U.S. Dollar Is Still The World's Most Trusted Currency

Although America’s recent economic troubles have caused damage to the reputation of the U.S. dollar, many economists are claiming it is still the strongest and most trusted currency. According to this article on USA Today.com, although our country has debt problems, they are not nearly as bad as the troubles other countries are having. Additionally, no other country has a currency as strong or as well-regarded as the U.S. has, even with its current fiscal woes.

Could the debt eventually push the U.S. away from its status as a reserve currency and into second-tier status?

"It's very difficult for a reserve currency to lose that status," says Kristin Lindow, vice president at Moody's Investors Service. "It takes another nation to take its place, and right now, there isn't one."

As long as the U.S. looks better fiscally than other nations, it will be able to finance its deficit. But that doesn't mean it can continue to bleed red ink forever. In the short term, interest rates are likely to remain low as the Federal Reserve tries to nurse the economy out of recession. In the long term, however, unchecked borrowing could lead to higher interest rates and slower economic growth. As such, the debt has serious implications for savers and investors.

Fears of dire economic consequences have mounted as the U.S. annual budget deficit has soared — and the warnings aren't just coming from Republicans. President Obama last month created a bipartisan panel to rein in the nation's deficits. In November, Treasury Secretary Timothy Geithner called the deficit too high. The Federal Reserve Chairman Ben Bernanke is also worried about the deficit.

"We have a debt that will continue to grow," Bernanke told Congress in February. "It's important to look at the deficit as it goes forward."

But even though the nation's debt, relative to gross national product, is the highest since World War II, the financial markets seem unconcerned. Investors eagerly buy our debt and use the dollar as the premier trading currency worldwide.

Plan to Raise Taxes on the Rich Is Gaining Momentum

The New York Times posted a recent article on a plan to raise taxes on wealthy New Yorkers, and its growing popularity. A section of the article can be found below, but the full post can be found here.

A plan to raise income taxes on wealthy New Yorkers is gaining momentum in the State Legislature as lawmakers continue to grapple with the state’s gaping budget deficit.

A group of Senate Democrats plans to introduce a bill on Tuesday that would impose an income tax of 10.3 percent on the highest-earning New Yorkers, a rise of 3.45 percentage points, and increase taxes on all households that earn more than $250,000 a year.

The plan, which supporters estimated could bring in up to $6 billion annually to the depleted state treasury, is one of several options Albany lawmakers are considering as an alternative to the reductions in social services and smaller, more focused tax increases that Gov. David A. Paterson has proposed.

State legislators and the governor are finding themselves under increasing pressure — from the state’s powerful labor unions and liberal groups in particular — to raise taxes on the wealthy.

Although an income tax increase on the state’s highest-earning residents passed the State Assembly last year, its fate in the Senate is less certain. Republicans, who controlled the chamber until January, blocked it last year.

With the Democrats now in control, the bill seems to stand a better chance of passing. But not all 32 Democratic members have signed on, including Malcolm A. Smith, the majority leader, who said on Monday that he was not convinced a tax increase was the right solution for New York’s budget crisis.

“Let’s talk about what the problem is,” Mr. Smith said to reporters as he was leaving a conference of the New York Bankers Association in downtown Albany on Monday afternoon. “The problem is foreclosures. The problem is a $15 billion deficit. The problem is trying to figure out how do we create jobs in this economy. So in that regard, I’m not sure if taxes is the way you do that.”

Among the bill’s supporters, there is a sense that they face considerable — but not necessarily insurmountable — skepticism from Senate Democrats.