."

Mundell goes on to argue for flexible exchange rates between regions of the

world, each with its own multinational currency, rather than between

nations. The economics profession, however, latched on to Mundell's analysis

of the merits of flexible exchange rates in dealing with economic shocks

affecting different "regions or countries" differently; they saw it as a

rationale for treating existing nations as natural currency areas. Monetary

nationalism thereby acquired a rational scientific mooring. And from then

on, much of the mainstream economics profession came to see deviations from

"one nation, one currency" as misguided, at least in the absence of prior

political integration.

The link between money and nationhood having been established by economists

(much in the way that Aristotle and Jesus were reconciled by medieval

scholastics), governments adopted OCA theory as the primary intellectual

defense of monetary nationalism. Brazilian central bankers have even

defended the country's monetary independence by publicly appealing to OCA

theory -- against Mundell himself, who spoke out on the economic damage that

sky-high interest rates (the result of maintaining unstable national monies

that no one wants to hold) impose on Latin American countries. Indeed, much

of Latin America has already experienced "spontaneous dollarization":

despite restrictions in many countries, U.S. dollars represent over 50

percent of bank deposits. (In Uruguay, the figure is 90 percent, reflecting

the appeal of Uruguay's lack of currency restrictions and its famed bank

secrecy.) This increasingly global phenomenon of people rejecting national

monies as a store of wealth has no place in OCA theory.

NO TURNING BACK

Just a few decades ago, vital foreign investment in developing countries was

driven by two main motivations: to extract raw materials for export and to

gain access to local markets heavily protected against competition from

imports. Attracting the first kind of investment was simple for countries

endowed with the right natural resources. (Companies readily went into war

zones to extract oil, for example.) Governments pulled in the second kind of

investment by erecting tariff and other barriers to competition so as to

compensate foreigners for an otherwise unappealing business climate. Foreign

investors brought money and know-how in return for monopolies in the

domestic market.

This cozy scenario was undermined by the advent of globalization. Trade

liberalization has opened up most developing countries to imports (in return

for export access to developed countries), and huge declines in the costs of

communication and transport have revolutionized the economics of global

production and distribution. Accordingly, the reasons for foreign companies

to invest in developing countries have changed. The desire to extract

commodities remains, but companies generally no longer need to invest for

the sake of gaining access to domestic markets. It is generally not

necessary today to produce in a country in order to sell in it (except in

large economies such as Brazil and China).

At the same time, globalization has produced a compelling new reason to

invest in developing countries: to take advantage of lower production costs

by integrating local facilities into global chains of production and

distribution. Now that markets are global rather than local, countries

compete with others for investment, and the factors defining an attractive

investment climate have changed dramatically. Countries can no longer

attract investors by protecting them against competition; now, since

protection increases the prices of goods that foreign investors need as

production inputs, it actually reduces global competitiveness.

In a globalizing economy, monetary stability and access to sophisticated

financial services are essential components of an attractive local

investment climate. And in this regard, developing countries are especially

poorly positioned.

Traditionally, governments in the developing world exercised strict control

over interest rates, loan maturities, and even the beneficiaries of

credit -- all of which required severing financial and monetary links with

the rest of the world and tightly controlling international capital flows.

As a result, such flows occurred mainly to settle trade imbalances or fund

direct investments, and local financial systems remained weak and

underdeveloped. But growth today depends more and more on investment

decisions funded and funneled through the global financial system.

(Borrowing in low-cost yen to finance investments in Europe while hedging

against the yen's rise on a U.S. futures exchange is no longer exotic.)

Thus, unrestricted and efficient access to this global system -- rather than

the ability of governments to manipulate parochial monetary policies -- has

become essential for future economic development.

But because foreigners are often unwilling to hold the currencies of

developing countries, those countries' local financial systems end up being

largely isolated from the global system. Their interest rates tend to be

much higher than those in the international markets and their lending

operations extremely short -- not longer than a few months in most cases. As

a result, many developing countries are dependent on U.S. dollars for

long-term credit. This is what makes capital flows, however necessary,

dangerous: in a developing country, both locals and foreigners will sell off

the local currency en masse at the earliest whiff of devaluation, since

devaluation makes it more difficult for the country to pay its foreign

debts -- hence the dangerous instability of today's international financial

system.

Although OCA theory accounts for none of these problems, they are grave

obstacles to development in the context of advancing globalization. Monetary

nationalism in developing countries operates against the grain of the

process -- and thus makes future financial problems even more likely.

MONEY IN CRISIS

Why has the problem of serial currency crises become so severe in recent

decades? It is only since 1971, when President Richard Nixon formally

untethered the dollar from gold, that monies flowing around the globe have

ceased to be claims on anything real. All the world's currencies are now

pure manifestations of sovereignty conjured by governments. And the vast

majority of such monies are unwanted: people are unwilling to hold them as

wealth, something that will buy in the future at least what it did in the

past. Governments can force their citizens to hold national money by

requiring its use in transactions with the state, but foreigners, who are

not thus compelled, will choose not to do so. And in a world in which people

will only willingly hold dollars (and a handful of other currencies) in lieu

of gold money, the mythology tying money to sovereignty is a costly and

sometimes dangerous one. Monetary nationalism is simply incompatible with

globalization. It has always been, even if this has only become apparent

since the 1970s, when all the world's governments rendered their currencies

intrinsically worthless.

Yet, perversely as a matter of both monetary logic and history, the most

notable economist critical of globalization, Stiglitz, has argued

passionately for monetary nationalism as the remedy for the economic chaos

caused by currency crises. When millions of people, locals and foreigners,

are selling a national currency for fear of an impending default, the

Stiglitz solution is for the issuing government to simply decouple from the

world: drop interest rates, devalue, close off financial flows, and stiff

the lenders. It is precisely this thinking, a throwback to the isolationism

of the 1930s, that is at the root of the cycle of crisis that has infected

modern globalization.

Argentina has become the poster child for monetary nationalists -- those who

believe that every country should have its own paper currency and not waste

resources hoarding gold or hard-currency reserves. Monetary nationalists

advocate capital controls to avoid entanglement with foreign creditors. But

they cannot stop there. As Hayek emphasized in his 1937 lecture, "exchange

control designed to prevent effectively the outflow of capital would really

have to involve a complete control of foreign trade," since capital

movements are triggered by changes in the terms of credit on exports and

imports.

Indeed, this is precisely the path that Argentina has followed since 2002,

when the government abandoned its currency board, which tried to fix the

peso to the dollar without the dollars necessary to do so. Since writing off

$80 billion worth of its debts (75 percent in nominal terms), the Argentine

government has been resorting to ever more intrusive means in order to

prevent its citizens from protecting what remains of their savings and

buying from or selling to foreigners. The country has gone straight back to

the statist model of economic control that has failed Latin America

repeatedly over generations. The government has steadily piled on more and

more onerous capital and domestic price controls, export taxes, export bans,

and limits on citizens' access to foreign currency. Annual inflation has

nevertheless risen to about 20 percent, prompting the government to make

ham-fisted efforts to manipulate the official price data. The economy has

become ominously dependent on soybean production, which surged in the wake

of price controls and export bans on cattle, taking the country back to the

pre-globalization model of reliance on a single commodity export for

hard-currency earnings. Despite many years of robust postcrisis economic

recovery, GDP is still, in constant U.S. dollars, 26 percent below its peak

in 1998, and the country's long-term economic future looks as fragile as

ever.

When currency crises hit, countries need dollars to pay off creditors. That

is when their governments turn to the IMF, the most demonized institutional

face of globalization. The IMF has been attacked by Stiglitz and others for

violating "sovereign rights" in imposing conditions in return for loans. Yet

the sort of compromises on policy autonomy that sovereign borrowers strike

today with the IMF were in the past struck directly with foreign

governments. And in the nineteenth century, these compromises cut far more

deeply into national autonomy.

Historically, throughout the Balkans and Latin America, sovereign borrowers

subjected themselves to considerable foreign control, at times enduring what

were considered to be egregious blows to independence. Following its

recognition as a state in 1832, Greece spent the rest of the century under

varying degrees of foreign creditor control; on the heels of a default on

its 1832 obligations, the country had its entire finances placed under

French administration. In order to return to the international markets after

1878, the country had to precommit specific revenues from customs and state

monopolies to debt repayment. An 1887 loan gave its creditors the power to

create a company that would supervise the revenues committed to repayment.

After a disastrous war with Turkey over Crete in 1897, Greece was obliged to

accept a control commission, comprised entirely of representatives of the

major powers, that had absolute power over the sources of revenue necessary

to fund its war debt. Greece's experience was mirrored in Bulgaria, Serbia,

the Ottoman Empire, Egypt, and, of course, Argentina.

There is, in short, no age of monetary sovereignty to return to. Countries

have always borrowed, and when offered the choice between paying high

interest rates to compensate for default risk (which was typical during the

Renaissance) and paying lower interest rates in return for sacrificing some

autonomy over their ability to default (which was typical in the nineteenth

century), they have commonly chosen the latter. As for the notion that the

IMF today possesses some extraordinary power over the exchange-rate policies

of borrowing countries, this, too, is historically inaccurate. Adherence to

the nineteenth-century gold standard, with the Bank of England at the helm

of the system, severely restricted national monetary autonomy, yet

governments voluntarily subjected themselves to it precisely because it

meant cheaper capital and greater trade opportunities.

THE MIGHTY DOLLAR?

For a large, diversified economy like that of the United States, fluctuating

exchange rates are the economic equivalent of a minor toothache. They

require fillings from time to time -- in the form of corporate financial

hedging and active global supply management -- but never any major surgery.

There are two reasons for this. First, much of what Americans buy from

abroad can, when import prices rise, quickly and cheaply be replaced by

domestic production, and much of what they sell abroad can, when export

prices fall, be diverted to the domestic market. Second, foreigners are

happy to hold U.S. dollars as wealth.

This is not so for smaller and less advanced economies. They depend on

imports for growth, and often for sheer survival, yet cannot pay for them

without dollars. What can they do? Reclaim the sovereignty they have

allegedly lost to the IMF and international markets by replacing the

unwanted national currency with dollars (as Ecuador and El Salvador did half

a decade ago) or euros (as Bosnia, Kosovo, and Montenegro did) and thereby

end currency crises for good. Ecuador is the shining example of the benefits

of dollarization: a country in constant political turmoil has been a bastion

of economic stability, with steady, robust economic growth and the lowest

inflation rate in Latin America. No wonder its new leftist president, Rafael

Correa, was obliged to ditch his de-dollarization campaign in order to win

over the electorate. Contrast Ecuador with the Dominican Republic, which

suffered a devastating currency crisis in 2004 -- a needless crisis, as 85

percent of its trade is conducted with the United States (a figure

comparable to the percentage of a typical U.S. state's trade with other U.S.

states).

It is often argued that dollarization is only feasible for small countries.

No doubt, smallness makes for a simpler transition. But even Brazil's

economy is less than half the size of California's, and the U.S. Federal

Reserve could accommodate the increased demand for dollars painlessly (and

profitably) without in any way sacrificing its commitment to U.S. domestic

price stability. An enlightened U.S. government would actually make it

politically easier and less costly for more countries to adopt the dollar by

rebating the seigniorage profits it earns when people hold more dollars. (To

get dollars, dollarizing countries give the Federal Reserve interest-bearing

assets, such as Treasury bonds, which the United States would otherwise have

to pay interest on.) The International Monetary Stability Act of 2000 would

have made such rebates official U.S. policy, but the legislation died in

Congress, unsupported by a Clinton administration that feared it would look

like a new foreign-aid program.

Polanyi was wrong when he claimed that because people would never accept

foreign fiat money, fiat money could never support foreign trade. The dollar

has emerged as just such a global money. This phenomenon was actually

foreseen by the brilliant German philosopher and sociologist Georg Simmel in

1900. He surmised:

"Expanding economic relations eventually produce in the enlarged, and

finally international, circle the same features that originally

characterized only closed groups; economic and legal conditions overcome the

spatial separation more and more, and they come to operate just as reliably,

precisely and predictably over a great distance as they did previously in

local communities. To the extent that this happens, the pledge, that is the

intrinsic value of the money, can be reduced. ... Even though we are still

far from having a close and reliable relationship within or between nations,

the trend is undoubtedly in that direction."

But the dollar's privileged status as today's global money is not

heaven-bestowed. The dollar is ultimately just another money supported only

by faith that others will willingly accept it in the future in return for

the same sort of valuable things it bought in the past. This puts a great

burden on the institutions of the U.S. government to validate that faith.

And those institutions, unfortunately, are failing to shoulder that burden.

Reckless U.S. fiscal policy is undermining the dollar's position even as the

currency's role as a global money is expanding.

Four decades ago, the renowned French economist Jacques Rueff, writing just

a few years before the collapse of the Bretton Woods dollar-based

gold-exchange standard, argued that the system "attains such a degree of

absurdity that no human brain having the power to reason can defend it." The

precariousness of the dollar's position today is similar. The United States

can run a chronic balance-of-payments deficit and never feel the effects.

Dollars sent abroad immediately come home in the form of loans, as dollars

are of no use abroad. "If I had an agreement with my tailor that whatever

money I pay him he returns to me the very same day as a loan," Rueff

explained by way of analogy, "I would have no objection at all to ordering

more suits from him."

With the U.S. current account deficit running at an enormous 6.6 percent of

GDP (about $2 billion a day must be imported to sustain it), the United

States is in the fortunate position of the suit buyer with a Chinese tailor

who instantaneously returns his payments in the form of loans -- generally,

in the U.S. case, as purchases of U.S. Treasury bonds. The current account

deficit is partially fueled by the budget deficit (a dollar more of the

latter yields about 20-50 cents more of the former), which will soar in the

next decade in the absence of reforms to curtail federal "entitlement"

spending on medical care and retirement benefits for a longer-living

population. The United States -- and, indeed, its Chinese tailor -- must

therefore be concerned with the sustainability of what Rueff called an

"absurdity." In the absence of long-term fiscal prudence, the United States

risks undermining the faith foreigners have placed in its management of the

dollar -- that is, their belief that the U.S. government can continue to

sustain low inflation without having to resort to growth-crushing

interest-rate hikes as a means of ensuring continued high capital inflows.

PRIVATIZING MONEY

It is widely assumed that the natural alternative to the dollar as a global

currency is the euro. Faith in the euro's endurance, however, is still

fragile -- undermined by the same fiscal concerns that afflict the dollar

but with the added angst stemming from concerns about the temptations faced

by Italy and others to return to monetary nationalism. But there is another

alternative, the world's most enduring form of money: gold.

It must be stressed that a well-managed fiat money system has considerable

advantages over a commodity-based one, not least of which that it does not

waste valuable resources. There is little to commend in digging up gold in

South Africa just to bury it again in Fort Knox. The question is how long

such a well-managed fiat system can endure in the United States. The

historical record of national monies, going back over 2,500 years, is by and

large awful.

At the turn of the twentieth century -- the height of the gold standard --

Simmel commented, "Although money with no intrinsic value would be the best

means of exchange in an ideal social order, until that point is reached the

most satisfactory form of money may be that which is bound to a material

substance." Today, with money no longer bound to any material substance, it

is worth asking whether the world even approximates the "ideal social order"

that could sustain a fiat dollar as the foundation of the global financial

system. There is no way effectively to insure against the unwinding of

global imbalances should China, with over a trillion dollars of reserves,

and other countries with dollar-rich central banks come to fear the

unbearable lightness of their holdings.

So what about gold? A revived gold standard is out of the question. In the

nineteenth century, governments spent less than ten percent of national

income in a given year. Today, they routinely spend half or more, and so

they would never subordinate spending to the stringent requirements of

sustaining a commodity-based monetary system. But private gold banks already

exist, allowing account holders to make international payments in the form

of shares in actual gold bars. Although clearly a niche business at present,

gold banking has grown dramatically in recent years, in tandem with the

dollar's decline. A new gold-based international monetary system surely

sounds far-fetched. But so, in 1900, did a monetary system without gold.

Modern technology makes a revival of gold money, through private gold banks,

possible even without government support.

COMMON CURRENCIES

Virtually every major argument recently leveled against globalization has

been leveled against markets generally (and, in turn, debunked) for hundreds

of years. But the argument against capital flows in a world with 150

fluctuating national fiat monies is fundamentally different. It is highly

compelling -- so much so that even globalization's staunchest supporters

treat capital flows as an exception, a matter to be intellectually

quarantined until effective crisis inoculations can be developed. But the

notion that capital flows are inherently destabilizing is logically and

historically false. The lessons of gold-based globalization in the

nineteenth century simply must be relearned. Just as the prodigious daily

capital flows between New York and California, two of the world's 12 largest

economies, are so uneventful that no one even notices them, capital flows

between countries sharing a single currency, such as the dollar or the euro,

attract not the slightest attention from even the most passionate

antiglobalization activists.

Countries whose currencies remain unwanted by foreigners will continue to

experiment with crisis-prevention policies, imposing capital controls and

building up war chests of dollar reserves. Few will repeat Argentina's

misguided efforts to fix a dollar exchange rate without the dollars to do

so. If these policies keep the IMF bored for a few more years, they will be

for the good.

But the world can do better. Since economic development outside the process

of globalization is no longer possible, countries should abandon monetary

nationalism. Governments should replace national currencies with the dollar

or the euro or, in the case of Asia, collaborate to produce a new

multinational currency over a comparably large and economically diversified

area.

Europeans used to say that being a country required having a national

airline, a stock exchange, and a currency. Today, no European country is any

worse off without them. Even grumpy Italy has benefited enormously from the

lower interest rates and permanent end to lira speculation that accompanied

its adoption of the euro. A future pan-Asian currency, managed according to

the same principle of targeting low and stable inflation, would represent

the most promising way for China to fully liberalize its financial and

capital markets without fear of damaging renminbi speculation (the Chinese

economy is only the size of California's and Florida's combined). Most of

the world's smaller and poorer countries would clearly be best off

unilaterally adopting the dollar or the euro, which would enable their safe

and rapid integration into global financial markets. Latin American

countries should dollarize; eastern European countries and Turkey, euroize.

Broadly speaking, this prescription follows from relative trade flows, but

there are exceptions; Argentina, for example, does more eurozone than U.S.

trade, but Argentines think and save in dollars.

Of course, dollarizing countries must give up independent monetary policy as

a tool of government macroeconomic management. But since the Holy Grail of

monetary policy is to get interest rates down to the lowest level consistent

with low and stable inflation, an argument against dollarization on this

ground is, for most of the world, frivolous. How many Latin American

countries can cut interest rates below those in the United States? The

average inflation-adjusted lending rate in Latin America is about 20

percent. One must therefore ask what possible boon to the national economy

developing-country central banks can hope to achieve from the ability to

guide nominal local rates up and down on a discretionary basis. It is like

choosing a Hyundai with manual transmission over a Lexus with automatic: the

former gives the driver more control but at the cost of inferior performance

under any condition.

As for the United States, it needs to perpetuate the sound money policies of

former Federal Reserve Chairs Paul Volcker and Alan Greenspan and return to

long-term fiscal discipline. This is the only sure way to keep the United

States' foreign tailors, with their massive and growing holdings of dollar

debt, feeling wealthy and secure. It is the market that made the dollar into

global money -- and what the market giveth, the market can taketh away. If

the tailors balk and the dollar fails, the market may privatize money on its

own.

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