Dollar Dilemma

[Boom_cha]

An excellent article on why the Bush administration is between a rock and a hard place vis-a-vis the dollar, by Richard Duncan, author of Dollar Crisis


snip

Last year the US Current Account deficit was US$503 billion, an amount equivalent to almost 2% of global GDP.  As strange as it may sound, US economic policy makers need an even larger Current Account deficit to help finance the US budget deficit without driving up interest rates.  That is because the larger the Current Account surplus of the United State’s trading partners becomes, the more Dollars their central banks will hold, and, more pertinently, the more Dollars they will hold in US Treasury Bonds.  There’s a catch, however.  American manufacturers, labor unions and, in increasing numbers, congressmen and senators are calling for the Bush administration to force China and Japan to allow their currencies to rise against the Dollar.  The problem is, if that were to occur, the trade surpluses of those countries would decline, ensuring that the central banks of those countries had fewer Dollars to invest in US Treasuries.  This dilemma goes a long way toward explaining the confusing and ambiguous—even contradictory—statements being made by senior US officials regarding the relentless currency market intervention being undertaken by the Chinese and Japanese central banks to keep the Yuan and the Yen from appreciating against the Dollar.   From the administration’s perspective, given the huge scale of financing that will be required to fund the US government’s budget deficits over the next two years, it truly is a Dollar dilemma. If the Dollar does depreciate, foreign central banks will have fewer Dollars to buy treasury bonds.  In that case, interest rates may rise further and cause a global recession.  On the other hand, if the Dollar does not depreciate, the US Current Account deficit, now more than $1 million per minute, will continue on its present, near-exponential growth trajectory, but at the cost of heavy job losses in the United States—when further job losses are the last thing the Bush Administration wants to see going into an election year.

much more at

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=26122

[Changenow]

1. Thanks.

The only problem is that if you know too much it's hard to sleep.

[Boom_cha]

2. true

but forewarned is forearmed. If the shit is going to hit the fan you might as well be prepared for it.