The Dwindling U.S. Dollar

The U.S. dollar headed south last spring, right into the heat. In two mad sprints downward in May and June, our money hit postwar lows against the Japanese yen and the German mark, on some days losing as much as 1 percent of its value. The projectable trend promised disaster. Analysts invoked devaluation and Latin American-style hyper-inflation.

An economist freshly hired from the Federal Reserve to work at Goldman Sachs's currency exchange rate chart told me in grave tones that we could end the summer as a poor country. I pictured Japanese housewives plying Fifth Avenue with Louis Vuitton wheelbarrows full of dollars. The newspapers, purveying both doom and reassurance, simultaneously hyped the dollar's drop and played down its effects: good for U.S. exporters, bad for U.S. tourists and VCR buyers.

The news of the dollar's turbulence did not disturb me until the governments of the United States, Germany, Japan, and fourteen other rich countries tried to rescue the dollar from its free fall, proving that central bankers and financial ministers were rattled. In May and again in June, the alliance tried to beat back the money-center banks, mutual funds, and other downside speculators with a $ 12 billion stake in the foreign currency markets, all bet on the dollar. The gamble was backed up with tough talk from Treasury Secretary Lloyd Bentsen, but the dollar sank even further, and the currency markets seemed uncontrollable.

By late summer the dollar had settled at about 100 yen, down from January's price of 113. (As of this writing, it stands at 97.6.) In August, Peter Fisher, the officer of the New York Federal Reserve Bank who manages the system's currency trading, reflected on the intervention's failure: There was heavy dollar selling that we met head-on, Fisher said, as if describing an ambush.

The government's intervention was anticipated. The Fed reported that it devoted $ 2.8 billion to fighting the selling wave, a pool of money that traders profited from as the dollar sank to new lows. The sum total of our government's effort to protect its own currency, then, was to transfer millions of public dollars into the coffers of some of the richest, individual and institutional currency traders in the world.

I was once a professional trader. For seven years at the Chicago Mercantile Exchange, I traded my own account. I was a small trader, though the amount of money I moved around seemed large enough to me - on my biggest day I controlled $ 360 million. I traded everything from stock to currencies to chickens.

In January 1991, however, I lost most of my trading money on a play in cattle futures. My losses occurred in the December and January before the Gulf War, with the collapse of peace talks between the United States and Iraq. The market expected the mother of all wars, and cattle prices went berserk. I liquidated just short of ruin. Had I held on, the firestorm of U.S. bombers would have restored my account. Afterward, I was unable to concentrate, trading in a daze. Six months later, I was gone.