> http://vdare.com/roberts/no_think3.htm
>
> No-Think Nation III: Time Running Out for the Dollar?
> By Paul Craig Roberts
>
> Third in a series on the No-Think Nation - America's imperiled future.
>
> The U.S. current account deficit is running at an annual rate of 4% of
Gross
> Domestic Product. That's about $1 billion per day.
>
> For a number of years the large U.S. current account deficit has been
> accompanied by a strong dollar. Could the dollar's strength be coming to
an
> end?
>
> Since January the dollar has declined almost 6% in value against the Euro,
> which has been a weak and uncertain currency since its introduction. Is
this
> a harbinger that a large dollar overhang is beginning to worry those who
are
> holding our currency?
>
> Let's explore some of the reasons the dollar has been strong despite many
> years of accumulated trade deficits.
>
> Perhaps the most important is that the dollar is the world's reserve
> currency. It is the world's money and has taken the place of gold in
central
> bank vaults. In addition, in many countries the dollar is not only the
> preferred currency for daily transactions but also the required one for
> major purchases. Countless individuals in foreign lands keep their savings
> in dollars.
>
> The worldwide role of the dollar is due to the size of the U.S. economy
and
> to America's economic and political stability. Together these have created
> what has appeared to be an almost limitless demand for dollars. Many
people
> in many places have been willing to hold the $1 billion per day that the
> U.S. pumps out to cover its current account deficit.
>
> Can this go on forever? Conceivably, yes--as long as there is no good
> alternative to the dollar that people can use to hedge their bets on
> America. The decade-long collapse of Japanese economic performance took
the
> yen out of contention. The German mark has been replaced by the Euro, to
> date a weak currency. Gold has not been a good investment and is costly to
> hold, especially during the last 20 years of rising values of U.S.
financial
> assets.
>
> There is another reason that the dollar has kept its strength. Foreigners
> have been swapping their growing holdings of dollars for our real assets.
> They are also buying U.S. patents, brand names, and the rights to make
> economic choices.
>
> Some commentators, who do not look at the figures closely, think that the
> dollars that go out to cover our trade deficit are coming back to us in
the
> form of businesses and jobs created by foreign investment in the U.S.
>
> Unfortunately, this is not the case. The Survey of Current Business
reports
> that "outlays by foreign direct investors to acquire or establish
businesses
> in the U.S. were $320.9 billion in 2000." Of this amount, "$316.5 billion,
> or 99%," were "outlays to acquire existing U.S. companies rather than to
> establish new U.S. companies." [PDF article.] The data for 2001 are not
yet
> available.
>
> In other words, foreigners are using our $1 billion per day trade deficit
to
> buy up American firms.
>
> Nothink says this doesn't matter, because the jobs stay in the U.S.
However,
> putting U.S. profits in foreign hands contributes to the outflow of
dollars.
> Moreover, if the dollar is being kept up in value by foreign purchase of
> U.S. companies, what happens to the dollar when foreigners decide they own
> enough U.S. holdings or own the entire economy?
>
> Keep in mind that as foreigners are buying up American firms, many of the
> remaining U.S. companies are moving both production and research and
> development out of the U.S. Sooner or later the domestic economic base
won't
> support a strong dollar.
>
> If the dollar falls in value, those "cheap foreign goods" won't be cheap
any
> longer. American consumers will be squeezed by a declining dollar and by
the
> loss of domestic manufacturing and high tech jobs.
>
> The economic shock would take political stability with it, as politicians
> scramble to offset declining incomes with more income redistribution
> programs. America's continuing importation of massive numbers of poor,
> uneducated, welfare-dependent immigrants from third world countries will
add
> to the political pressures. Politicians will further squeeze the incomes
of
> those Americans who hold the shrinking supply of productive jobs, not yet
> moved offshore.
>
> What is the solution? There might not be one. If crisis arrives, it is a
> good bet that Washington will have no clue.
>
> Paul Craig Roberts is the author of The Tyranny of Good Intentions : How
> Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of
> Justice.
>
> COPYRIGHT 2001 CREATORS SYNDICATE, INC.
>
> May 07, 2002
>
>
>
>
>
