"Of course the pundits are going to save the US from this. :)" Well that was the underlying question - after all the talk of invincible America and hocus pocus effects on American economic performance.. kind of goes against expectations... as was "US growth lowest for 3 years": http://news.bbc.co.uk/1/hi/business/6091576.stm
--- In [email protected], Bhairitu <[EMAIL PROTECTED]> wrote: > > The market is down today. The rumor is Cheney and crew are in the > Middle East trying to save the dollar. More and more countries are > switching to the Euro as the currency standard. The US could be in for > an Argentina style economic crisis where the middle class was wiped out > and many had to sell the furniture in their home just to make their > house payments. > > Of course the pundits are going to save the US from this. :) > > TurquoiseB wrote: > > Tell me about it. In 2002, one US dollar could buy > > 1.13 Euros. Now it takes $1.30 to buy 1 Euro. > > Check out the performance of the dollar against > > only one currency (the Euro) during W's reign: > > > > http://www.x-rates.com/d/USD/EUR/hist2000.html > > http://www.x-rates.com/d/USD/EUR/hist2001.html > > http://www.x-rates.com/d/USD/EUR/hist2002.html > > http://www.x-rates.com/d/USD/EUR/hist2003.html > > http://www.x-rates.com/d/USD/EUR/hist2004.html > > http://www.x-rates.com/d/USD/EUR/hist2005.html > > http://www.x-rates.com/d/USD/EUR/hist2006.html > > > > I keep no money in dollars; to do so would be folly. > > > > > > --- In [email protected], "claudiouk" <claudiouk@> wrote: > > > >> http://news.bbc.co.uk/1/hi/business/4772049.stm > >> > >> Why the dollar is falling so fast > >> Analysis > >> By Steve Schifferes > >> Economics reporter, BBC News > >> > >> The US dollar is plunging in world currency markets - and bringing > >> down share prices in its wake. > >> But why is the dollar under pressure - and what would be the > >> consequences for the US economy if it continues to fall? > >> > >> Behind the problems of the dollar lies the huge and growing US trade > >> deficit, and the large Federal budget deficit. > >> > >> A fall in the greenback could hit Asian countries whose governments > >> hold huge foreign currency reserves in dollars > >> > >> A disorderly unwinding of global imbalances would be very damaging > >> Rodrigo Rato, IMF Managing Director > >> > >> For many years financial markets have worried about the growing size > >> of the US trade deficit - the difference between the amount the US > >> imports from the rest of the world, and the amount it can sell to the > >> rest of the world. > >> > >> That deficit is now heading above $800bn for 2006, or 7% of the US > >> economy, and shows no signs of diminishing. > >> > >> At the same time, tax cuts and the war in Iraq have led to a US > >> budget deficit of several hundred billion dollars despite the booming > >> economy. > >> > >> Asian giants > >> > >> Much of the trade gap relates to US commerce with East Asian > >> countries such as China, Japan, and Korea, who sell much more to > >> America than they buy. > >> > >> Together, the East Asian countries have accumulated foreign currency > >> surpluses of nearly $1 trillion, much of it held in US Treasury bonds > >> denominated in dollars. > >> > >> Thus they are funding both the budget gap and the trade gap. > >> > >> These huge global imbalances are threatening to derail the world > >> economy, the IMF and other international organisations have warned. > >> > >> The classic economic view of how to correct such changes is to adjust > >> the exchange rate in order to make US goods cheaper and Asian goods > >> more expensive. > >> > >> But many Asian currencies - especially the Chinese yuan - do not > >> float freely on international currency markets, and the US has long > >> been pressuring China to revalue its currency. > >> > >> Now the markets are beginning to take matters into their own hands, > >> by forcing the US dollar down. > >> > >> In the long run, the fall in the dollar could lead to a cut in the > >> trade deficit and a boost to US exports. > >> > >> But this process often takes a long time, and in the meantime, it is > >> fraught with dangers. > >> > >> The fall in the dollar is worrying the IMF, the international > >> organisation charged with surveillance of the world economy. > >> > >> "A disorderly unwinding of global imbalances would be very damaging," > >> IMF managing director Rodrigo Rato warned at its spring meeting in > >> April. > >> > >> Run on the dollar > >> > >> In the first place, a rapid fall in the dollar, if it accelerates, > >> could cause short-term problems for the US economy. > >> > >> The higher price of imported goods could lead to a hike in domestic > >> inflation, and it could take several years before consumers switch > >> back to buying more US goods. > >> > >> High inflation, combined with the stronger-than-expected growth of > >> the US economy, could force the US central bank, the Federal Reserve, > >> to keep raising interest rates. > >> > >> They have already been raised 15 times, and now stand at 5%, partly > >> on fears of a growing housing boom. > >> > >> But the fears of inflation are also likely to affect the interest > >> rates on long-term bonds, which determine mortgage rates. > >> > >> The rising mortgage rates, while they may eventually dampen the > >> housing boom, will also give a further boost to inflationary > >> pressures. > >> > >> International exporters hit > >> > >> Meanwhile, foreign companies who have derived an increasing > >> proportion of their sales and profits from the US market could also > >> be hit by falling demand for their exports. > >> > >> The sharp falls in non-US stock markets, especially in Asia, are a > >> response to this fear, with electronics and car companies like Toyota > >> and Sony especially vulnerable. > >> > >> And that in turn could affect the growth rate of countries like > >> China, who derive much of the growth in their economies from exports. > >> > >> But the Asian exporters also have another reason to feel vulnerable. > >> > >> As the value of the dollar falls, their reserves of the currency also > >> reduce in value, as do the yields on the US Treasury bonds held by > >> many of their central banks. > >> > >> In buying such bonds these governments are, in effect, underwriting > >> the large US Federal budget deficit as well. > >> > >> This deficit is set to increase as the baby boomer generation faces > >> retirement. > >> > >> The Asian governments and investors may be tempted to sell many of > >> their dollar holdings in order to protect themselves - but this would > >> have the effect of weakening the dollar further. > >> > >> And it would force the Fed to raise interest rates even more to > >> protect the dollar. > >> > >> Countries like China are reluctant to massively revalue their > >> currency - because it would make investing in China much more > >> expensive and could deter valuable foreign investment. > >> > >> Managed float > >> > >> This problem with the dollar has happened before, in the 1980s, when > >> it was Japan rather than China that was seen as the main threat. > >> > >> At that time, the main industrialised countries worked together for a > >> managed currency float in an agreement called the Plaza Accord. > >> > >> The coordinated approach led to a managed decline in the value of the > >> dollar, which then stabilised at a more sustainable level, supported > >> by central banks. > >> > >> However, the current US administration does not favour such an > >> approach, believing that the markets should be left to their own > >> devices. > >> > >> And given the vast size of foreign currency markets today, it is > >> doubtful that central banks could make such an effective intervention > >> again. > >> > >> The downside for the US in the 1980s was that it was forced to enter > >> into an international agreement with other governments that reduced > >> its freedom to set its own domestic policy. > >> > >> But in the absence of such an agreement, it looks like the markets > >> themselves are finally deciding that the US 'twin deficits' are no > >> longer sustainable. > >> > >> And when the world's largest economy begins to look shaky, it is not > >> surprising that confidence among financial markets is weakened around > >> the world. > >> > >> > >> Story from BBC NEWS: > >> http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4772049.stm > >> > >> Published: 2006/05/15 22:27:04 GMT > >> > >> © BBC MMVI > >> > >> > > > > > > > > >
