The American economy is heading out of recession, but the long-term fate of the dollar may not be so bright, writes the Wall Street Journal. Growing numbers of economists and investors, including Warren Buffett, say that stimulus spending and rate cuts will boost inflation and weaken the greenback. At the same time, emerging economies like China and Brazil are using the crisis to diversify their reserves out of the dollar.
A weakening of the dollar would have to take place over many years; China, which holds more than $1 trillion, is still buying US debt and would suffer huge losses if it started selling its reserves. But anxious investors said yesterday's White House prediction of a $9 trillion budget deficit to 2019—$2 trillion more than first projected—is the latest sign that the American currency is in trouble.