<But how do they keep it going?>
Asian central banks currently hold about $US 2.2 TRILLION, or 80%, of the world's total official foreign exchange reserves. BIS (the Bank for International Settlements) data reveals that as of the end of 2003, US Dollar-denominated assets made up about 70% of these Asian reserves. This is where the Asian Central Banks which are now holders of huge US Dollar stockpiles have made a future big stick for their own backs. If they had not intervened when this accelerating flow of US Dollars started to arrive in their markets, the increased supply of US Dollars against a nearly unchanged demand for US Dollars would have acted to cause the US Dollar to fall in its exchange value against their own national currencies. By having decided to intervene actively so as not to let their own currencies climb against the US Dollar, they have instead ended up with these huge amounts of foreign exchange reserves as well as standing as the biggest global creditors against the US global debtor.
<Doesn't the buying have to stop?>
Yes, the "Endgame" as Samuel Beckett put it, is coming. In sum, what the Asian Central Banks have jointly done is to stand against the natural action of the world market for currencies. Now, or in the near future, they will have to pay the price. That future real price to be paid will hit when some or all of the Asian central banks stop supporting the international value of the US Dollar. As soon as that happens, the US Dollar will start falling - fast. As it falls, it will be that huge stock of reserves amounting to $US 2.2 TRILLION which falls in value as measured against the Asian currencies against which the US Dollar is falling. If the US Dollar were to fall in value by 20 percent, the Asian central banks stand to lose, on their own books, $US 440 Billion. The only way to "avoid" that now assured future loss is for these Asian Central Banks to continue their US Dollar support, at the price of "reserves" which climb towards $US 3 - 4 - 5 - ? TRILLION.
If they continue their present US Dollar support policies, all the Asian Central Banks set themselves up for even bigger losses when the inevitable point is reached where they cannot continue. The longer this "policy" DOES continue, the bigger assured losses the Asian central banks pile up for themselves.
Meanwhile, as long as the Asian Central Banks' policy of US Dollar support operations are still in effect, the US economy gets a real economic free ride by having its trade and current account deficits externally funded. The US Treasury also gets a free ride in funding its massive budget deficits since they too are being externally funded. While all this is going on, next to nobody inside the USA stands forward to sound the alarm, even as US external debts climb higher and higher as the US Dollars flow out. This is just another part of the blissful and undisturbed delusions which most in American suffer from. |
