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Politics : Foreign Affairs Discussion Group
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To: E.J. Neitz Jr who wrote (88467)3/31/2003 9:41:26 PM
From: BEEF JERKEY   of 281500
 
Interesting take on the war's effect on the dollar @ prudent bear:

A quick and “clean” resolution to the war was crucial for bolstering flagging dollar confidence. Today’s open-ended “resolution” is a loss from a financial perspective. So at this point we are left to contemplate the distinct possibility that the growing prospect for a protracted and ugly war could be a catalyst for the looming dollar crisis. After all, over the past five years, Rest of World (from the Fed “Flow of Funds” report) has increased holdings of U.S. financial assets by a staggering $2.7 Trillion, or 56%, to $6.3 Trillion. My heightened concern today is that these massive positions were accumulated under the perception of a world almost unrecognizable to what is now unfolding; a vastly different American economy; an alarmingly deteriorating global economic and political backdrop; and an altered view of the United State’s international role and standing.



Holdings of U.S. financial assets were not accumulated with the expectation of massive federal deficits and a wartime economy. The perception of a vibrant, productivity and technology-driven juggernaut is quickly giving way to the reality of a stagnant U.S. economy with enormous expenditures for defense, both international and domestic (not to mention a mortgage finance Bubble!). Keeping in mind our thesis of the exponential growth in non-productive Credit – escalating inflation of U.S. financial claims – foreign holders of U.S. financial assets are now faced with steadfast devaluation of their share of the underlying wealth producing assets of our economy. It’s an accident in wait.

prudentbear.com
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