WaPo: Dark economic cloud on the horizon - 500 Beiträge pro Seite

[Joerver]

Ich möchte hier einen Artikel aus der heutigen WaPo zur Diskussion stellen: dark economic cloud on the horizon: the shrinking U.S. dollar.. Ist das eine einzelne dunkle Wolke oder ist es eine Sintflut, die auf uns zukoommt. a deluge of rising interest rates and soaring budget deficits is the subject of increasingly heated economic debate.
Die letzten Wochen waren durch einen verhaltenen Optimismus geprägt, nur der Glaube an die Nachhaltigkeit des (schöngerechneten) Aufschwungs will nicht so schnell Allgemeingut werden.
Alte Fußballerweisheit: schaun wer mal!


washingtonpost.com
Concerns Rising With Dollar`s Continued Fall
Analysts Fear Rates Will Climb, Recovery Will Stall

By Jonathan Weisman and John M. Berry
Washington Post Staff Writers
Friday, December 26, 2003; Page D08


With the economy expanding smartly, interest rates low and inflation in check, President Bush is sailing into the presidential election year with perhaps only a single dark economic cloud on the horizon: the shrinking U.S. dollar.

Whether that cloud produces a nourishing rain shower -- in the form of swelling U.S. exports and a recovery of manufacturing jobs -- or a deluge of rising interest rates and soaring budget deficits is the subject of increasingly heated economic debate.

Recent news of rapid third-quarter economic growth, rising consumer spending and climbing personal incomes did little to budge the dollar from its record lows against the 12-nation euro. The dollar has fallen about one-third against the unified European currency over the past three years -- 15 percent this year alone. In the past 23 months, the dollar has slid 11 percent against all the world`s currencies, according to Stephen S. Roach, chief global economist at Morgan Stanley & Co.

Currency analysts expect the trend to continue well into next year, if not beyond.

For now, economists say, the decline has on balance been a boon to the U.S. economy, pushing the price of American-made goods and services lower on the international market, stimulating exports while trimming imports. Indeed, the economic forecasting firm Global Insight Inc. has calculated that the dollar`s decline has saved as many as 700,000 manufacturing jobs since the slide began in earnest two years ago. And as long as inflation stays low, there will be little pressure on the Federal Reserve to raise short-term rates from their historic lows.

But concerns are growing, especially on Wall Street, that the dollar`s slide will inevitably drive up long-term interest rates, and some analysts think the decline could even force the Fed to raise the rates it targets. That could slow the nascent economic recovery, swell the already-record federal budget deficit and possibly resurrect an economic problem unseen for nearly 20 years: inflation.

In that scenario, foreign investors abruptly stop buying the ever-weakening dollar, interest rates soar to lure them back, and the budget deficit explodes as the government struggles to pay the interest on the $4 trillion debt held by the public.

"To this point, the [currency] adjustment has been about as smooth as one could expect under the current circumstances," said Daniel K. Tarullo, a Georgetown University law professor and former international economic adviser in the Clinton White House. "But is there a residual risk? Yeah, there`s a residual risk."

Charles L. Minter, a mutual fund manager at Comstock Partners Inc. in Yardley, Pa., was more emphatic about a looming surge of interest rates: "If people don`t want to own the dollar, they will have to be paid more to own the dollar. We`re very concerned."

The nation`s twin deficits -- a trade gap approaching $500 billion for 2003 and a federal budget shortfall nearing the same mark for the current fiscal year -- will inevitably bring pain, in the form of rising interest rates and slowing increases in the standard of living, they say.

"A lasting recovery cannot be built on a foundation of ever-falling saving rates, ever-widening current-account and trade deficits, and ever-rising debt burdens," Roach wrote in his year-end economic analysis.

But for now, foreigners -- especially governments in Asia -- continue to buy U.S. stocks, bonds and dollars, financing the two deficits and keeping the U.S. government afloat. Foreign governments and investors now own $2.5 trillion more in U.S. assets than Americans own of foreign assets, Warren E. Buffett, chairman of Berkshire Hathaway Inc., said in a recent analysis in Fortune magazine.

Foreigners bought $27.6 billion more U.S. stocks, bonds and other assets than they sold to Americans in October, a 560 percent leap from the $4.2 billion the month before, according to the Treasury Department. And that surge came just as dollar fears were coming into focus.

As long as foreigners keep buying, the day of reckoning will be postponed, probably until later this decade, and certainly well after the 2004 presidential election, many international economists say.

"Everyone agrees these deficits are unsustainable; at some point, something has to give," said Nouriel Rubini, an international economist at New York University`s Stern School of Business. "I`m not sure if it`s in two years or three years, but it will be in the medium term, not around the corner."

In truth, the big question about the U.S. dollar is not necessarily why it has fallen to a record low against the euro, but why it remained so strong for so long while the United States was racking up a widening trade deficit.

Typically, one way to reduce a current account deficit is to have a recession in which consumption and investment fall, and so fewer goods and services are imported. Another is to have the value of a country`s currency decline, so that its exports become cheaper on world markets, its imports become more expensive and gradually the trade deficit shrinks.

Economist Edwin M. "Ted" Truman of the Institute for International Economics, a former senior official at both the Federal Reserve and the U.S. Treasury, said it is impossible to predict with any precision what will happen to the dollar.

"The question is, how much of a correction do you need to have?" Truman said. "If the adjustment is $500 billion, and it all comes through the exchange rate, then there is a long way to go. Take the standard rule of thumb, a 1 percent decline [in the value of the dollar] gets you about $10 billion. If we have done 10 percent, then there`s another 40 percent to go.

"That doesn`t have to be a problem, either for the United States or the rest of the world," Truman continued. "We went through this before, in the late 1980s. . . . But it`s not a free lunch. With a $500 billion adjustment, that would be $1,750 per capita we have to give up in consumption. [But] some will come in the form of reduced . . . capital investment, and that reduces economic growth."

For politicians entering an election year, the question is when. There are pessimists who believe the fallout has already begun. Super-investors Buffett and George Soros have already begun snapping up foreign currencies in anticipation of a continuing dollar slide, something Buffett said he has not done before in his 72 years of life.

Jes Black, a currency strategist at MG Financial Group, a currency trading firm in New York, said copper and gold are trading at eight-year highs, and the precious metal palladium is at a 23-year high. That is evidence, he said, that foreigners may be selling dollar-denominated assets such as stocks and bonds and buying more durable commodities. Earlier this month, the Saudi Arabian oil minister suggested that OPEC raise the price of dollar-denominated oil because the international price of oil has been hammered by the weak dollar.

"Why do people want to keep buying the dollar?" Black asked. "It`s been living off the vapors of its past credibility. This is mass psychology, and once everyone agrees there`s a problem, there`s a problem."



© 2003 The Washington Post Company

[Newnoise]

Much Ado about nothing.

Time will tell.

[Joerver]

Something is rotten in the state of Denmark.

Doubt truth to be a liar.

[webmaxx]

somebody is here on the woodway - isn´t he?