Financial crisis has sort of supplanted dollar anxiety, but for a long time there were dire predictions from the moderately economically literate (and Nouriel Roubini) that the dollar was going to plunge and leave us in the same position as Argentina ca. 2001.

That's about the only prediction of armageddon that hasn't come true:

One of the most extraordinary features of the past month is the extent to which the dollar has remained immune to a once-in-a-lifetime financial crisis. If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring. Instead, the dollar has actually strengthened modestly, while interest rates on three- month US Treasury Bills have now reached 54-year lows. It is almost as if the more the US messes up, the more the world loves it.

Ken Rogoff is the former chief economist of the IMF; when he talks about financial crisis, you should listen.  And he's worried about how what will happen if the world loses confidence in us.

One thing is for sure:  we won't end up like emerging markets, which don't borrow in their own currency.  I don't mean that the Fed can inflate its way out of the debt--it won't, not at the level that emerging markets would try to if they could.  4% inflation instead of 2% is not going to get us out of the pain of paying back the money we've borrowed.  But when a country's currency is really on the skids, its interest rates shoot up just as the ability of its currency to purchase the dollars to repay the loan drops; the resulting combination generally leads to default, and sharp economic contraction.

What we could see is higher interest rates on our debt just at the time when we need to put taxpayer money into the financial system to restructure it.  Given that neither of our two presidential candidates has any notable plans to close the current deficit, this would put a serious crimp in America's lifestyle.

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