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On day of pope's death, the New York Times considers USA's fate. [Copy link] 中文

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Post time 2005-4-3 23:00:43 |Display all floors > Opinion  


Before the Fall

Published: April 2, 2005

The recent rally of the United States dollar notwithstanding, the greenback has nowhere to go but down. But the Bush administration is betting that foreign investors will continue to invest huge sums in this depreciating currency. How huge? Last month, the government reported that the United States' deficit in international transactions, mainly trade, reached an unprecedented $666 billion in 2004, a 24 percent increase from the 2003 level and, at 5.7 percent of the economy, about two to three times what most economists consider sustainable.

The administration expects foreigners, mainly Asian central bankers, to keep plugging the trade gap because buying American securities increases their exports. It is also assuming that foreign central banks won't risk the losses in their dollar reserves that would occur if they started shunning dollar-based investments. In brief, the United States is betting that it's too big - in other countries' eyes - to fail.

The dollar's current uptick is just a breather in its overall downward trajectory. It's due largely to the United States' higher interest rates, which lure foreign investors away from euros and into dollar-based investments. But what will happen when the Federal Reserve stops raising rates? Here's a hint: When one Federal Reserve governor suggested recently that rates might peak at a lower level than analysts expected, the dollar promptly slid.

The dollar also drew some of its recent momentum from a government report last month that showed the United States attracted $91.5 billion in net foreign capital in January, easily covering that month's near-record trade deficit, $58.3 billion. That allayed concerns, at least temporarily, about the United States' continued ability to finance its debt on favorable terms. But hedge funds were responsible for much of January's investment, and that clouds the picture.

In general, private investment - as opposed to investment by foreign governments - is an encouraging sign because private investors seek out the best opportunities, while foreign governments often pour money in simply to prop up the dollar. But hedge funds are different; they are often short-term investors that can move out of dollars as quickly as they move in. Given the unreliability of those inflows, and the enormous borrowing needs of the United States, the country will be dependent on foreign government lenders for a long time.

That's a precarious position. To close its trade gap, which must be financed by foreigners, and its budget gap, most of which is covered by foreign investors, the United States will need to attract a projected $1 trillion in 2005 alone - an unprecedented sum. At the same time, however, the Bush administration is relying on a cheap dollar to correct the nation's trade imbalance. So far, the trade deficit has only grown, even as the dollar has fallen. A further decline this year of about 20 percent would probably be needed to begin to have a real impact.

There is gathering evidence that foreign central bankers are seeking to avoid the losses that future dollar investments seem to threaten. Recently, financial markets have been unsettled by comments from Japan, South Korea, India and Russia about diversifying away from dollars. And this week, a tough-talking China vowed not to allow its economic decisions to be dictated by any other country, a statement that was a rebuff to the United States.

If the world's central bankers accumulate fewer dollars, the result would be an unrelenting American need to borrow in the face of an ever weaker dollar - a recipe for higher interest rates and higher prices. The economic repercussions could unfold gradually, resulting in a long, slow decline in living standards. Or there could be a quick unraveling, with the hallmarks of an uncontrolled fiscal crisis. Or the pain could fall somewhere in between. If foreign reluctance to buy Treasury bonds pushed up long-term interest rates, mortgage rates would follow. If the economy is in a housing bubble, as many analysts believe, higher mortgage rates would pop it, with dire results for homeowners' balance sheets and the overall health of the economy.

The dollar is heading down, no matter what. To mitigate the potential harm, the administration and Congress should deliver on budget discipline - far beyond the lip service that's been offered so far - to limit the amounts the United States needs to attract in loans and pay in interest. The administration should also try to forge cooperation among America's trading partners to manage the dollar's decline. Unfortunately, government leaders aren't poised to do either of those things, though action, not attitude, is what the country needs.

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Post time 2005-4-4 01:26:23 |Display all floors

Down dollar good for USA?

I live in SW Florida which many would say is "aradise". The beaches are white, the water is blue and the weather is great. Fishing could not be any better.
What I have noticed lately is the influx of "foreigners" coming into the area. Many Germans and others are buying houses and land. Why all of a sudden?
I spoke with a German real estate broker that told me if a German would buy a house in SW Florida they are in essence getting the house at 1/3 off the price. The falling dollar has caused many an investor and regular people from over seas to make a buck.  
The housing market price is going up 26% a year and 40% a year if you live on the water. One German came over and invested $90,000,000 in land. Money is to be made to the smart investor.
When the dollar goes up I expect the land will once again change hands. Buy low...sell high.

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Post time 2005-4-4 02:18:01 |Display all floors

Japan is the largest Asian Central Bank investor


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Post time 2005-4-4 11:52:53 |Display all floors

That's a good chart to show

It shows how USA debts have been piling up as a result of wanton deficit spending.

When Clinton was president, he struggled hard but wiped out the massive deficits piled up by Ronald Reagan.

GW Bush has done an even more terrible job than Reagan. With the massive historical deficit, the day will come harshly when the price has to be paid. Bush wants to leave it to the next president to worry about it.

Each year China buys US$100 billion of US treasury debt instruments and helps to finance deficit spending by Warshington.  

When one day foreign governments stop or reduce buying, then what?

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Post time 2005-4-4 13:29:18 |Display all floors

Solution for America.....

...Keep the pressure on Japan, Korea, Taiwan and maintain protectorate status on Germany. Build the Freedom car, ensure competitive Boeing....Bring back manufacturing of consumer and durables to reduce the deficit. The world is having less and less use for American markets.

It has to be careful in arranging it defense. Continue to attract Pashas from Singapore, Taiwan, Semite races, Japan, Germany but try not to harm the ASEAN, Latin America, Central America, Africa, China and South Asia.

The Pashas will keep on coming but the rest of the world will ensure that their pasha stays put in their home country while ensuring the size of holding of their pasha's are capped.


Be a good nation, pashas will still come - select it from other predatory nations.

Game Master

Lord of the code.

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