The Fall of the Empire Will Wait

The dollar’s not dead. America’s not dead. For a time, economists agreed on the prediction of the greenback’s collapse. In mid-July, it fell to 1.6058 dollars for 1 euro, the weakest exchange rate in its history, and everyone was left to wonder if it was going to fall further, much further.

The U.S. seemed to be heading off a cliff, paying cash for their years of financial debauchery, an excess of deregulation and an orgy of credit. In Europe, they had prepared for that monetary event with a certain fear – that of a too strong euro strangling exports – but also a touch of pleasure that through a financial intermediary, they are directly assisting in the decline of the American empire.

But instead of sinking like announced, the greenback is climbing back at full speed, regaining more than 10% of its value against the Euro. The origin of this unexpected monetary resurrection shows that America, contrary to what some have believed and others hope, isn’t ko’d. The GDP of the United States posted a growth of 3.3% in the second quarter. Not a mind-blowing event in itself, but a formidable feat compared to 0.8% recorded in the euro zone in the course of the same period. According to OCDE, growth will reach 1.8% in the United States in 2008, against 1.3% on the old continent.

We have certainly been used to the domination of the United State, they had fifteen years of a systematic growth superior to ours, but the shock is still hard. To see the cradle of the subprimes, the country of the discredited banks, of the demonetized president, still quickly regain the way towards growth while Europe, virtuously reputed as “fundamentally sound,” slides to practically a recession, it’s not only a shock, it’s a humiliation. One of many for the Europeans, as interpreted by Keynesians and liberals, that will surprise no one from the U.S.

For the leaders, there is no doubt that the rebound of the American economy will lead an all out revival this year. The Federal Reserve lowered taxes from 5% to 2%. The Bush administration has opened its checkbook in order for Americans to give it back at the supermarket. In the same time, Europe will remain a victim of its orthodoxy, with an autistic Central European Bank (CEB) and some other states squeezed into a stability pact.

For liberals, the gap in growth between one side of the Atlantic and the other definitively demonstrates the superiority of the liberal American model, where the labor market is as flexible as the obligatory debits are low and where the number of vacation days is few. Meanwhile Europe has been equipping itself with the same economic foundations – otherwise called more perfect structural reforms to resist – to prepare to withstand the shock and rebound with the same resilience as the United States.

We will not be able reconcile the two camps, except to say that they are both a little right. If we are to call up the subject of government economics, everyone can only fall into agreement that it exists. It exists in the United States, not in Europe.

The president of the Federal Reserve, Ben Bernake, and the Treasury Secretary, Hank Paulson, don’t only take their breakfast together. They work and act together to save the banks and fight against recession. In Europe, a year after the start of the crisis, they still wait on a macro-economic response. They reach the zero degree of the “policy mix,” the zero degree in material coordination of monetary and banking politics.

On the second point, each pulls in his corner, while Spain adopts a series of measures in order to revive its growth. Germany has once again become a model of budgetary virtue, pushes this possibility. When in France, it isn’t certain its will to revive is what’s missing, but rather its means. Meanwhile it must be content with an artificial revival, not to the pretty green dollar but to the effects of taxes on random growth.

On the monetary side, the mistrust and incomprehension are reciprocal and total between the boss of BCE, Jean-Claude Trichet, and the acting president of the European Union, Nicolas Sarkozy. The second takes the lead with a psychology under German influence. Mr. Trichet sees in Mr. Sarkozy an emblematic figure of the French politician. That says everything.

We must keeping reading into the fluctuations of what isn’t written in the indices. The market’s evolution remains a profound mystery that resists the thousands of mathematician’s attempts to pierce and model it. Currency variations are harder to put in equations than the movement of galaxies. They don’t prevent anything. In the actual rebound of the dollar against the euro, it’s hard not to see in it this message: America isn’t going to fall apart as they expected and Europe is doing markedly worse despite trying to convince themselves otherwise.