BUNDESBANK WARNS ON USDOLLAR CRASH AND DEBT CRISIS
[Source: Bundesbank Monthly Report, Dec. 2003]
In its latest monthly report,
the German Bundesbank devotes a special chapter
to the "stability of the German financial system".
Here,
the Bundesbank notes that "external geopolitical shocks
and strong gyrations on global financial markets"
are right now among the biggest risks for the financial system.
"The extraordinary current account imbalances,
in particular in the US" could lead to
"abrupt movements on foreign exchange markets."
This risk
could even be increased by "plenty of worldwide liquidity", which could
"promote the emergence of financial asset price exuberance
and an infection of mis-valuations from one market to the other."
The situation would further worsen once price inflatio
and interest rates start to go up.
"In particular in those economies,
which show signs of an over-heated real estate market on top of
high levels of private indebtedness, a rise of interest rates
could have grave negative consequences."
Again, the Bundesbank
points to the US economy, where the "indebtedness of private
households has increased sharply in recent years and in 2002
reached 110% of disposable incomes, an all-time high", while the
savings rate has been very low.
All of this increases the
"financial vulnerability of private households" in the US.
Should the real economies be hit by one of the mentioned
scenarios, the credit quality of corporations would also be
damaged, thereby causing severe problems for the corporate bond markets. |
