An Economy Dancing With Disaster

[Itsthetruth]

An Economy Dancing With Disaster
Sunday, February 27, 2005
Washington Post


All it took was a vague suggestion by Korea's central bank last Tuesday that it would keep less of its holdings in dollar-denominated assets to send tremors through global financial markets. The Dow Jones industrial average fell 174 points, the dollar gave up half of its recent gains, and oil prices spiked to $51 a barrel.

On one side are the nations of Asia, along with Canada, Mexico and oil-producing countries everywhere. Their lopsided economies are growing nicely these days, but only because of over-reliance on selling clothing, electronics, autos and auto parts, oil and natural gas to the United States -- and then lending the extra dollars they earn back to this country so Americans can afford to buy those goods. In other cases, foreigners have invested their export dollars in U.S. stocks, helping to prop up the stock market, or U.S. commercial real estate, where a bubble has developed in such places as New York and Washington.

At some point, however, those foreigners -- individuals as well as central banks -- are apt to worry about the size and vulnerability of their dollar holdings. All it would take would be a decision for enough of those foreign entities simply to cut back on new loans and investments and the whole arrangement would begin to come unraveled. The dollar would decline, interest rates and prices would rise, and economies would slow both here and abroad.

The question isn't whether all these things will happen, only when and how fast. It remains possible, even probable, that things could unwind slowly, over many years. But they could also unwind with the speed and rush-to-the-exits panic that characterize all financial crises. Certainly last week's jitters were a reminder of just how nervous markets have become about the size of those imbalances and the risks they pose for the global economy.

http://www.washingtonpost.com/wp-dyn/articles/A55219-2005Feb26.html

[rpannier]

1. Ran a similar article last week.

I live and work in Korea. What I added to my posting is that many millionaires and billionaires are encouraging people to stay out of the US Stock Market and Invest in China (like they are). They predict a possible economic collapse with the lack of jobs being produced, the trade deficit and the huge budget deficit.

[stopbush]

2. Damn that Clenis! If only we had a government run entirely by

Jeebus-believing and bush-worshipping Republicans none of this would be happening!!

[Padraig18]

3. Oh, wait!

We DO have that!

:P