Posted on 03/02/2005 10:33:56 PM PST by jb6
-- If you are parking life savings or investments in US dollars it is time to worry, says American billionaire George Soros, granddaddy of currency trading.
The mighty American dollar has lost 40 percent of its value in the past two years against other currencies and is expected to lose 20 percent more, Soros declared last week.
Coming from a man who amassed a $5 billion fortune buying and selling currencies since the 1980s, it was a heart-stopping statement.
He is not alone. Last week South Korea, whose economy ranks among the world's Big 10, said that its central bank will start putting its new trade surpluses, or government savings, in currencies other than the US dollar. Japan, China and Europe are known to be quietly moving in the same direction.
So the question hanging in the air is how worried should ordinary people be?
The United States, by far, is the world's largest economy. So when it coughs, we catch cold. While not new, it appears more serious than anytime before. Right now, America imports almost 50 percent more than what it exports.
The resulting trade deficit is being financed by international central banks and funds managers and, basically, you, dear reader.
Now American budget deficit stands at a record $477 billion with no end in sight. According to the American Congressional Budget Office the gap for the entire decade ending in 2013 will reach $2.4 trillion! That is the equivalent of the entire budgets of a couple of continents.
Therefore, the world has two choices. Either let it be or try to plug it.
Letting it be is not really an option. Ever since the end of the Second World War, the dollar stood as the international currency.
It followed that American banks and the American economy became a refuge where other countries kept their surplus money, or savings, held in things called US treasury bonds, notes and deposits - all nerdish names for Americans borrowing your money and guaranteeing to repay your bank interest rates that now stand at about 4.2 percent for it.
Robert Hormats, the vice-chairman of Goldman Sachs International, told The New York Times last week that the United States last year alone pulled in 80 percent of total world savings. That means the ones in trouble are those who lent the money, not those who borrowed it.
Even so, it was fine as long as the dollar was king. But now, Soros and others are telling us that the dollar is losing more value than the interest we are getting on it from America and there is another currency around called the euro that is stronger.
Over the past four years or so the euro has emerged as a new player. It gained 35 percent over its greenback competitor and is being used by the huge European economy of 350 million people in an old and rich continent.
It gets worse. To keep paying for the interest on the pool of treasury bills, notes and bonds it holds, the United States must continue to attract even more money from overseas against those new odds.
It is now estimated that America has to bring in some $60 billion per month just to repay interests on the bonds and deposits foreigners have lent it.
This is like a drug addict who has to take bigger and bigger doses to just feel stoned. And we all know how drug addicts end up.
One question raised by South Korea, Japan, Europe and, indeed, the Arabs is how long they would be willing to finance this drug binge and why should they.
Even if they are collecting interest on their money the total value of it is less - so one cancels the other. The big heat attack comes when these countries say enough is enough.
That means no more money coming into America, and no ability by America therefore to repay existing commitments, therefore a further drop, maybe even a collapse, of the dollar altogether.
The Australian treasury secretary, Ken Henry, last week likened the flood of money pouring into America to support its growing budget deficits to the stock market's boom, and the bust of the dot.com bubble of the late 1990s.
Such a crash would deeply affect the income of oil-producing countries, for instance, as they trade their oil for dollars. As it is they are losing money every time the value of the dollar drops against other currencies.
But what of the average person's deposits in dollars in any bank anywhere in the world? That, precisely, is the kind of conversation every Arab oil minister, prime minister, king or president, should have with their central bankers until they give a clear answer on what is plan B.
Why, for example, does my oil minister not start pricing my oil in euros? Why are Arab deposits still in dollars?
Because many bankers and oil ministers are hypnotized. They believe America is too big, too strong and too powerful to forfeit payments and that it can still borrow more because the world will lend it more.
But remember, the dot.com crash came too fast after everyone was absolutely sure that the miracle would go on forever.
Money is the most cowardly of commodities. In panic, it stampedes sometimes toward the abyss. We have seen it before - the Kuwaiti Al Manakh souk, the depressions of 1929 and 1980s in America and the collapse of dot.com, to mention some.
Youssef M. Ibrahim, a former Middle East correspondent for The New York Times and energy editor of the Wall Street Journal, is managing director of the Dubai-based Strategic Energy Investment Group.
I don't think it will be as bad as described; however, we desperately need to get our fiscal house in order.
The latest budget was the first attempt by the Bush administration to become a better steward of our tax dollars.
If we wait until it all starts crashing, we will still be okay but the cutting of government pork will be hideous.
Why not do the hideous over time? Let's get rid of welfare programs and everything else that take the vast majority of money in the yearly budgets.
Defense is required as are certain functions of government. Drop the rest.
Looks like some wishful thinking here.
President Bush proclaims he is for a strong Dollar yet he has done little to back it up. Meanwhile the Euro economy is tanking and the low Dollar is attracting investments because of our relatively low unemployment rats and low inflation rate. I predict by the end of 2005, the Euro will be in deep doo doo, and the dollar will be soaring.
With Germany and France both dealing with double digit unemployment, compared to our 5.2% unemployment rate, How can the Euro remain attractive? Socialism is no place to be investing hard earned money, and it's just a matter of time before the Euro Bubble is popped
The only reason the dollar is still attracting investments is Greenspans continued actions and promises on raising the interest rates.
I know if I was gonna hedge my bets, I wouldn't load my basket with EU investments against the chance of losing on which economy and military will prevail in the next 15 years. With France and Germany playing the dominant role in the UN, Wise money will abandon them
Inflation is a fed lie. They take out all the volatiles and then try to pass the stables off as "inflation". At best it's under reported by a point, at worst 3-4 pts.
So they'll then eat all their dollars they have from this trade imbalance.
Yeah, sure.
This guy stinks like Soros with his own trading agenda.
I almost get the idea that Soros is trying to undermine our country, btw.
I wonder if it is a crime to:
(1) "sell short" the dollar,
(2) grab every microphone you can find in an effort to "talk-down" the dollar and
(3) then make billion-dollar profits when the dollar (to noone's surprise) does fall?
Where o where is Elliot Spitzer when you need him?
somehow...I'm quite sure ole Dubya and AG are just quietly paying out the rope here...when it gets JUST long enough-bingo!! there goes Soros!!!!...well we can all dream can't we!!!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.