Monday, November 08, 2004

Impending Doom

Brad Delong has this about the coming crisis:
At the moment, the U.S, is running large trade deficits as foreigners take dollars they would otherwise use to buy exports and use them to buy property, stocks, bonds, and other assets in the U.S. But someday foreigners will conclude that they have enough invested in the U.S. Their appetite for dollars to fund investments in America will diminish. The trade account will move back into balance. And a declining demand for dollars will push the value of the dollar down. Odds are that when foreign investors are satiated with dollar assets--whether that comes one, five, or twenty years from now--the value of the dollar in terms of other countries will be 30 to 60 percent less than it is now.
Also see this article in the Financial Times (via Daniel Drezner).

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