Dollar falls...[see below]...Bush looses in a landslide.

[ochazuke]

Dollar falls on foreign exchange markets today. (You read the news).

The U.S. economy is kept afloat by a huge capital inflow from other countries that helps offset our now huge deficits in international trade and government expenditure.

If foreigners get spooked and think there's a better place to invest (and with Bush at the helm....) the capital outflow would cause a fall in the dollar, and a fall in U.S. equity markets.

It feeds on itself: Fearing an outright collapse, the capital outflows get more intense until you have a market panic.

Higher interest rates alone (certain to be part of this scenario) would wreck the U.S. economy. Unemployment might reach double digits before November, 2004.

Now, who would get blamed for this?

[fizzana]

1. Clinton

I'm surprised you're even asking.

[Melsky]

2. To be more specific

Clinton's penis!

[Dufaeth]

3. loses.... n/t

[rapier]

4. notes

RE: "The U.S. economy is kept afloat by a huge capital inflow from other countries that helps offset our now huge deficits in international trade and government expenditure."

Regarding the twin deficits, trade and budget. You say foreign countries are sending us their capital to fund the deficits. A better way to look at this is in this:

We pay for all those foreign goods with dollars. Those dollars end up deposited in their respective nations banking systems. The central banks ultimately ending up with them. They then use the dollars to buy Treasury Bonds. So your description is essentially correct but it misses the dog chasing its tale aspect of the thing.

The trade defict is actually funding the budget deficit. This is not just my crackpot idea. It is quickly becomming the conventional wisdom.

This recycling of dollars during the boom had a different route. The dollars were not ending up with the central banks but were staying within the financial system and being sent to Wall St. Everyone wanted to invest here, till the bear market that is. Now private captial isn't so eager to come here and so the dollars build up in the foreign banking systems and then the central banks and they do the recycling.

This is a silly and thing and it is unsustainable. The problem is that if they don't keep buying dollar assets, either US stocks or financial assets or government bonds then the dollar is likely to fall further. Which will beget even less desire to have those dollar assets, and on and on and on in a vicious circle.

The G 7 meeting just concluded and they said the dollar should be allowed to fall, by itself, by normal market forces, in an orderly mannner. The thing they forgot to mention is that markets are not always orderly. Markets can swing violently. The G7 suggested a 30% drop in the dollar was perhaps desireable. Well that's nice but in a panic it could go lower, much lower. I am not predicting such but it could well happen.

A financial accident is well within the realm of possibility. The dollar could be the trigger. Other things could be as well.

[rapier]

5. so much for free markets (as if they stood a chance)

So much for non intervention by the BOJ (Bank of Japan) They just did (9/29 8:00 pm EST) a blast of dollar buying to prop up the Yen, and their stock market, because it is the end of quarter markup time and they want things to look as good as possible. Which by the way just what Wall St. does at the end most months and quarters. Well the Street doesn't intervene in the currency markets, at least on such a grand scale but and end of month runup is like old faithfull.

[swinney]

6. JOBS GONE OVERSEAS IN MANUFACTURING

Please do not anyone yell "nafa". Before you trash Mexico check how much of our balance of payments is in OIL from them.
(60% of our oil imports comes from Americas and 40% from gulf).

Check shelves at Wal-Mart. Find USA products.

Japan took our Electronics business.

China taking our apparel industry.

Japan took our auto industry.

Japan took our watch industry.

Japan took our Tool Maker industry.

Taiwan took our low cost furniture industry.

Oh! We can still "wait on each other " in a service industry.
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