Is the U.S. current-account deficit unsustainable?
Dollar
(WSJ) Nov 28, 2003
Is the U.S. current-account deficit unsustainable? You bet. Two decades of deficits have turned the U.S. from a net international creditor to a net debtor. The country's "net international investment position" now stands at about minus 29% of gross domestic product. Worse, the growing U.S. current-account deficit is adding $1.5 billion (€1.28 billion) to this debt every day. At current trends, in just five years the U.S. will be owing foreigners some 47% of its GDP.
No wonder the European Central Bank's chief economist says a U.S. current-account adjustment will have to occur eventually. This is a potentially scary prospect. The adjustment could happen very suddenly. As the U.S. foreign-debt pile grows, so too does U.S. reliance on foreigners to continue financing it. They are likely to become ever more sensitive to the risks of providing that finance, and so charge more for it. Come a major unexpected event that suddenly pushes up interest rates -- a war, a surge in inflation, or some event comparable to German reunification -- and the whole edifice tumbles over. Investors would then realize that the debt dynamics no longer worked.
Among industrialized countries, this typically happens when the current-account deficit hits 5% of GDP and the net international investment position is at about 20%. The U.S. has already passed those danger markers. A current-account adjustment must come. And that will likely require further downward pressure on the dollar.
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Citibank Closes All Long Dollar Positions As Unit Plunges
Nov 19, 2003
(WSJ) Citibank, one of the largest traders in global foreign exchange markets and biggest dollar bulls, closed all its existing long dollar positions Tuesday. The move, on the day the dollar plunged to record lows against the euro, is significant in that the dollar's slide has forced one of the most aggressive dollar bulls in the market to temper its optimism toward the currency.
In a research note, Citibank currency analysts cite three specific reasons: the U.S. decision Tuesday to impose temporary quotas on certain textile imports from China, the dollar's failure to respond to positive U.S. economic data and the breakdown of key technical levels such as dollar index support at 90.56.
Citibank, a unit of Citigroup Inc. (C), retains a bullish outlook for the dollar in the medium term, and will look "for more advantageous entry levels over coming weeks."
But the bank posted 1.5% losses in closing out its long dollar/Swiss position at CHF1.2945, losses of 2% in closing its short euro/dollar position at $1.1940, and losses of 0.7% in closing its long dollar/yen position at Y108.04.
Tuesday, the euro surged to a record high of $1.1960, the dollar fell to a five-month low of CHF1.2931 and dipped below Y108.00, within a whisker of new three-year lows. |
