Performance account and budget deficit dangerous US dollars
On the last Friday, the euro has been rising for the first time since its introduction in January 1999 on the $ 1.32 US dollar on a record level of 1.3298 US dollars. Thus, the US dollar has been integrated almost 40% of its value since the summer of 2001. The American dilemma is a high current account and budget deficit, the so-called twin deficit, which increasingly creates the US dollar.
Performance balance sheet and capital balance can not be separated from each other. The current account captures all major benefits, the capital balance of all financing current. Performance balance sheet balance and capital balance balance are linked to each other in such a way that a current account deficit is opposed to a coarse capital balance sheet. The American current account deficit means that the US import more good and services as export.
The shortfall in the US current account will increase in 2004 on $ 600 billion or about 5.5% of gross domestic product (GDP). In order to compensate for this increase, the exchange rate is the task of ensuring the international goods and capital drives for a compensation. However, an extremely high current account deficit can only be compensated by a strong dollar depreciation. However, this was allowed to draw a strong increase in the US interest rate level, with significant consequences for the US real estate market and the debt situation of American households. It therefore does not come from about approximately that the American debt problem increases more and more in the center of the investor resess, which is underpinned by rising commodity prices and the already anticipated inflation hazards.
Debt in percent s gross national product. ComstockFunds
Far dollar migrants melt
Exchange rates are based on price relations. If more handlers buy dollars than sell, the value of the preservation increases. In the opposite case, the courses tumble in the basement. For the exchange rate, it is relevant to dominate the influence factors offer and demand of a safe. US dollars are needed to pay for the Green Markets from the United States or to finance US equities or interest papers on the US dollar.
If a current account deficit can no longer be financed over a surplus in the capital balance, America will be asking problems. If international financial acts from China and Japan are no longer prepared to invest equity capital in US government bonds, shares and other securities, it wobbles in the building of the American financial house.
American total debt. Source: Michael Hodges
By exporting to the US, for example, the Japanese and the Chinese have built huge dollar mains. So Japan has foreign exchange reserves of 800 billion. US dollars and China from 500bn. U.S. dollar. Both countries have the Americans have lent the necessary money so that they could buy Japanese or Chinese services as part of their debt locomy. Since the Americans could shop cheap products in Far East, the Japanese and Chinese economy was stimulated. Therefore, it does not come from about approximately that both Japan and China are interested in a strong dollar.
But what if the preservation is more and more softening? If the US preservation is further devalive against the euro and the yen by more than 3% per month, a hard landing of greenback seems unavoidable. However, this has because of the US Dollar’s Guideline Sharacter of Fundamental Effects on the growth of the global economy, which was then less than 25 to 50% in 2005.
Panic reactions are not eliminated
If the world is less willing to create her in dollars, the Greenback has a serious stability problem. But as it seems, the weak of the US dollar is not so unlike to American ocons. Alan Greenspan more and more often talks his national currency, as higher import prices boost inflation, which in turn helps American debt relief. And one is one of the tremendous American debt mountains of 37 trillion US dollars (European spelling) and a historically deep savings rate of less than 1%.
Healthcare and war against Iraq are cost drivers who urgently need a solution when the dollar is to stabilize again. But since there are concrete steps away, more and more international investors begin to reduce their portfolios and sell dollar papers. Since this will lower the capital balance at recovery, the current account deficit must also be reduced. This is done by the devaluation of the US dollar, as American exports become a cheaper and thus become competitive.
Purchasing power loss of the US dollar by wars. Source: Money Files
However, however, how the price decline has won dynamics in the last weeks. In the meantime, an extremely negative mood against the dollar has built up on the international foreign exchange markets. This leaves room for further price losses. If the psychologically important brand of the 1.34 EUR / USD ratio is broken up, the dollar sales could be found in an excessive phase. An extreme dollar decline, possibly even a crash, could lead to a strong corporate escape from America.
America needs to import about 2.6 billion US dollars every day. In order to continue to ensure this capital port, interest rates had to be raised. However, this would be poison for the financial markets. The result were panic reactions of the market participants, combined with strong price losses in bonds and the stock markets. The gold price will continue to use this. Here, investors were allowed to record overproportional price increases in the next year.