“The worst is probably yet to come, because the dollar’s decline reflects not only all the uncertainties about the war’s impact on U.S. growth, but also increasing concerns about a structural imbalance in the American and global economies.
The core of the problem is that we don’t save enough.
To keep spending and investing at the rates we have, we have to tap the savings of foreigners. The bookkeeping expression of this undersaving, or the amount we have to borrow, is the current account deficit—$503 billion last year.
The biggest part of that is the trade deficit: In 2002, Americans consumed $435 billion more in goods and services than the United States produced, and we paid for the difference by selling hundreds of billions of dollars of assets to overseas buyers and borrowing the rest from abroad.
After three years of stock-market declines, stalled business investment, weakening consumer confidence, and low interest rates, the returns on investing in the United States look a lot less promising.
The government’s U-turn in fiscal policy is just as worrisome to global investors. The return of large budget deficits will keep the trade deficit growing by stimulating spending, and it will guarantee that public and private credit demand will far outstrip our own saving.
But a currency crisis could still hit us like a hurricane. Suppose two or three of the top 10 things that could go wrong for us in the war do go wrong and the liberation of Baghdad begins to look like the siege of Stalingrad.
That kills hopes for a quick victory-bounce in the U.S. economy, and foreign investors accelerate their shift from U.S. to European securities.
As the dollar sinks along with our stock market, more foreign investors rush to sell, and the declining dollar turns into a run and finally a rout.
There are two ways to end a currency crisis like that: Hike interest rates far and fast to draw back capital, stalling economic growth as a consequence; or get the world’s major central banks to intervene in the currency markets by buying dollars.”
http://www.msnbc.com/news/891133.asp?0si=&cp1=1
I am what I am and that's all that I am! :)
03-27-2003
Will the war crush the U.S. dollar? The US fiat $ is still only paper and ink!
They will be X ...
Romans 8:31
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