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Meanwhile, across the Atlantic, the Americans remain in denial, with monetary and fiscal authorities primed to pick up any slack created by U.S. consumers unable to make their mortgage repayments and maxed out on their credit cards. The policy is patently not working, because the U.S. economy is caught between a rock and a hard currency. On the one hand, America needs the world to keep believing in Uncle Sam, because the moment it stops trusting the greenback, it will dump U.S. Treasuries, pushing up interest rates dramatically and driving tens or hundreds of thousands more Americans out of their unaffordable homes. On the other hand, as long as the markets continue to see the dollar as a safe haven, it remains strong and U.S. competitiveness suffers accordingly, making it impossible to generate the export-led recovery the U.S. so desperately needs. How will it play out? Japanese-style deflation and stagnation is certainly a possibility. But my guess is that it will be preceded by another major crisis – maybe next week, next month or next year, but the longer the reckoning is delayed, the more drastic and painful it is likely to be. It will be triggered by a drastic rerating of U.S. (and possibly British) debt, as it suddenly dawns on those who speak the language of Confucius and the Koran that those who speak the language of Shakespeare cannot necessarily be trusted to repay their debts – at least, not in hard currency. If, by that time, Britain has taken credible steps towards solvency, it may conceivably be exempt. But more likely it will be swept up in the panic which will engulf the U.S. as investors rush to sell dollar assets. Ends Full read @ http://blogs.reuters.com/great-debate-uk/2010/08/25/waiting-for-the-other-shoe-to-drop/ COMMENT: Caveat emptor. -- DEV BOREM KORUM Gabe Menezes. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Goa-launch of the well-received *Into The Diaspora Wilderness* by Selma Carvalho on Aug 29, 2010 (Sunday) at 11 am at Ravindra Bhavan, Margao. Meet the author, buy a signed copy (only Rs 295 in Goa till stock lasts). http://selmacarvalho.squarespace.com/
