Now South Korea's Doing It

Looks like South Korea's the latest one of our creditors to decide it might be time to cut off the drunken frat boy and his party-hardy ways. Granted, they turned around and said they didn't really mean to say that they were going to be dumping dollars, but personally I wouldn't be signing any variable-rate mortgages anytime soon. Thomas Friedman, in a recent op ed piece for The New York Times (registration required) quotes former Clinton Commerce Department official, David Rothkopf, as saying that people with one of those might have cause to be losing a bit of sleep:

If you see a continuing slide of the dollar - some analysts believe it needs to fall another 20 percent before it stabilizes - you could see a substantial, and painful, rise in interest rates.

"Given the number of people who have refinanced their homes with floating-rate mortgages, the falling dollar is a kind of sword of Damocles, getting closer and closer to their heads," Mr. Rothkopf said. "And with any kind of sudden market disruption - caused by anything from a terror attack to signs that a big country has gotten queasy about buying dollars - the bubble could burst in a very unpleasant way."

Why is that sword getting closer? Because global markets are realizing that we have two major vulnerabilities that this administration doesn't want to address: We are importing too much oil, so the dollar's strength is being sapped as oil prices continue to rise. And we are importing too much capital, because we are saving too little and spending too much, as both a society and a government.


"Starving the Beast," the neocons strategy of piling up massive debt to force cuts in social programs, just might end up starving more than government. It might end up causing a lot more of the governed to starve as well.