The dollar continued its decline in global currency markets yesterday, intensifying worries among some economists that mounting U.S. budget and trade deficits could send the U.S. currency into a tailspin.
...It was the second straight day that the dollar has fallen despite a surge in the stock market, continuing a trend that began in early October when it started slipping against the currencies of major U.S. trading partners. The decline rekindled the fears of some analysts that the dollar could be headed for a severe sell-off unless the White House and Congress make a major effort to shrink the budget gap.
... "One of the big drivers in the whole big picture the markets are looking at now is our being dependent on foreign sources of funds," said David Solin, managing partner at Foreign Exchange Analytics in Essex, Conn. "Obviously, if the foreigners step back [from investing in U.S. bonds and stocks], there are going to be serious problems, not only for the dollar, but for all financial markets."
The trade deficit also creates a dependence on money from abroad because many foreigners supplying goods to the United States take the dollars they receive and effectively lend them to the United States.
...Because of concerns that the United States is too much in debt, the rise in the trade gap, which is running at an anual rate of about $600 billion, also raises the specter that foreigners might dump U.S. holdings
WaPo article...It was the second straight day that the dollar has fallen despite a surge in the stock market, continuing a trend that began in early October when it started slipping against the currencies of major U.S. trading partners. The decline rekindled the fears of some analysts that the dollar could be headed for a severe sell-off unless the White House and Congress make a major effort to shrink the budget gap.
... "One of the big drivers in the whole big picture the markets are looking at now is our being dependent on foreign sources of funds," said David Solin, managing partner at Foreign Exchange Analytics in Essex, Conn. "Obviously, if the foreigners step back [from investing in U.S. bonds and stocks], there are going to be serious problems, not only for the dollar, but for all financial markets."
The trade deficit also creates a dependence on money from abroad because many foreigners supplying goods to the United States take the dollars they receive and effectively lend them to the United States.
...Because of concerns that the United States is too much in debt, the rise in the trade gap, which is running at an anual rate of about $600 billion, also raises the specter that foreigners might dump U.S. holdings
Oh, well, go on....see if we care. Besides, we don't believe you. We believe our honest government officials
The large influx of foreign money shows that "sound, growth enhancing economic policies are continuing to make the U.S. an attractive place to invest," he [John B. Taylor, the Treasury undersecretary for international affairs]said.
...He issued a detailed rebuttal of what he called "scare stories."
... Taylor said administration policies already in place will help shrink the trade deficit...."Even if those policies take some time" to reduce the trade deficit, Taylor said, "there is no reason to think there will be problems in the meantime" in continuing to obtain enough money to cover the gap.
...Taking issue with analysts who have voiced concern about a recent drop in investment by foreigners in U.S. Treasury bonds, Taylor said: "It is important to put the current account in the perspective of the total amount of financial flows crossing U.S. borders in large, open and flexible markets."...The U.S. economy experienced no turbulence because U.S. buyers in effect replaced the foreigners.
... President Bush's news conference yesterday did little to lessen concerns over the deficits, Wall Street analysts and currency traders said. Bush simultaneously promised not to raise taxes under the guise of tax simplification, to pursue a costly restructuring of Social Security and to cut the budget deficit in half by 2009.
The currency markets aren't buying it, said William G. Gale, an economist at the Brookings Institution.
White House officials "have Alan Greenspan to help keep interest rates down, but they can't control the foreign exchange markets," Gale said. "I think investors are acting appropriately."
...He issued a detailed rebuttal of what he called "scare stories."
... Taylor said administration policies already in place will help shrink the trade deficit...."Even if those policies take some time" to reduce the trade deficit, Taylor said, "there is no reason to think there will be problems in the meantime" in continuing to obtain enough money to cover the gap.
...Taking issue with analysts who have voiced concern about a recent drop in investment by foreigners in U.S. Treasury bonds, Taylor said: "It is important to put the current account in the perspective of the total amount of financial flows crossing U.S. borders in large, open and flexible markets."...The U.S. economy experienced no turbulence because U.S. buyers in effect replaced the foreigners.
... President Bush's news conference yesterday did little to lessen concerns over the deficits, Wall Street analysts and currency traders said. Bush simultaneously promised not to raise taxes under the guise of tax simplification, to pursue a costly restructuring of Social Security and to cut the budget deficit in half by 2009.
The currency markets aren't buying it, said William G. Gale, an economist at the Brookings Institution.
White House officials "have Alan Greenspan to help keep interest rates down, but they can't control the foreign exchange markets," Gale said. "I think investors are acting appropriately."
Oh.
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