Dollar catching Asian flu (The snowball's getting bigger)

[clem_c_rock]

http://atimes01.atimes.com/atimes/Asian_Economy/GC11Dk01.html

<snippit>
They may be telling a different story to money markets, but Asian central banks have been quietly switching their dollar holdings to regional currencies for at least three years, confirm global banking data. In a further, and so far the biggest, setback for the greenback's status as the undisputed reserve currency, Japan on Thursday said it might diversify its holdings, though monetary chiefs later sought to play down the prospect. South Korea rattled currency traders with a similar announcement late last month, followed by a similar backtrack.

China, India, Thailand, Indonesia, Taiwan, the Philippines and Hong Kong have already started a sell-off, despite a diplomatic show of solidarity for the greenback that is prudently designed to prevent a crisis of confidence in exchange systems. The likelihood is that much of this outflow will never return to US dollars as economic interdependence within East Asia and the widening shadow cast by China's trading conglomerates are slowly transforming the traditional market structure.
</snippit>

[Enquiringkitty]

1. Bush's increasing economic deficit at home and it's effect on the

International trade deficit and the value of the dollar in world markets is ruining us....he must think there is a pot of gold at the end of this economic rainbow....black gold. He doesn't care about this country or it's people but he does care about his corporate interests and they will do just fine due to his ties to Saudi Arabia. In 2008 he goes back to screw his cows in Texas after he can no longer screw us and we are left to live with what he has done. I certainly hope the people who voted for him are happy now.

Every time I hear someone complaining who last year was touting how he was just like a regular guy, I ask them if they voted for him...if they say "yes" I tell them just to shut their big stupid mouths and bite the bullet like the rest of us because this is all their fault for falling for that " Duh...I'm just a big stupid boy from Texas" act and they wouldn't know a snake in the grass if it jumped up and bite them in the butt.

[KayLaw]

5. What do you mean?

Are you saying poor ole Dubya isn't just a good ole boy from the south who had to work real hard to best his millionaire opponents? Wasn't it a hoot to watch the whores call Kerry and Edwards millionaires, as though Bush and Cheney didn't have two quarters to rub together? I like your post and agree that Bush people should be told to shut up.

[clem_c_rock]

8. I wonder how bad our crash will pull others down w/ it

If the threat of dragging other major economies into the tarpits as we go down is huge, it might be the only thing that saves us from Great Depression part II.

In a panic, wishfull thinking sets in.

[the_outsider]

2. ths is going to be very ugly

the longer they prop up the debt bubble by cajoling/bullying/bribing, the uglier the crash will be.

[Starfury]

3. Warning - contains the "R" word

From John Mauldin's latest newsletter http://www.frontlinethoughts.com/printarticle.asp?id=mwo031105


...we have had first Korea, then China and now Japan suggest that it may be time for them to diversify their dollar holdings in their individual central banks.

<snip>

"Prime Minister Koizumi of Japan said his country 'in general' needed to consider diversifying its foreign currency reserves, the world's largest. 'I think it's necessary to diversify the investment destinations' of foreign reserves, Koizumi said. 'At the same time, we have to make a judgment in general, considering what's profitable and what's stable.' This is a big step for Japan, as they have generally always talked about their reserves as a monetary policy tool, rather than a financial investment. With $820 billion now at stake it is clear that the government is concerned about their returns, and the returns of dollar assets to a global investor have recently been ugly. If Japan is going to start moving $820 billion dollars around, it is inevitable that others will try to get ahead of them." (Bridgewater)

Immediately, Japanese Ministry of Finance officials began to either outright deny Koizumi's statement or suggest that the press did not understand the clear intentions of his words. But understand this, if the dollar were to drop 15% against other Asian currencies, while Japan fought to maintain their dollar yen ratio above ¥100 to the dollar, Japan would lose over $100 billion in purchasing power. That is not small potatoes. Koizumi recognizes this and also recognizes the serious strain that their government deficits and huge debts have on their economy. Koizumi was clearly stating that losing $100 billion is not going to be politically acceptable.

<snip>

This year the trade deficit will be well over $700 billion, up almost $100 billion from last year. Our government is running a deficit of some $400 billion. If we were running a balanced budget, we would be able to take that money, and more or less apply it towards the trade deficit. However, since we have a low savings rate and a huge government deficit, it is necessary that we look outside the United States for someone to fund our trade deficit. In essence, we are expecting the Asians to pony up $100 billion more than they did last year.

What happens if they don't? Interest rates will have to begin to rise in order to attract more money. It is simple as that. Interestingly, we watched rates rise in the past few weeks. The interest rate on the 10-year bond has risen to over 4.5%, after being in the 4% range for a very long time. This has also sent mortgages back to one-year highs, and the stocks of home construction companies tumbling.

<snip>

I repeat, all that has to happen for the dollar to begin a serious bear market against Asian currencies is for Asian countries simply to stop or to limit their buying. This will also have the effect of driving the dollar down against almost every other currency including the euro. When this happens, we'll be at the beginning of the heavy lifting of rebalancing global trade and currency valuations. This heavy lifting is going to strain more than a few backs. It will take more than a few Advil to deal with the pain.

The process means that interest rates will go up, which will slow the economy and hit the housing markets. Prices of goods from foreign nations will go up, thus creating inflation pressures and limit the ability of the Fed to fight rate increases or to stimulate the economy. I really don't see how the end result can be anything other than a recession. It will catch most economists off guard, as do most recessions.

[Phoebe Loosinhouse]

4. Picture the US as a former high-roller -

we used to go into the international casino with our entourage and spend big. We were surrounded by beautiful women and the sky was the limit. But, over time, we hit a bad streak. Our pile of chips dwindled down. Our entourage fell away. Suddenly, we're asking the house for credit. We're pale and moist with flop sweat. The stack of house IOU's is getting bigger and bigger. We don't really have a plan as to how to pay it all back - we just close our eyes and roll again. The pit bosses are frowning. They are about to shut off the credit.

[KayLaw]

6. Good analogy

Another good one was in an article on Smirking Chimp. The yankees had Rhett Butler in their prison while they waited for the day of his execution. He survivied by letting his jailers win hand after hand of poker. They knew the only way to collect was to keep him alive, which they did.

[Moderator]

7. Starfury

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[lonestarnot]

9. Now allowing Iran to join WTO...effect also...