Dollar Dump: Central Banks Shun US Assets
A recomended blog on Daily Kos yesterday points to an extremely worrying trend, ie thedumping of US assets by foreign central banks
As the post notes:
The Financial Times this morning arrived with the headline US assets shunned by central bankers. The article reports on a survey of 65 central bankers controlling $1,700 billion in assets which reveals that they now deem the Eurozone as attractive for investment as the United States. A huge change in attitudes has occured in the global financial system, and no amount of US sabre rattling will restore US dominance.
This is espescially worrying when you consider that Asian Central Banks alone hold 2,300 Billion Dollars in their reserves.
This is the news many of us have dreaded since the dollar accelerated its decline in October 2004. [Ealier Dollar Dump diaries here and here.] As central banks and other significant investors in global asset markets shift away from US assets, severe implications for the US will become reality:
- difficulty for Bush in financing his ballooning deficit,
- a possible collapse in the traded value of the dollar,
- higher dollar interest rates in order to attract international lenders,
- compromising of the dollar's reserve currency status, and
- slower growth in the US economy given that most consumers, corporations and governments in the United States are dependent on debt financing.
Does it strike anyone else as a bad idea to put the fate of our economy into the hands of foreign banks and governments (including some that are surely competitors if not adversaries, i.e. China)?
As the Financial Times notes:
The fate of the dollar rests in the hands of a handful of central bankers in Asia. We have known this for some time. Since the foreign private sector shows insufficient appetite for US assets, the US relies on central bank purchases to fund its current account deficit and the acquisition of foreign assets by US residents. By absorbing the excess supply of dollars these central banks stop their own currencies appreciating against it. This Faustian bargain underpins today's currency prices and trade patterns and sustains global imbalances. Any suggestion that foreign central banks may be losing their hunger for dollars is highly significant.
But, on the bright side (if there can really be a bright side to this) this may provide progressives with an avenue of attack on the president and the Rethugs. The next time that Democrats are accused of wanting to put our foreign policy in the hands of the French or U.N. why not ask why the president is handing over the keys to this economy to a Communist nation? Unlike the claim about Dems, this one is has truth on its side.
posted by Anonymous @ 4:27 PM
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