Real chance of global economic collapse due to US trade deficit

Economist, April 6th 2005
www.economist.com...

AMERICA has been warned many times in recent years that its profligate spending is dangerous, for itself and for the world economy. So far, however, Americans have ignored such doom-mongering, gleefully driving their current-account and budget deficits to record levels. Now the World Bank and the International Monetary Fund (IMF) seem to be trying to stage an intervention. This week, both have come out with reports on the global financial situation—and both reports give warning that America’s fiscal irresponsibility poses serious risks to the world economy.

...both make it pointedly clear that America’s copious spending is a real, and growing, problem for the rest of the world...

America is mortgaging its future to pay for current spending...

The World Bank estimates that roughly 70% of global foreign reserves are now in dollars. That growing portfolio of dollar assets is vulnerable to currency correction. This is not such a problem if the dollar declines gently, but an abrupt change in its value could spell trouble, as central banks find themselves with gaping holes in their portfolios...

But the central banks that are buying up all this paper, particularly Asian ones, are trapped in something of a vicious circle...

Central banks have another problem: many are reaching the limits of their ability to “sterilise” their currency transactions. In order to keep their exchange-rate operations from causing inflation at home (the natural result of keeping one’s currency undervalued)

If this really happen, in my opinion the US will lose her superpower status, we have already a weakened EU, NATO, UN, the (possible) crises in Iraq, Iran, Syria, war on terrorism, North Korea, peak oil, Afghanistan- just to name a few: it's really not good.

Still, we must not talk ourselves into a crisis, but we must be very, very cautious especially those in the US about their growing trade deficit!

Blobber



[edit on 8-4-2005 by Blobber]

Yeah between their record trade deficit and their gov's record spending deficit the US administration is currently cooking up one hell of a mess IMO.

(Maybe they know the environmentalists are 100% correct and that everything is very shortly headed down the shi*ter and they just don't care anymore?)

Crap, there is now also someone else claiming of a bubble.

www.atsnn.com...

Blobber

Blobber--how in hell could we talk ourselves into a Recession. I'm fairly certain that the machinery is like a runaway train. I will be curious as to how TWB will put the brakes on if Bush just appointed DR. Frankenstein Wolfowitz to chair the board.

Hi Kazi,

What I meant is that we should not panick- we must be cautious with the US trade deficit, but it's useless if everyone panicks and is selling dollars. As The Economist article has written, a steady decline of the dollar is good, a sudden downfall is bad.

And regarding your own thread (I am just taking the opportunity to reply here), aye I know - I didn't mean to imply that you thought there is only an housing bubble

Blobber



[edit on 8-4-2005 by Blobber]

Originally posted by Blobber
Hi Kazi,

What I meant is that we should not panick- we must be cautious with the US trade deficit, but it's useless if everyone panicks and is selling dollars. As The Economist article has written, a steady decline of the dollar is good, a sudden downfall is bad.

And regarding your own thread (I am taking the opportunity to reply here), aye I know - I didn't mean to imply that you thought there is only an housing bubble

I am by no means an expert on financial matters and the economy but i know what blobber means, its all about confidence in the system.

Blobber

I read a prophecy on here that said that after the popes death the US economy would collapse before being invaded!

Probably just a coincidence that you should bring this up but you never know...