Brad deLong, who has forgotten more about economics than I ever knew, has a post about the effects of the deficit on the general decline in strength of the dollar. If I’m reading him correctly (numbers give me a headache), he’s predicting a slow decline of the dollar’s buying power as we rely on other countries to hold our national debt. People in the administration are claiming that the deficit is actually a sign of economic strength, but I don’t buy that, and I don’t think deLong does either.
Of course, just this morning I see that the dollar has fallen to a record low against the Euro. According to that BBC account, Treasury Secretary John Snow is again citing the deficit as a sign of economic strength, while pledging to cut it back (if it’s a sign of strength, why bother?). He also says other nations have a “shared responsibility” to help resolve our deficit problems, though I’m not sure why he thinks that. I suppose they could solve the problem by not buying any more of our bonds, thereby halting growth of the deficit entirely. But it’s hard to imagine that Snow would want that. The reporter seems to think that Snow is lying, and the administration is actually happy with a slightly weaker dollar. I have no idea if that’s true, but lying is certainly a hallmark of this administration.
UPDATE: And over at the WashPost, Samuelson chimes in with some worries of his own over where the dollar is headed.

George Bush hasn’t much discussed what could be his biggest economic problem. It’s not budget deficits or jobs. It’s the possible crash of the dollar on foreign exchange markets. Even if Bush understood it, he would be hard-pressed to explain it to the public. Worse, there are no obvious ways to prevent it. Nor is it certain how big the threat is. Little wonder Bush hasn’t said much. If John Kerry had won, the situation would have been the same. But a dollar crash, if it occurred, could trigger a terrifying global slump.