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In 2000, between the March launch of Vividence.com at a poshed-up Exploratorium and the November bankruptcy of Pets.com, it was possible most weeks to attend serious-minded presentations and panel discussions on how the "New Economy" would forever gild San Francisco.
These events, everyone knows in hindsight, were signs of impending apocalypse.
So I was in a fretful spirit last week going to hear a talk by Alex Maasry, a researcher with McKinsey & Co., a management-consulting firm that advises Fortune 500 companies.
Maasry was at San Francisco Planning and Urban Research, a smart growth think tank, to explain how prosperity will likely continue here and in the rest of the U.S., despite warnings from economists worldwide that America is at risk of a currency devaluation.
This is of special interest to San Francisco, since the terrible things that happen when a national currency enters free fall — exploding interest rates, plummeting real estate values, business failures, inflation, joblessness, despair — would hit San Francisco especially hard because so much of the region's wealth is tied up in home prices that would disintegrate in such a scenario.
After an hour of hearing reassurances from Maasry about our sustained prosperity, I came away with the same case of nerves I used to get when people fawned about the New Economy.
In the spirit of SF Weekly news you can use, we're recommending locals stock up on plastic sheeting, duct tape, bottled water, freeze-dried food, and, we may as well say it: loaded firearms.
This might really be the Big One.
We may not seem to be reliving a Year 2000–style fool's paradise of dot-com launch parties and stock-option-millionaire secretaries. But when one regards our current mild prosperity in the context of the economic storms around us, the city does seem to have the same sort of eerie vibe many of us recognized seven years ago. Think of San Francisco's planned 80-story Rincon condo tower amid a supposed national housing collapse, or America's worst-in-history consumer debt boom that seems to bother no one, or the crippling expense of the Iraq war, which our president says is benign.
The U.S. now borrows more than $2 billion per day to finance imports and to service our historically high $3 trillion foreign debt. These unusually large differences between what we earn in exports and other foreign income, and what we pay out for imports and on foreign-held debt, have economists worried. If this deficit gets big enough, it's comparable to a deeply indebted person whose only access to new credit is in the form of high-interest loans. In the case of a financially beleaguered nation, nobody wants to buy treasury bills denominated in that country's currency, so the currency's value declines. In this spirit, the dollar has lost 65 percent of its value against the euro since 2000. And Maasry said during last week's SPUR presentation that the greenback could stand to lose 30 percent more of its value against other major currencies.
But the thing about global currencies is that their value doesn't necessarily move gradually. If buyers believe their investment is going to lose value tomorrow or next year, they're apt to sell en masse. These kinds of selloffs shook Great Britain in 1992, flattened Latin America in 1995, and devastated Asia in 1997. Economists now worry that the United States could be in for a similar debacle. Few Americans worry, because during most people's lifetimes the United States has uniquely avoided economic catastrophe.
But people who live outside of our economic comfort zone are worried.
This week's overseas edition of Newsweek ran an 800-word essay by a Yale professor with the headline "Beware the Weak Dollar," and warns that the United States "could have the worst of all worlds — inflation, high interest rates and recession."
Chinese officials have been quoted recently making veiled threats that the country might sell off dollar-denominated investments, causing U.S. currency to rapidly lose value. A Sept. 4 report from the Economist Intelligence Unit says the U.S. faces a "moderate" risk of "collapse" of the dollar. Dow Jones MarketWatch headlined an August story "IMF Staff Still Worried About Sharp Dollar Fall." And a recent Voice of America report announced the dollar was seen as weak and poised for further decline, quoting John Kenneth Galbraith's son, who's also an economist, as saying the dollar, like currency everywhere, "is subject to a shock, a crisis, a panic, a collapse."
But in the spirit of 2000's nervous economic optimism, Maasry said during last week's SPUR presentation that there's little risk of a real dollar crisis. Foreign governments love buying reliable U.S. Treasury bills as a safe harbor for national reserves. And a steady depreciation of the dollar's value might actually help the U.S. by making our goods and services comparatively cheaper, thus boosting sales of U.S. products.
This idea is similar in spirit to statements currently coming from George W. Bush that the dollar needs to lose value against China's yuan in order to make America more competitive.
Frighteningly, the last time I remember hearing assurances that currency depreciation might be good for local business was in December 1994, when I covered Mexican financial markets for Dow Jones. The country's finance minister, Jaime Serra Puche, had been urged by business leaders to depreciate the peso to make their products more competitive with foreign goods.