by nv1962 | Diciembre 15th, 2007
Now the smoke has settled of the recent announcement of the second pile of global cash that will be dropped in a bid to prop up the ever weakening dollar, Paul Krugman isn’t impressed, either: he’s particularly worried that the combined housing bubble and the subsequent widespread borrowing into the resulting equity surplus, now that the bubble has become a sagging and widening dimple, will result in massive negative equity. Today, three other NYT articles point to other trouble spots: Michael Grynbaum enumerates elements of rising inflation, leaving the Fed with a fast dwindling space to try and boost the economy by lowering interest rates, while somewhere in their article focused on relatively more robust euro-toting tourists from yonder side of the Atlantic, Kate Hammer and Julia Werdiger almost anecdotally mention that
an estimated $1.2 trillion in dollar holdings will move to other currencies over the next five years, economists at Merrill Lynch said. In May, Kuwait dropped its currency’s link to the dollar, and in October, Iraq said it wanted to diversify its heavily dollar-dominated reserves. Other countries, including Qatar, have complained about the negative effect of the weakening dollar on their reserves.
Clearly it’s in no-one’s interest to switch over such a huge sum in the short term, but the combination of a markedly diminished Chinese appetite to hold onto its mountain of dollars, combined with an increasing pressure to turn petrodollars into other currencies are not helpful to support the bearish climate of the dollar.
On the other hand, Doreen Carvajal illustrates that living abroad on a US dollar-based income is increasingly unattractive. Expat pensioners are facing tough times, but so do federal employee abroad, for example:
Radio Free Europe, the United States-backed broadcaster based in Prague, is suddenly facing a housing crisis for many of its 500 employees. And the chief executive, Jeffrey Gedmin, ranks the weak dollar as one of the critical issues that the news organization is facing, along with attacks around the world on journalists, who have been kidnapped in Baghdad and jailed in Azerbaijan. “For me it’s become an ethical issue,” said Mr. Gedmin, who was in Washington this month lobbying legislators for relief and trying to raise funds privately to aid hard-hit employees.
With oil remaining at price levels as high as they are, trade balance isn’t likely going to improve too much, either, as unlikely as the current trade deficit is going to improve; since Bush stepped into the White House, between 2001 and 2006, the US trade balance gap more than doubled (graph borrowed from Wikipedia):
Then, there’s the gargantuan long-term expenditure related to the adventure in Iraq, the overall already heftily ballooned national debt, which demands ever increasing amounts dedicated to paying interest, and it’s clear that the pack of clouds over the US economy and by extension its currency is only going to get thicker.
It’s therefore all the more mystifying to me that in the presidential election campaigns there’s so little attention paid — by candidates and the press alike — to the proposed plans by each candidate to turn the ship around. It’s all the more mystifying, as the front page issue of health care is driven by the cost-related aspects and considerations; it doesn’t exactly take a NASA engineer to figure out how large numbers of citizens will feel when the economy structurally crimps, when they are already rightfully upset about the profoundly injuring (and increasing) disparities in access to health care.
Hope’s an awfully nice thing to have, of course; having also a reality-based faith in the execution of a sound economic repair package is probably a whole lotta nicer.
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