Posted on 01/07/2009 8:23:39 PM PST by lainie
The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.
Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.
The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency's prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama's mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.
Writing on his blog , Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."
He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.
(Excerpt) Read more at telegraph.co.uk ...
The “flight to safety” in the dollar reminds me of the “flight to safety” up the rising stern of the Titanic.
They may be correct!! It's a whole new ball game!!!
unhn...to what, the Euro? Nobody's that stupid. Nobody with any real money, that is.
It doesn’t sound as though anyone has any confidence in the new Obama administration. America may go down, but damn! We’re going to look good in the eyes of the world while we’re doing it!
right timeline for hyperinflation
Yep. I can’t find that Titanic pic anymore with the “You are here” arrow superimposed on it, that was a classic.
What's real money going to look like a few years hence?
I wish more would heed the warning. When I hear “too big to fail” I respond with the old saying ... the bigger they are, the harder they fall. Amazing how easy history is forgotten.
Industry, indeed, provides the
subject which parsimony accumulates.
But whatever industry might acquire,
if parsimony did not save and store up,
the capital would never be the greater.
The Wealth of Nations, Book II, Chapter III
Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands... Such people, as they them-selves produce nothing, are all maintained by the produce of other men's labour... Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment.
The Wealth of Nations, Book II, Chapter III
Look for a 2 or 3 TRILLION deficit before the imbeciles that put him and the socialists into power start to starve.
USSA Greetings to you Comrade!
The world's going to hell and folks are going to bet against the guys with the biggest toys?
I'm not.
Maybe we'll be in for a few years of fun as we watch the Euro countries surrender to each other so the "victor" will have to pay welfare.
Our prosperity is built on our own real productivity, and not on anything the rest of the world does for us. Quite the contrary.
Our savings rate might take 6-12 months to tick up, and the period of adjustment might be rocky for a spell, but it won't make any fundamental difference to our prosperity.
The entire world spent the last 5 years predicting dollar hyperinflation and got deflation instead, with their ridiculously high commodity prices in dollars not sticking at all. If they want to short the dollar enough to lose another $30 trillion on top of what they just lost on that decidedly incorrect bet, they can. It is their funeral.
ping
The only way to save the US Dollar is World War.
Echoes from the past.
Comments?
what other currency is there left to invest in? imo the US dollar will hold, or at least be the last one standing on a sinking ship jmo moo
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