Agreed. Unlike these two....where will find their like again?
Posted on 01/18/2004 12:45:18 PM PST by Beck_isright
If confidence goes, lenders will pull loans and cause dollar to crash
By William Choong
TECHNOLOGY REPORTER
YEARS before the Asian financial crisis of 1997, many Asian countries had become hooked on a dangerous concept - credit.
Economic growth was chugging along nicely, and in countries such as Thailand, the middle-class was indulging in a consumer frenzy, buying branded goods, holidaying abroad and sending their children to overseas schools.
But Thailand's trade deficit - the amount by which imports exceed exports - was growing, financed by massive short-term loans from foreigners.
When investors lost confidence, however, a sudden flight of capital brought the kingdom to its knees.
The odd thing is, this year, the United States - once the world's biggest creditor nation - is also experiencing a credit- fuelled consumer spending spree.
There are fears the American appetite for Japanese cars, Chinese clothing and Malaysian electronics could cause a global financial crisis sparked by a run on the US dollar.
This has led to a massive current account deficit of more than US$500 billion (S$850 billion) - a far cry from 10 years ago, when the US enjoyed a trade surplus of US$82 billion.
Its budget deficit could hit US$450 billion this year - another record, and a dramatic turnaround from 2001, when government coffers were in the black.
This has led commentators to lament how America's twin deficits could grow into a 'full-blown, Third World-style financial crisis'.
The logic is simple.
Like Thailand, America's deficits are financed largely by foreigners, particularly Asian central banks that want to keep their currencies weak against the greenback to boost their country's exports.
Any crisis of confidence would see them withdrawing their loans, triggering a fall in American financial markets and then a run on the greenback.
The writing is already on the wall.
In the past year, the greenback has racked up losses of more than 20 per cent against the euro - falling to a seven-year low of around 80 US cents to the euro. Against the yen, it has shed 11 per cent to hit a three-year low of 105 yen to the dollar.
'On a scale of one to 10, for (the chances of) a dollar rout against the euro, I'd say we are at eight,' Mr Peter Morici, a business don at the University of Maryland, told Dow Jones.
A weaker dollar reduces America's debt, gives a leg-up to US exporters and slashes the current account deficit.
But a weaker dollar is a double-edged sword: It could lead to dearer imports and raise inflation - the bugbear of industrial economies.
This would hamper the world economy's preeminent engine of growth - the average American's propensity to spend.
Abroad, a weaker dollar would lead to competitive devaluations as other countries find their US-bound exports relatively expensive.
There is a growing chorus of voices stressing the possibility of a greenback plunge.
The International Monetary Fund has lashed out at the US, arguing that its massive debt could wreak havoc on the US dollar and global exchange rates.
In a paper presented earlier this month, three analysts - including former US treasury secretary Robert Rubin - argued that Washington's twin deficits could amount to what some have termed a 'full-blown, Third World-style financial crisis'.
Mr Paul Krugman, a prominent economist who foresaw the 1997 Asian financial crisis, drew the conclusion as early as last October.
In a New York Times column, he said the US economy was approaching a 'Wile E. Coyote' moment - when the coyote in the famous Road Runner cartoon runs off a cliff, only to realise at the last minute - too late - that it is about to plunge to the bottom.
'What will the plunge look like? It will certainly involve a sharp fall in the dollar and sharp rise in interest rates,' he wrote.
'In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.'
Such views, however, have been derided by members of the Bush administration, who have pledged to halve America's budget deficit in five years.
What is probably high on their minds is how, in the 1980s, the world's largest economy under former president Ronald Reagan managed to grow despite similar deficits.
That was thanks - again - to a weak dollar and booming demand in Germany and Japan.
But the raising of US interest rates will affect Europe, the exports of which have become more expensive, just when the region is showing signs of faster growth.
Compared to Europe, Asia looks set to be hit harder - simply because the region is more dependent on exports to the US.
There have been calls for the Chinese yuan, which has been pegged, or fixed, at a constant rate to the US dollar, to be revalued to a stronger level, perhaps by as much as 20 per cent.
For a long time, market watchers said the unit was undervalued at around 8.3 to the US dollar, leading to a massive US$100 billion trade surplus with America - a quarter of the US' total trade deficit.
'It's not a question of if, but when,' Mr Craig Chan, head of Asian research at Forecast, a London-based research firm, told The Straits Times.
The effects of a yuan appreciation, however, would be fairly significant.
Close to 200,000 state-owned enterprises, which are less efficient at producing exports than private firms, would suffer, leading to heavy job losses.
Its financial sector - still in the midst of reform - would also take a hit, said analysts.
In Japan, a falling dollar would derail a recovery that only started kicking in last year.
For the rest of Asia, a plunge in the US dollar would spell trouble.
In the second half of the 1980s and the late 1990s, the greenback's strength fuelled exports from Thailand, Malaysia and Singapore.
A weak dollar, however, would affect American purchasing power and slam the brakes on Asian exports, lowering growth all round.
This can be seen in Japan's experience in the early 1990s, when the economy tanked after the Plaza Accord of 1985.
Under the accord, a group of developed countries engineered a sustained fall in the greenback along with rises in the German mark and Japanese yen.
Speaking at a regional conference in Singapore last week, respected Malaysian economist K.S. Jomo noted that there have been calls for a second Plaza Accord.
The world's three currency blocs - Europe, Japan and the US - were carrying out competitive devaluations, he said.
'This would lead to an inability to coordinate exchange rates and monetary instability at a global level.'
There is, however, not much hope going forward that there will be enough global coordination.
Last September, the G-7 group of developed countries called for 'more flexibility' in exchange rates. This, however, was interpreted by markets to be telling the Japanese and Chinese to let their currencies rise, thus allowing the US dollar to fall.
Ultimately, whether the US dollar would, in Mr Krugman's words, suffer a Wile E. Coyote moment depends on investor confidence.
For a long time, Asian central banks had, through the purchase of low-yield US Treasury bonds, been the key financiers of America's deficits.
Currently, the US Federal Reserve holds US$1.1 trillion of such debt for foreign central banks, many of them Asian.
Therein lies what could be called the Harvey Norman effect - whereby a seller makes credit readily available to a buyer so the latter can buy more.
As French economist Jacques Rueff said: 'If I had an agreement with my tailor that whatever money I pay him returns to me the very same day as a loan, I would have no objection at all to ordering more suits from him.'
The key: When another crisis of confidence hits US markets, foreign lenders - particularly Asian lenders to the US - might pull the plug on their US loans.
And that would be the crucial tipping point which brings the whole house of cards that is the world economy crashing down, just like the unsuspecting coyote.
You have it wrong. The US is the weakest link in the chain and when that link breaks, it will the US that gets hurt the most followed by Japan and then Europe although they are already moving as far away from us as possible. America will be kept alive only long enough for the monster economies of Asia to gain solid footing and total control. Our fate is pretty much a done deal at this time. We're toast.
Richard W.
Which branch? The rats are too treasonous to allow them to get federal power, imo. If you have a rat Prez, there goes the Supreme Court for the next 50 years, and the US will become the Gay Pride Pedophile Transgendered Country. If you say the House, then those treasonous, military hating bastards like Conyers and Rangel will get the reigns of power.
If the U.S. economy maintains a decent growth rate, and the $ interest[FED] rates increases...
Two things which, like matter and antimatter, are not going to coexist in the same space (Because much of the last couple of years of consumer spending was derived from the massive amount of cash out refinancing).
And this trade-off, for the years of indulgent living with 'cheap foreign-sourced goods' never translated into an equivalently lower-priced-consumer market here. It just drove out the U.S. suppliers at the wholesale level. It was almost all 'captured' by the middle-men and the controlling financiers. So, as we conservatives knew, it all was a Faustian bargain--oversold 'over-the-top' by the CATO-ites.
A 'bargain' that the average U.S. citizen never had either the awareness or the means to 'vote' against.
Today, there is no 'bargaining' involved. it is quite literally IMPOSSIBLE to avoid buying mostly Chinese consumer goods. Soon they will be making cars and planes for our market. Boeing will make its planes in China, and close down Everett, and St. Louis. And the cars also will be sold under our own labels...Chevrolet, Chrylser, etc. You won't get a clean choice between GM and Deng Xiou Ping Motors. They will even be manufacturing most of the framing elements for houses, not just 'manufactured homes' but many structural elements. Siding, doors, windows, roofing, framing. Etc. And then the end, financially for the U.S., will come.
Which is the ONLY reason to believe that China will continue to steer a patiently steadfast economic and diplomatic path of maintaining 'stable' relations with the U.S. Pretending on occasion to be cooperative and helpful to the U.S. All the while fanning the flames of nationalistic anti-U.S. hatred.
This strategy of patience while their artificially low-wage 'Black-Hole' continues sucking in all our industry and technology to the devastation of the U.S. is the ONLY reason to believe they will not rock the boat with Taiwan for a few more years. At the point where the Communist overlords feel they have taken all the industry they can then ALL BETS ARE OFF.
They have said they would nuke Taiwan. Maybe, just maybe, we should be entertaining the idea of pre-emption. Then a total quarantine. And squeeze the life out of the snake before they finish swallowing us whole.
Precisely my fear, and that of most republicans. Which is then shamelessly and shamefully used by Rove: "Where else can they turn?"
No offense intended here, but I think that you are way behind the NWO globalized central planning curve on this one. It isn't about nationalism anymore. Our so called leaders are not just in on it, they are planning it. The only countries that have the remotest chance of getting "nuked" as the ones who oppose the NWO fascists. Mexico is a prime example of national "blending" and where we are going. The standard of living of the average Mexican is going to rise and the standard of living of the average American is going to fall. Don't worry about the commies in China, we have more than enough of our own in Washington.
Richard W.
Just like Enron.
Agreed. In my Dragon's Fury novel series I call it the Coalition of Asian States. (CAS)...and it leads to the same place as the Greater Asian Co-prosperity Sphere did.
Our fate is pretty much a done deal at this time. We're toast.
We could be burnt toast. I was reading an editorial this weekend that talked about the US letting the dollar devalue and not doing a thing. This forces other countries to prop up the dollar/devalue their own. This is typically done by selling the currency you ware devaluing and buying the one you are propping up.
Well get a load of this. The editorial suggested that the country wanting to devalue it's currency should print the money and buy gold. Now this actually is a very old solution and was done in the past when gold and gold reserves were money. It works out very well and the one buying the gold with fresh printed money doesn't wind up with IOU's/bonds, but GOLD. I forgot all about this until the article.
The US would be burnt toast, nay charcoal should this old monetary technique be put to use again. And of course, gold would zoom to $xxxxxxx/oz. So the policing country or countries would reap a bonanza in net worth.
IMHO, they are taking advantage of that crowd too, which sadly includes many of our own elected and appointed officals.
Agreed. Unlike these two....where will find their like again?
Great...just in time for HilaryCare! /sarcasm
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