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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: Jim S who wrote (8928)	5/26/2006 5:29:59 PM
From: Peter Dierks	Respond to of 71588

You are right. I suspect that the current trend towards countries not holding the dollar as a primary foreign currency reserve will continue. The more dollars flooding the market from current consumption joining dollars be divested, the bigger the problem will become. We have already seen US banks that refuse to denominate loans in various foreign currencies. It could get to a point where the same is done to US borrowers. The real kicker would be if domestic banks refused to lend in dollars. The problem is foreseeable. Foreign holders of US debt can take a variety of courses. One is to treat US debt like Microsoft treats stock rights of companies it "invests" in. MSFT shorts the stock to offset the convertible rights in their bonds. Foreign holders of US debt could sell the debt as soon as they receive it, or use other hedging methods. As the supply of US bonds grows and the demand declines, the value of it will decline, requiring ever higher interest rates and causing US inflation. I am not talking about bankruptcy in the next ten years; we are probably more like 20 to 50 years away at a minimum. As long as the economy grows, it is not imminent. A major economic setback could change the dynamics.