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Here''s what GATA sometimes forgets to tell you
.... Foreigners will just use their piles
of it to take ownership of the United States!
* * *
Dollar's crucial role secure, experts say
By Kevin G. Hall
Knight-Ridder News Service
Kansas City Star
Saturday, January 29, 2005
http://www.kansascity.com/mld/kansascity/business/10763405.htm?1c
DAVOS, Switzerland -- Global economic experts meeting in Switzerland
this week discounted the rumored impending death of the dollar as the
world's anchor currency.
Many analysts have issued worst-case scenarios warning that foreign
investors and governments -- soured by soaring U.S. federal budget
and trade deficits -- might dump their dollar assets and shift their
capital into euros, yen or other currencies. At the extreme, such a
trend could trigger a collapse of the dollar and perhaps even the
global financial system.
But at the annual World Economic Forum in Davos this week, leaders in
global finance suggested that fear of the dollar's impending death is
greatly exaggerated. While U.S. budget and trade deficits are
problematic and need to be reduced, these global financiers for the
most part think that will happen in an orderly fashion.
Takatoshi Ito, a finance expert at the University of Tokyo, said
Asian investors, on whom the U.S. government greatly depends to
finance its huge budget deficit, aren't going to turn against the
American currency.
"That is very unlikely. There are lots of assets in the U.S. that the
rest of the world is willing to buy, and it's not just U.S. bonds,
but assets in general," he said. "So I don't see this sudden turnoff
by the rest of the world."
Jacob Frenkel, the vice chairman of insurance giant American
International Group and a former head of the Bank of Israel, agreed.
"I don't see a high probability for the dollar losing the leading
role," he said. The United States remains the safest place to invest
because of clear rules, transparent regulation, and the range of
options, he said.
The dollar's recent erosion in value compared with other currencies
has prompted the doomsday scenarios. Since 2002, the dollar has
fallen 33 percent against the European Union's common currency, the
euro, and 24 percent against Japan's yen.
The U.S. budget and trade deficits are at the root of the dollar's
decline. Some global investors worry how long Americans can continue
to live beyond their means, and pressure is growing on America to
control its spending and reduce its deficits.
The federal budget deficit will hit a record $427 billion this fiscal
year, the White House projects. The United States also posted a
projected $600 billion trade deficit for 2004, $200 billion of it
with China.
Some analysts think that a falling dollar still could trigger a
global crisis.
"The United States has to import about $5 billion in foreign capital
every day to finance our current-account deficit," warned C. Fred
Bergsten, the director of the Institute for International Economics,
a Washington research center. The current account measures the flow
of trade and finance into and out of the U.S. economy.
Foreigners, mostly the central banks of Japan and China, are still
buying Treasury bills, financing U.S. spending. But if the deficits
don't improve, investors could begin demanding higher interest rates
to offset their risks, Bergsten said.
Higher interest rates would reduce spending by U.S. consumers. If
they got high enough, they could trigger a recession, causing
financial markets and foreign governments to lose confidence in the
United States, dump their dollar-denominated assets to cut their
losses and send the dollar tumbling even further.
It seems improbable but not impossible, according to Peter
Sutherland, the chairman of investment giant Goldman Sachs
International.
"We are in uncharted seas," he said. "It's impossible to say what is
going to happen."
Although the dollar has skidded before, it hasn't had a real rival
since the 1970s, when it replaced the gold standard as the anchor
currency for the global economy. Europe's successful launch of the
euro in 2002 now gives investors a serious option.
For now, big players in American finance and commerce don't seem
overly concerned about the dollar's slide.
"The dollar and the current-account deficit are self-correcting. As
the dollar weakens, the current-account deficit will improve," said
John Thain, chief executive officer of the New York Stock
Exchange. "I think the budget deficit is a more difficult issue, but
certainly one the administration is addressing."
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Ted Butler silver commentary archive:
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----------------------------------------------------
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