U.S. Debt In Asia Has Its Costs ["massive hammer poised above the U.S. economy"]

Newsday ^ | May 25, 2003 | Charles V. Zehren

[doom n gloom]

Well worth the read! Key excerpt:

Given the dominance of the dollar, the U.S. government and American corporations have been able to count on the Asian countries paying up to buy their debt as U.S. imports rise in proportion to exports. But ASEAN+3, favoring its debt over U.S. debt, could erode the status of the dollar as the dominant global reserve currency. That could reduce demand for U.S. government and commercial debt, forcing the United States to pay more to borrow money to finance growing federal deficits, worsening the nation's fiscal situation.

As borrowing costs mount, the president and Congress would have a tougher time keeping a lid on taxes, the Fed would face more of a challenge maintaining low interest rates, and the private sector would see the gap widen between what it spends and what it earns.

With Asian central bankers and investors demanding fewer dollars, the value of the dollar would fall, helping U.S. exporters, but hurting the ability of U.S. consumers to buy cheap imports. Resulting strength in Asian capital markets could also result in what Motianey calls "collateral damage," by stemming demand for U.S. equities and fixed income instruments by Asian investors, weakening U.S. prices.

[AntiGuv]

ping!

[Ken522]

Attention Walmart shoppers - your stuff is going to get expensive!

[PeterPrinciple]

Didn't Clinton move all our National Debt to short term financing........we are set up for a wild ride.

[dennisw]

The Fed also estimates nonresidents hold about $3 trillion in U.S. credit market instruments, with most of the dollar-related currency risk getting passed on not to the U.S. debtors, but to the Asian creditors. "No other net- debtor economy has the luxury of doing this," Motianey said. "As a result, all of the risk of the weak U.S. dollar hits unhedged creditors disproportionately." The members of the ASEAN+3 are bearing the brunt of the dollar's recent fall.

[dennisw]

Uh oh.... I guess deficts really do matter. Especially trade deficits.

[A. Pole]

Attention Walmart shoppers - your stuff is going to get expensive!

Free market bump.

[sam_paine]

All I want to know iswill I be able to build computer chips to buy beef. Oh wait. I already have cows! Screw the market.

[tm22721]

What goes around comes around ?

BUMP

[Final Authority]

I do not know who wrote this and I do not have the time to investigate but there are statements in this piece that don't make sense to me. The reason Asians, including the Japanese, invested in the USA is because of the stability of the currency with respect to interest rates and with inflation in control and with these related to the health of the economy. The reason one looks to inflation and the relative value of currency because it is impossible to determine a fair return or interest rate without stability. There is no reason why "Asia" would desire inflation or a devaluation of USA currency because it dilutes their investments and when the notes are called they will be paid with cheaper dollars. No one wants that and especially the lenders. This is why the lenders are in the bind alluded too, I believe. If the USA pursues an inflationary policy to pay debt with cheaper dollars it will indeed do the things discussed but only relative to other currencies. If other currencies and their central banks follow similar policies it could be a wash.

Many of us grew up as Boomers with our parents buying homes post-war with seemingly impossible mortgages at about 30% of gross family income. With the inflation of the 60's and 70's these mortgages were essentially free and banks offered deals to pay them lump-sum. For many of us this inflation made for a decent inheritance and a comfortable life style. This of course assumes that wages and production do not fall relatively. Inflation is not bad for debtors but awful for lenders.

[Cacophonous]

But the dollar is only artificially stable. Interest rates were kept artificially low in order to avoid business losses and bankrupties, both of which are natural components of the business cycle.

[junta]

Prudentbear.com has a commentary by a Duncan fellow that is very interesting along these lines (gold bugs rejoice).

[waterstraat]

The dollar is eventually going to be worthless, better buy gold.

The balance of trade will be deficits year after year. There will be little goods and services produced in america that will give any value to the dollar.

After all american manufacturing is gone, after all our factories have moved to china, and all the jobs have been outsourced to foreigners, why would the dollar have any value? America will end up producing nothing, and little high tech will be american. The population of america is soon to reach 400 billion, on its way to a billion. That is too many people for a country that "produces" nothing.

The laws of economics will prevail.

[ex-snook]

Thanks.

'the value of the dollar would fall, helping U.S. exporters, "

Let's see how that might work since what our exports are is movies and gangsta rap. I guess we will have to import items from China and then export them to South America. Then we can become the middleman like England before its downward trek.

The wheel has turned and it's time for trade deficits to go.

[Ed_in_NJ]

Anyone else notice that Michael Dell is selling 10M shares of his Dell stock - and (I think it was) Ballmer of Microsoft dumped a bunch of MS a few days ago?

[GOP_1900AD]

You appear to assume that there is no economic dimension to geopolitical conflict that would justify a nation state, or, its nationalistic individual investors, in doing something that is economically "irrational." By the same token, most commercially oriented, economically obsessesd modern Americans are so poorly refined in understanding the geopolitical dimension of economic and corporate risk assessment that even the CEOs of multi billion dollar companies foolishly believe that great war will never again occur and that it is OK to continue to invest in the economic development of our future battle field adversaries. The naive spirit of Thomas L. Friedman and ilk waxes suicidally.

[waterstraat]

'the value of the dollar would fall, helping U.S. exporters

If we end up "producing" nothing, what exactly will we be "exporting"? I dont see where this will help. Explain please.

[AmericanVictory]

Will the Chinese communists, assisted by the Japanese, refer to this cross-border arrangement as the Greater East Asia Co-Prosperitiy Sphere? Since it is planned around Communist China's "economic miracle," what will happen when that bubble bursts? How will Japan get out of the Keynsian sinkhole that it insists on continuing to plunge into?

[1rudeboy]

After all american manufacturing is gone, after all our factories have moved to china, and all the jobs have been outsourced to foreigners, why would the dollar have any value?

Buy gold. Buy SPAM. Bury it in your backyard. And fulfill your own prophecy as you join the Third World.

[AntiGuv]

Buy gold. Buy SPAM. Bury it in your backyard. And fulfill your own prophecy as you join the Third World.

Talk is cheap - results have value... Personally, I think little of this mantra that multitrillion dollar economies may be 'talked up' or 'talked down' as if they're nothing more than glorified, elaborate pyramid schemes.. And, it needs to stop.