Asia's mass debt weapon points to US
Asia's depressed currencies and massive US dollar reserves are a recipe for an American recession, writes Hamish McDonald.
Despite some evident misgivings about his rising level of indebtedness, US President George Bush's bankers of last resort are continuing to lend him the funds to pay for vital necessities like tax cuts, the war in Iraq and missile defence.
Toshihiko Fukui and Zhou Xiaochuan no doubt have their disagreements about Mr Bush's priorities, but as governors of the central banks of Japan and China, respectively, they are continuing to build up already massive holdings of US Treasury securities.
A warning signal is flashing, however, in a trend by Asian countries to diversify new additions to their foreign reserves away from US dollar investments into other currencies and assets. This is a sign of concern about the growing "twin deficits" in the United States, a federal budget deficit projected at $US524 billion ($717 billion) and a similar current account gap, each equivalent to around 5 per cent of GDP.
Around Asian financial circles there is growing, if still muted, talk of a looming "dollar crisis" equivalent to the sterling crises of the 1960s - when London could no longer support the reserve role of the British pound - unless Washington mends its profligate ways and accepts higher interest rates and taxes.
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