Fiddling while the dollar drops

[Nancy Waterman]

http://www.washingtonpost.com/wp-dyn/articles/A37123-2003Dec4.html

Something ominous is happening when the United States reports its biggest surge in productivity in 20 years, as it did Wednesday, and yet the dollar plunges to an all-time low against the euro.


The dollar is sinking these days on good news and bad, and the explanation is pretty simple: Investors around the world are worried that the Bush administration's policies are eroding the value of the U.S. currency. So they're rushing to unload greenbacks, in what could soon become a full-blown financial crisis.

"The dollar crisis is the story," warns James Harmon, an investment banker who headed the Export-Import Bank during the Clinton administration. "A lot of smart money has moved out of the dollar in the last six months," he explains. "Now the latecomers are rushing to sell, and that's adding to the momentum."

<snip>

Hence the nightmare scenario: Between them, China and Japan now hold more than $1 trillion in U.S. Treasury bonds, the trader estimates. But with the declining dollar, the Asian giants have suffered severe losses on these portfolios. If they decided to hedge just 20 percent of their dollar exposure, they could drive the dollar down from this week's low of about $1.21 against the euro to $1.35, contends the trader, and other sellers would trigger a further weakening to $1.45 or so. Facing that sort of decline, the Fed would have to boost interest rates to protect the currency. And higher rates, in turn, would drive down the U.S. stock market.

[SlavesandBulldozers]

1. thanks Bush

thanks Bush. With fiscal conservatives like you who needs fiscally irresponsible jackasses. Oh wait . . . Michael Jackson story's on Fox, gotta go!

[Beetwasher]

2. Indeed, this is a major story

It's a complete lack of confidence in US financial institutions. The rest of the world knows that the US economy is a joke that's teetering on the edge of an abyss. The world community knows the US books are cooked and that's why they are not investing in the dollar and they are pulling all their money out of the US. Foreign investment in the US is down something like 80% since this joke of an admin usurped power...

[montanacowboy]

3. But....we have soaring

productivity....and the unemployment rate is down to 5.9% and manufacturing up, and jobs up and everything is up up up.....

what will the media whores tell us when our dollar is worth nothing?

[ex_jew]

4. Here's an example of how it'll be done !

http://democraticunderground.com/discuss/duboard.php?az=show_topic&forum=109&topic_id=3358

[Nancy Waterman]

5. If this explodes in the next year

which it well might, it could be the issue that kills Bush. But we will be paying a huge price. Interest rates will go way up to keep foreign money here, and that means production will go down (harder for companies to borrow) and the Stock Market will plunge as well.

[nadinbrzezinski]

6. Why o why am I thinking

Mexico, circa 1980s

Why o why am I thinking Andrew Jackson

Why oh why is this reminding me of Weimar?

Oh never mind, when the Japanse and Chinese cash on their portfolio,
TAKE COVER folks

[Catfish]

7. Bush is stupid and negligent but what about Greenspan?

I truly wonder why Greenspan would insist there isn't a dollar crisis, seems like it would be better to say nothing, his statement seems to have worsened the situation.

It is scary how much economic damage Bush is willing to endure for political gain. Reading this along with Krugman's editorial today does make me think we are being governed by mad men. Tariffs, record deficits, and now doing nothing about the weak dollar, where will this lead in the long run? Obviously, Bush and Co. don't care.

[sweetheart]

8. so much depends on the far east

They are investing in dollar bonds still to keep exchange rates weak (their currencies) so that they can export their way to economic strength. If any one of the far east economies, or the entire block shift from this strategy, then bob's your uncle.

Nothing greenspan can do will make any difference... it'll be like mexico, korea, russia, thailand.

In the mean time, the euro don't have much further to go.... before america becomes a non-export zone... as goods will become prohibitively expensive in US markets. It is worrysome indeed, but mostly in that nobody really wants america to collapse, hardly... as in enlightened self interest, all nations need a healthy america to pull its weight.

Truly, this new currency pusch is a financial exporting of the bush war on to the european socialists who pay in economic blood for the neocon waste.

Were the asian economies not so pathetic in their simplistic development strategies (Export export export) we'd be in a much safer global climate to handle a fiscally incompetent usa.