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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Terry Maloney who wrote (268466)11/22/2003 3:49:13 PM
From: Tommaso  Read Replies (2) of 436258
 
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financialsense.com

It is a circuitous problem that offers no easy solutions. If foreign central banks stopped their dollar purchases, interest rates in the U.S. would immediately rise. A rise in interest rates would threaten the U.S. recovery, bond investments would depreciate, and the dollar would fall precipitously. A sudden drop in the dollar would undermine foreign willingness to finance U.S. deficits. America’s twin deficits represent an unhealthy imbalance that cannot be corrected without pain for the global economy, especially here in the U.S. and for the financial markets. There is no easy way out of this mess. How the dollar's adjustment unfolds will determine whether we experience The Perfect Financial Storm or just another hurricane or nor’easter. It is doubtful whether policymakers can supervise and direct a smooth transition. The last time it was tried back in 1985-87, it led to a severe dislocation in the financial markets. Ultimately the adjustment process gave way to a plunging dollar, rising interest rates and major stock market crashes in the U.S. and around the globe. Therefore, controlling the dollar's descent will need handling with kid gloves. How policymakers maneuver this descent could determine whether we experience an abrupt crisis leading to system risks imploding all at once or an orderly and gradual transition. History gives us little hope of a smooth transition. Fiat currency systems always end tragically for all of the participants.
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