NYT: Dollar's Steep Slide Adding to Tensions U.S. Faces Abroad

[DeepModem Mom]

Dollar's Steep Slide Adding to Tensions U.S. Faces Abroad
By DAVID E. SANGER

Published: January 25, 2005


This article was reported by David E. Sanger, Mark Landler and Keith Bradsher and written by Mr. Sanger.

WASHINGTON, Jan. 24 - After a first term in which terrorism and war dominated President Bush's foreign policy agenda, his allies in Europe and Asia suspect that his next confrontation with the world could take on a very different cast: a potential currency crisis, in which a steep plunge in the value of the dollar touches off economic waves around the world.

Already, the tensions over the dollar are becoming a recurring source of friction, a conflict that does not reverberate as loudly as the differences over Iraq but may be as deeply felt. At a meeting in Paris on Monday, the finance ministers of Germany and France complained that Europe had unjustly borne the brunt of the dollar's decline, and called for coordinated action to stop it.

"Europe has until now paid too big a share in this readjustment," Hervé Gaymard, the French finance minister, said. His German counterpart, Hans Eichel, said the United States needed to reduce its deficits, adding "each one has to play its role."

Two months ago, similar sentiments came from China's prime minister, Wen Jiabao, whose nation is at the center of a struggle with Washington over currency policy. He complained about the fall of the dollar, asking, "Shouldn't the relevant authorities be doing something about this?"...

***

....should the dollar continue to fall - if, for example, global investors determined that Mr. Bush did not have the will to hold spending down - it would not only add to tensions, analysts said. It might also force up interest rates at home to keep foreigners interested in financing America's need to borrow more than $600 billion a year to cover its gap in the current account. The current account is the broadest measure of the trade and financial flows into and out of the country....


http://www.nytimes.com/2005/01/25/business/25dollar.html?pagewanted=all&position=

[UL_Approved]

1. How will the budget be balanced?

I know how this will go.

1. Kill Social Security

2. Balance budget by removing public education

3. Spin propaganda to keep opponents from stopping this

4. Start pumping money into defense funding like crazy

My only question, will the majority of Americans get tired of this and change it?

[VegasWolf]

2. Also, kill public funding for the arts. n/t

[amandabeech]

3. To kill Social Security, *ush will have to default

on those Special Issue Treasury Bonds held by the Social Security Trust Fund.

*ush & Co. like to run around talking about those Bonds as though they were an IOU between friends written on a napkin at 2:00 a.m. in some dive bar.

I suspect, however, that it will not be quite so easy. Has anyone noticed that the terms of those Bonds, together with any Bond Agreement, have not been made public?

If * does manage to default, it is unclear how world financial markets might view the situation. Will they take the "owe it to myself drunken 2:00 a.m." line that * & Co. put out, or will they take it as a default on one type of sovereign debt?

If the latter, U.S. Treasuries could move to junk-bond status. All Secretary Snow's jawboning won't change that.

Interest rates on Treasuries would make 1980 mortgages look cheap and the dollar would be so worthless that even the Chinese would have to unhook from the dollar peg pronto in order to buy some Brazilian soybeans and a few drops of oil.

[corbett]

5. Sad To Say You're Right

It could be the mid-90's all over again, too, as the federal government is shut down due to a default on the full faith and credit of the fed. Ouch!

[Wright Patman]

6. Gay tax

The fundies are reportedly upset this morning with the Chimperor over his refusal to obsess over gay marriage as they do. Since we all know the Constitution is a dead letter, ** should have no trouble imposing a confiscatory tax on homosexuals.

Don't laugh. It could happen. And where I live, the pastors would be proclaiming the 'justice' of such a 'penalty' for 'iniquity.'

[radfringe]

4. so much for the "strong" dollar policy

Central banks shift reserves away from US
http://news.ft.com/cms/s/9ef63678-6d7d-11d9-9b69-00000e2511c8.html
By Chris Giles -- January 24 2005 00:03

Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit.

In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. The majority thought eurozone money and debt markets were as attractive a destination for investment as the US.

The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $ 1,700bn, took part and the results showed a marked change in attitude over the past two years.

---snip---

Any reluctance to increase exposure to dollar assets further could cause the greenback to plunge on currency markets.

"The US cannot take support for the dollar for granted," said Nick Carver, one of the authors of the study conducted by Central Banking Publications, a company that specialises in reporting on central banks.

"Central banks' enthusiasm for the dollar seem to be cooling off."

[On the Road]

7. The Weak Dollar

is another example of Bush making everyone else pay for his reckless policies. It's costing our trading partners billions, not to mention the effect on American consumers, but who cares, right?

[PROGRESSIVE1]

11. This World needs another Superpower to balance Bush out!

America being alone at the top with a madman in charge is dangerous.

[w4rma]

8. Bush should be impeached for this. He's an anti-American traitor. (nt)

[UL_Approved]

9. According to Woodward on 60 Minutes II...

Bush and his advisers laid out the war plan with states in the Middle East. He gave people in Saudi Arabia and other questionable states our battle strategies. This is one definition of treason...

[Rockerdem]

10. From the sound of it, the Euro central bankers are going to prop up the $

I cant read it any other way. Theyve already borne the brunt with high unemployment due to the euro's strength. Now they are going to start buying dollars? Makes no sense.