2004
Whoops! It's 1985 All Over Again (December 19, 2004)
On September 22, 1985, US President Ronald Reagan averted an economic storm by presenting an international financial plan known as the Plaza Agreement. This New York Times article argues that the time is ripe for a renewal of coordinated international financial policy. But in spite of growing public and global concern about the balooning US deficit and the falling dollar, the Bush administration remains uninterested in coordinating its economic policy with other countries.
The McKinsey Global Survey of Business Executives, November 2004 (December 16, 2004)
The McKinsey Global Survey of Business Executives reveals that the economic optimism of executives around the world has fallen during the past year and that they are dubious about the prospects for trade liberalization in a second Bush administration. The study cites the weak dollar, volatile oil prices, and geopolitical uncertainty as the main reasons for increasing executive skepticism. (YaleGlobal)
Dollar's Weakness Is a Concern for Us All (November 22, 2004)
While the US government considers the falling dollar a solution to the country's trade deficit and refuses to apply domestic adjustments, the long term consequences could prove painful for the global economy. This article from the Independent calls the dollar depreciation strategy a "beggar-thy-neighbor" policy, and accuses the US of passing the economic burden to creditor countries.
The Dollar Is Down, But Should Anyone Care? (November 16, 2004)
The current US economic scenario resembles that of the Vietnam war era: a record account deficit, high foreign indebtedness, soaring oil prices and war time expenditure have once again resulted in a plunge of the dollar. This article presents three main schools of thought on the outcome of the dollar crisis. While optimists such as the Federal Reserve and the Bush administration view the fall as positive for the US economy, realists predict serious imbalance in the global economy. (New York Times)
The Declining Dollar (November 15, 2004)
New York Times calls the Bush administration's decision to let the dollar slide a "dubious economic policy," and argues that the administration failed to implement responsible fiscal policy and control the deficit. The article says that president Bush should choose Treasury officials who "are true economic stewards, not merely cheerleaders for his 'tax cuts above all' all policies".
For the Winner, a US Economy with Some Stubborn Problems (November 3, 2004)
The Wall Street Journal outlines a "to-do list" for the forthcoming US president and puts five urgent topics on the new administration's desk. This article points out that even though "most economic arrows point up," the president needs to deal with the issues of a soaring budget deficit, looming energy crises due to rising oil prices, the danger of a weak Chinese yuan, and a possible dollar dive.
Time to Prick the Dollar Ballon, Gently (October 27, 2004)
Asian central banks, which have become the "buyers of last resort" for US Treasury Bills, support over half of the US debt. This article argues that out of self interest, Asian economies and the US must "forc[e] an earlier adjustment" of the dollar in order to minimize the "disorder" in both US and global markets. (YaleGlobal)
Dollar's Fall Lands Hard in Europe (October 26, 2004)
High oil prices combined with a soaring US deficit have driven the dollar to fall further against the euro. The International Herald Tribune reveals that the current oil shock marks the reversal of a historic trend, in which the dollar has traditionally benefited from price increases.
Do US Deficits Threaten Global Financial Stability? (October 13, 2004)
Economist Hilton Root dismisses warnings by a growing number of economists and argues that in spite of a large deficit, investors still consider the US economy as the world's most reliable. "So, what of the United States' growing debt?" Root asks and explains that historically, the world's greatest powers have also been the world's greatest debtors. (Yale Global)
Going Down with the Dollar: The Cost to Developing Countries of a Declining Dollar (September 20, 2004)
This article argues that poor countries' reserve holdings in dollars will decline as the dollar falls. The rising US trade deficit will push the dollar's value down causing losses that will substantially outweigh the gains from rich countries' trade liberalization. (Center for Economic and Policy Research)
China Promises Currency Shift but Gives No Date (October 2, 2004)
The world's richest countries and the International Monetary Fund push China to "relax its currency exchange rate in order to stabilize world economic growth." As long as China pegs the yuan to the dollar, the country can keep export prices low and flood the consumption-thirsty US market, causing the record-high US trade deficit to increase further. (New York Times)
Deal in Congress to Keep Tax Cuts, Widening Deficit (September 22, 2004)
In spite of the alarming US budget deficit, Republican and Democratic leaders have approved President George W Bush's major tax cut proposal. Unable to pay for the tax reductions, leaders cite vote gains in the upcoming elections as more important than budget problems. (New York Times)
US and Trade Partners Maintain Unhealthy Long Term Relationship (September 18, 2004)
The high consumption of imported goods supported by foreign lending generates a growing trade deficit in the US economy. While some economists call the situation alarming, others argue that the US and its main trading partners have "a vested interest in the status quo." They argue that rather than facing an immediate crisis, the US economy is "caught in a gradual, almost imperceptible deterioration." (New York Times)
Record Deficit for a Crucial Trade Figure (September 15, 2004)
The US relieves its record high trade and capital flow deficit primarily by dollar inflows from the governments of China and Japan, who cover up 87% of the total US trade gap. While a growing number of financial analysts perceive the "ballooning deficit" with concern, the Bush administration views it as "a sign that other countries are lagging behind the United States and needed to pump up their economies." (New York Times)
$2.3 Trillion in New Debt Expected by 2014 (September 8, 2004)
A new Congressional Budget Office (CBO) report predicts that the federal budget will accumulate up to $3.2 trillions in new debt during the next 10 years if the conflicts in Afghanistan and Iraq continue. The executive director of the Concord Coalition, a conservative budget watchdog group, comments that "tough [fiscal] choices are needed", but so far both presidential candidates have made campaign pledges that most surely will exacerbate the already record high federal budget deficit. (Washington Post)
US Trade Gap Hits Record Mark on Stronger Growth and Imports (June 21, 2004)
The US trade gap reached a new record, exceeding the experts' expectations. The recovering economy "sharpened the US appetite for import goods," causing a jump in purchases of international products without a balanced increase in exports. In response, the Secretary of the US Treasury shifts responsibility abroad, calling on other countries to "grow faster to create markets for U.S. goods and services." (Wall Street Journal)
Is the Dollar At Risk? (June 2004)
This document uses graphs to outline changes in the value of the US dollar in recent years. The manner in which foreigners perceive this value is important since foreigners hold an increasing amount of dollar based assets. Skepticism over the value of the dollar may work as a self-fulfilling prophecy, thus weakening its value. (Prudent Bear)
Could Overseas Financing Hurt the US? (April 26, 2004)
The US has grown highly reliant on foreign central banks to finance its trade and budget deficit, which grew to $542 billion in 2003. The article asks whether foreign governments such as China's may one day use this to influence US foreign policy. (Wall Street Journal)
IMF, OECD See Economic Risks in Bush's Budget (April 15, 2004)
The IMF and OECD have warned that President Bush's budget plans will make the US and other countries "poorer in the long run." The OECD argues that US taxes will have to increase to "tame the deficit." (Wall Street Journal)
The Perfect Storm That's About to Hit (March 24, 2004)
The combination of a weak US dollar, rising oil prices, and a global economy that remains increasingly dependent on oil from the Middle East sets the "conditions for a perfect economic storm" argues the Guardian.
Cheapening the Dollar (February 9, 2004)
At a G7 meeting in Florida, the US welcomed the dollar's plunge against the euro and called for a more rapid decline of the dollar against Asian currencies. This might provide a push to US exporters and allow Europe to share the burden of the falling dollar with Asia. Yet, greater exchange rate flexibility with Asia increases the risks for foreigners that finance the US deficit. (New York Times)
Asian Central Banks Consider Alternatives to Big Dollar Holdings (February 5, 2004)
Asian central banks count among the biggest investors in the US financial system, providing vital support funding the US budget deficit. With current devaluation of the US dollar, a number of Asian central banks are abandoning a part of their foreign-exchange reserves in US dollars to lessen their investment risks. (Wall Street Journal)
China-US: Double Bubbles in Danger of Colliding (January 23, 2004)
"China is financing Bush's bold economic experiment: running two or more wars simultaneously with a huge budget and trade deficit," argues the Asia Times. While both countries are experiencing economic growth, the countries' bubbles will soon reach the moment of bursting, with "significant risks" to economies of the rest of the world.
IMF Says Rise in US Debts is Threat to World's Economy (January 8, 2004)
The United States runs up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, says a report by the International Monetary Fund. The IMF warns that within a few years, the US net financial obligations to the rest of the world could equal 40 percent of its total economy. (New York Times)
Dollar Faces Further Pressure under US Deficits, Protectionism (January 2, 2004)
The Wall Street Journal says that the fall of the dollar expresses a "long-term, slow-motion crisis of confidence." It predicts a shift in investor preferences away from dollar-denominated assets and a continued slide of the dollar in 2004.
Dollar's Decline Is Mixed Blessing for Goods Markets (December 19, 2003)
The dollar's decline promotes US exports while making imports more expensive, says this article. Yet, while US companies compete more easily with Europe and Japan, most of them operate increasingly on a global basis and lose when trading with other countries that peg their currencies to the dollar. (Wall Street Journal)
US Dollar's Decline Is Worrisome if Current Account-Deficit Isn't Cut (December 18, 2003)
The Wall Street Journal argues that the rising US current-account deficit signals the approach of a dollar crisis, which will also destabilize the global financial system. Currently, the US borrows 5 percent of its GDP yearly from abroad, increasing the outstanding US debt to the rest of the world to about 30 percent of its GDP. (Wall Street Journal)
The Future of the Dollar. Has the Unthinkable Become Thinkable? (December 2003)
Growing US inability to uphold global consumption demand raises questions about the survival of the dollar as the world's reserve currency. This policy paper argues that a gradual fragmentation of the world currency markets might prove beneficial to poor countries, making it easier for them to stimulate their internal demand. (Levy Economics Institute)
Dollar Falls to New Low in Trading with Euro (November 19, 2003)
After a Treasury report revealed a sharp drop in foreigners' investment in US dollars, the dollar tumbled to a historic low against the euro. With the US economy highly depending on funding inflows from abroad to finance its rising deficits, analysts fear that a too rapid fall of the dollar could prove destabilizing to the global economy. (International Herald Tribune)
This Can't Go On (November 4, 2003)
Budget projections estimate that under current US policies, federal debt will rise by $5 trillion over the next decade. Paul Krugman is skeptical of the US administration's insistence that the problem will "magically solve itself." He argues that "things that can't go on forever, don't," and that Asian creditors will not indefinitely sustain the US economy by buying treasury bonds. (New York Times)
A Big Quarter (October 31, 2003)
For the Bush administration, the third quarter economic growth of 7 percent signals a turning point for the US economy, and thus validates President Bush's policies. Yet, Paul Krugman argues that, as a huge surge in consumer spending generated most of the growth, the economy "borrowed" the growth from the future and cannot sustain it. (New York Times)
The Consumer, First Source of Dynamism, Piles on Debt to Sustain World Growth (October 20, 2003)
Le Monde exposes the "perverse" impacts of US consumption presenting about 70 percent of US gross national product and 20 percent of world economic activity. The world economy depends on US consumers who continuously spend more money than they earn, inflating the "bubble of debt."
Don't Look Down (October 14, 2003)
The exact timing of economic crises is hard to predict, concedes Paul Krugman. But financial markets know that huge budget and trade deficits and a growing debt burden reliably indicate forthcoming crises. Although US numbers show all those traits, financial traders and politicians still close their eyes to the gravity of US structural problems. (New York Times)
Putin: Why Not Price Oil in Euros? (October 10, 2003)
Russian President Putin said that Russia could switch its trade in oil from dollars into euros. Such a move by the world's second largest oil exporter could provoke a chain reaction among other oil producers, which would diminish the importance of the dollar and question US hegemony over the global economy. (Moscow Times)
Asia's Capital Flows: This Time It's Different (October 8, 2003)
Asian private-sector funds shift away from financing overseas consumption and growth, flowing back to Asia instead. This movement benefits regional growth, but increases US concerns about Asia's domination of global foreign-currency reserves. (Asia Times)
China: the New Economic Giant (October 2003)
The aggressive US trade diplomacy towards China demonstrates its longstanding anxiety over the growing strategic position of East Asia, says Le Monde diplomatique. In the mid-1980s, the US exerted similar pressure on Japan to boost US exports and decrease Japan's industrial competitiveness.
Not Yet the Almighty Euro (October 2003)
Le Monde diplomatique analyzes whether the euro could replace the dollar as the world's reserve currency. Tracing back the history of the global economy's dollarization, this article highlights the obligations of the reserve currency's country of origin.
Would a Weaker Dollar Create New US Jobs? (September 30, 2003)
This Christian Science Monitor article provides some insight into the interdependence between the Chinese currency policies and the US labor market.
Strong Dollar, Weak Dollar: Anyone Have a Scorecard? (September 24, 2003)
The G7 urged Japan and China to stop intervening to hold down their currencies against the dollar and instead to adopt more flexible exchange rates. Continued strength of the dollar would exacerbate the US trade and budget deficits by keeping imports cheap for US consumers. (New York Times)
IMF Warns Trade Gap Could Collapse US Dollar (September 19, 2003)
The world's big economies already depend too much on the "willingness of US consumers to live beyond their means," says the IMF. Warning that a collapse of the dollar might occur at any moment and inflict big suffering to the global economy, the Fund urged the US to act rapidly against its enormous current account deficit. (Guardian)
US Economic Folly Should Worry Us All (September 17, 2003)
Joseph Stiglitz says people should not gloat over President Bush's fiscal incompetence. After all, Bush's irresponsible tax cuts exacerbate the US trade deficit, which in turn could have serious repercussions on a global level. (Guardian)
Foreigners May Not Have Liked the War, But They Financed It (September 12, 2003)
This New York Times article argues that although many countries outside the US strongly opposed the war in Iraq, they essentially financed it. To finance its huge current account deficit, the US attracts extraordinary capital inflows from foreign countries.
Imminent First World Debt Crisis Worse than "Third World" (September 1, 2003)
Since the 1970s, the US and the UK have followed a policy of deregulation and reckless lending. The New Economics Foundation predicts that, as in Japan in 1990, this policy will trigger the burst of the credit bubble and lead to a huge financial crisis.
A Second Plaza Accord? (September 2003)
The Plaza Accord of 1985 re-engineered the world's main exchange rates. While helping the US reduce its huge imbalances, this measure had disastrous effects on Japan's economy. Today, history seems to repeat itself as the US deficits dangerously approach the levels of 1985. However, the "horrific policy failure" of the Plaza Accord should not be repeated, warns this article. (Hongkong General Chamber of Commerce)
Leap in Deficit instead of Fall Is Seen for US (August 26, 2003)
A new analysis by the US Congressional Budget Office predicts that US economic growth will surge again and remain solid for the rest of the decade. However the study also states that the federal budget deficit could soar rapidly if Congress adopts the Bush administration's proposals on military spending, tax cuts and Medicare. (New York Times)
IMF Urges US Action on Deficit as Economy Improves (August 6, 2003)
The IMF pushes for the US to improve fiscal policy to assure global economic stability. Officials noted that the Bush Administration's tax cuts further endangered the US long term fiscal position, especially given the size of its deficit and aging population. (Business Times)
Fall of the Dollar (August 2003)
The US dollar has dropped dramatically against the Euro in 2003, but few analysts point to the shaky economic fundamentals spelling trouble for both the dollar and for the US economy. This Global Policy Forum paper takes a critical look at the soaring US trade deficit and possible global implications of the dollar's decline.
US Prods China to Boost Its Currency for Fairer Trade (July 28, 2003)
China pegged the yuan to the dollar in 1994. With the fall of the dollar, China has increased exports of cheap goods to the US but virtually subsidizes the US trade deficit. (Christian Science Monitor)
Why Deficits Matter (July 20, 2003)
Excessive US government borrowing reduces the amount of capital available for private investment, increasing interest rates and slowing economic growth. (Washington Post)
American Deficit Dependency: Kill or Cure, the Fallout Is Global (July 20, 2003)
Until 1971, the Bretton Woods System used a fixed exchange rate to prevent excessive current account deficits and surpluses. Today, in the absence of that system, the US is running a giant tab of $480 billion with global financers in order to sustain its consumer habits. (Observer)
Deflation: It Threatens the United States--and the World (June 2003)
Pushing for consumer spending and investment in shopping malls won't save the US economy from looming depression. Rather, leaders should invest in social-service jobs and environmental technology to help all sectors of society. (The Nation)
Charging Ahead (May 2003)
Credit card companies have exported convenience all over the world. But easy credit and consumer-driven spending equates to a dangerous formula leading to environmentally unsound consumption, personal bankruptcy, and unsustainable trade imbalances, especially in countries with lenient lending regulation. (Washington Monthly)
As the Dollar Declines (May 29, 2003)
The US needs billions in foreign capital to slow down the decline of the dollar. Nonetheless, foreign investors are disenchanted with US investments, giving further momentum for a global financial crisis. The best interest of the US and currency markets is for the G-8 to change its hands-off policy towards the dollar. (Washington Post)
The Dollar's Ebb and Flow (May 20, 2003)
This New York Times chart traces the rise and fall of the dollar since 1993, first against the Deutschmark and now against the Euro, taking into account also the more steady trade weighted dollar index.
Soros Selling Dollars, Hits US Policy (May 20, 2003)
George Soros, whose heavy influence in currency markets lent him the title "The Man Who Broke the Bank of England," announced publicly that he has taken a short position on the US dollar. Many analysts share Soros' lack of confidence in the dollar, but few are willing to make their positions known to the public. (Reuters)
US Trade Deficit Soars to $43 Billion Despite Weak Dollar (May 14, 2003)
The US trade deficit reached its second-highest monthly level ever in March, as imports exceeded exports by $43.5 billion. News of the trade deficit put added pressure on the sinking dollar. (Independent)
First, the War; Now, Investor Consequences (April 30, 2003)
The US is more dependent on the rest of the world for capital than at any time in the past 50 years. The unilateral foreign policy of the Bush administration, most notably the war on Iraq, has added even more tension and vulnerability to the economic situation. (New York Times)
Paying a High Price for Supremacy (April 23, 2003)
David Roche argues that US unilateralism will undermine the strength of the US economy, bloating US defense spending and causing huge budget deficits. As a result, he predicts the US dollar will fall victim to a failing economy and international tensions. (International Herald Tribune)
The True Cost of Hegemony: Huge Debt (April 20, 2003)
"Can a global hyperpower also be a global hyperdebtor?" asks Niall Ferguson in the New York Times. Foreign investors increasingly bankroll US military expansion, as the US trade deficit grows to unprecedented levels, leaving some analysts to wonder how long it can last.
IMF Blames US, Others for Economy Woes (April 10, 2003)
The IMF criticizes economic policy-makers in the developed world for severe structural problems that will worsen the present global recession. The IMF particularly censures the Bush administration's huge tax cuts, which will lead to rising budget and trade deficits in the US. (Associated Press)
Dollar Faces Path of Deeper Slide (April 3, 2003)
Although corporate scandals and the huge US trade deficit initially prompted foreign investors to lose confidence in the US dollar, war jitters seem to be responsible for the dollar's most recent decline. The US Treasury needs to convince foreign investors to keep buying dollar denominated-securities to keep the dollar, and US economy, afloat. (New York Times)
United States: Unsecured Dollars (April 2003)
The US needs $2 billion in foreign inflows everyday, comprising 76% of the worldwide surplus, to sustain its soaring trade deficit and generous program of tax cuts. Returns on foreign investment have traditionally been dependably high in the US, but recently such investments are beginning to look less attractive, spelling uncertainty for the US economy. (Le Monde Diplomatique)
Battling the Fog of Finance (March 24, 2003)
The strength and popularity of the dollar have, so far, buoyed the massively indebted US economy, and a steady inflow of foreign capital continues to subsidize the US trade deficit. However, a unilateral war is unlikely to instill confidence in the country's creditors. (New York Times)
Bubble Blowers Run Out of Puff (March 10, 2003)
US companies and consumers appear to be in denial about serious structural problems in the US economy, not least of which includes the worsening current account deficit. So far, the US has relied on an inflow of foreign capital to cover the deficit, "but there is a limit to the willingness of global investors to subsidize another country." (Guardian)
Slump Aside, Trade Deficit Hits a Record (February 21, 2003)
The US trade deficit easily surpassed record numbers in 2002, and the value of US goods and services exported to other countries declined for the second consecutive year. Economists say the US economy cannot sustain such a deficit, and predict that the dollar will eventually decline enough to make US exports more affordable. (New York Times)
World Will Count Cost of US Misery (January 9, 2003)
The US economy is burdened with three different mountains of debt: consumer debt, the trade deficit, and the record-high government debt. As the deficits get larger, the danger of sudden implosion becomes greater, with possibly devastating consequences for Europe and the global economy. (Guardian)
The End of Empire (September 23, 2002)
America's growing trade deficit compounded with decreasing confidence in the US economy and the government's role as sole superpower will lead to the eventual demise of US global hegemony. (The Nation)
World Agency Warns on Trade Imbalance (September 19, 2002)
The IMF's World Economic Outlook warns that an unsustainable imbalance of trade deficits and surpluses between the United States and other developed countries may result in "painful" adjustments. (Los Angeles Times)
Recovery Hopes Hit by Fall in US Dollar, Stocks (July 25, 2002)
The continued decline of US stock prices and the dollar's depreciation has accelerated Japanese banks' deteriorating financial condition. Optimism in the business community that the Japanese economy has finally bottomed out may fade faster than expected. (Daily Yomiuri)
Borrowed Growth, Borrowed Time? (2002)
The second quarter 2002 edition of the Financial Markets Center's Flow of Funds warns that huge inflows of foreign capital, which fueled the market bubble, have resulted in an overvalued dollar and weak exports. The newsletter speculates that dependence on foreign investment could lead to debt defaults and economic stagnation.
