End of the Credit Line?

[Dover]

End of the Credit Line?


From The Guardian:

America could be in for a nasty shock if foreign investors decide to stop bankrolling its massive trade deficit, writes William Keegan."

"A hegemonic economy can do what it likes - or can it? The widespread assumption in the financial markets until recently was that the Bush administration can go on piling up record trade deficits and there is not much the rest of the world can do about it.

Indeed, what the rest of the world does, especially the east Asian part of it, is to recycle hundreds of billions of dollars straight back to New York, in the form of purchases of bonds and Treasury bills. "

This arrangement, we are told, produces bliss all round. The US consumer carries on consuming more than he or she produces; the US government carries on borrowing as if there were no tomorrow; and countries such as Japan and China do not have to revalue their currencies, thereby retaining the international competitiveness that sustains the remarkable Chinese growth rate and Japan's slow recovery from recession....>>

http://www.guardian.co.uk/usa/story/0,12271,1038692,00.html

[candy331]

1. Then

how is the massacre(war) in Iraq going to paid for? Doesn't look too good for the $87billion.

[German-Lefty]

2. Wewer interesting.

So a loose monetary policy stimulates growth through borrowing, but also makes your currency weaker which makes you a better exporter, and makes others want to invest in your zone.

If I the dollars sinks far enough, maybe I can buy enough US Stock to have them produce stuff over there at slave labor rates. It'll be like turning them into Indonesia. Maybe I'll retire in the states and buy a hugh mansion or something. :-)

[qb]

3. Also, what about countries switching to the Euro for trading?

I'm pretty clueless about international finance, but I remember reading that the dollar has its value because it is accepted as the official currency for commerce. If countries begin to distrust the dollar and switch to the Euro, the bottom could fall out for the dollar. Can anyone explain this better?