The economic backlash begins?

Economists have been warning for a while that Bush's economic policies of tax cuts for the rich coupled with increased spending would have consequences, and it looks like the backlash is already beginning. Despite positive news on unemployment and oil prices, and a stock market going wild at the thought of a return to gilded-age kleptocracy, the US dollar has fallen to a record low against the Euro. Why? Because people are selling out:

"It seems now that the longer-term investors like pension funds and perhaps monetary authorities are either hedging their dollar risk or moving assets out of the United States.

"It looks like the dollar has further to fall," Mr McMahon said.

While this may simply be a blip, if people are seriously divesting from the US because they don't want to be exposed to Bush and his trillion dollar deficits, it spells big trouble. The US runs an enormous trade deficit as well as a fiscal (government) one; it is therefore dependent on large influxes of foreign capital every day to keep the money-go-round spinning. If that capital dries up, or if foreign investors decide they want to get off, then you get Argentina. And a falling dollar, which erodes the value of US-dollar denominated assets, will simply encourage more people to get off...