Falling in love with the US dollar, all over again

I told a colleague the other day that at the end of all this crisis, once again America will turn out to be the unbeatable top dog in the world. My logic was/is simple: when things go bad all over the world, it is America that most of them trust (unless you are a Hugo Chavez) and, more than that, they suddenly realize that it is way better to hold to on US dollars than any other currency.

And, guess what? The dollar is going up. In fact, going up so fast that now there is talk of whether its ascent needs to be slowed down by central banks coordinating their action. I am not an economist, thankfully, but I have never seen such wild swings in every aspect of the global economy.

The NY Times reports that "On Friday, worries about how the financial crisis would affect Britain’s economy caused the pound to lose 8 cents against the dollar, falling to $1.53. ... And the downdraft of the pound and the euro — which fell to $1.26 against the dollar on Friday, its lowest level in two years"

$1.26 for one Euro. A 20% decrease in merely 3 months!

The NY Times piece also notes that:

So great are the concerns among policy makers about the turmoil in currency markets that it has prompted talk of a coordinated intervention by the leading industrial countries in coming days, to quell the soaring dollar and put a floor under emerging-market currencies.
Such a move — in which the Federal Reserve and other central banks would sell dollars and yen and buy other currencies — has been used extremely sparingly by the United States in recent years.
“The risk is huge, but it is appropriate at this point, because if the emerging markets go into default, the consequences would be catastrophic,” said Kenneth S. Rogoff, an economist at Harvard.
When a developing country’s currency loses value rapidly, it impedes the ability to pay back loans from Western banks. That could cause a rash of corporate or even government defaults — a feature of previous financial crises in Asia and Latin America.

That will be the next round in this global financial crisis--heavily leveraged countries going broke. It won't be countries like India and China, but the same old countries from a couple of decades ago--countries like Argentina, which are already there, for all purposes.