Granted it was a slow trading day – but this is some serious shit.
analysts said the drop appears to reflect concerns that the American economy will continue to weaken as economies in Europe and Asia grow stronger.
Analysts said that the dollar’s drop today reflected a growing anxiety over Chinese economic policy. China’s central bank holds a large amount of American currency, and speculation has intensified recently that it could begin selling off dollars to avoid being burned if the dollar collapses.
Also lurking behind the dollar’s depreciation is the rising probability, in the view of some economists and currency investors, that a weakening American economy will force the Federal Reserve to begin cutting borrowing costs next year. – The NYT via Kos
November 25, 2006 at 12:38 am
Some time ago, when borrowing rates were flatlining at their low point, I had either read or heard that there was speculation that the dollar was under consideration to be replaced as the world standard (for trading purposes). Very shortly thereafter, the rates began their very slow and steady incline and the dollar showed some strength.
What you posted here takes me back to that older possibility: will we get replaced on the currency market? For what we are used to in the US, that is an incredibly huge deal. The effect isn’t just what currency is standard for trading. Our defecit is far and enough out of control as it is; remove us as the standard and we will find out how much worse it can truly get.
I don’t have numbers and don’t care to look it up at this hour, but isn’t China the largest foreign-holders of our currency and T-Bills? I think they are the largest vested ‘entity’ of US Cash and Cash securities on the planet, where countries are concerned. I could be wrong because I am tired and not looking it up, but I have been told this a few times.
The only silver lining in this, and this equates to if you prefer to scar yourself by cutting or burning (choose your method of pain and slow healing), is that the more currency and cash security of ours China sells, the little bit of leverage we regain, if only by China’s attrition.
Regardless, we are in a major financial mess. We are literally on the verge of becoming a sub-standard global currency. It’s not a good situation to be in, but not deadly. Now consider our national debt and other deficits, then it may as well be deadly.
Can we pay our debt with Play Station 3????
November 25, 2006 at 7:53 am
Noob — China does hold a lot of our currency and debt, but it pales in comparison to the amount of our debt that Americans and American companies actually have.
I think the pending rejection of trade agreements with Colombia and Peru by the Democrats on protectionist grounds has a negative effect also, because it forecasts to the world what the trade policy of the new Dem majority will be.
November 25, 2006 at 9:42 am
China will not offload dollars not yet. The dollar falling means their exports to the US will get more expensive and they can’t have that right now. The operative word is “not yet”.
This also rests the lies Shrub talks about saying our economy is “strong”.
November 25, 2006 at 10:56 am
I would guess that WalMart is China’s biggest single customer for consumer products. Rising product costs will affect WalMart’s bottom line. Does WalMart have sufficient clout to stave off action by China until the new Dem congress can correct fiscal policy?
November 25, 2006 at 12:39 pm
Foreign holdings of U.S. debt at the end of September totalled $2.135 trillion, an increase of $106 billion in one year.
Japan held $639 billion, followed by China, which held $342 billion.
Total foreign holdings of U.S. debt grew by $206 billion in the year ending September 29. Japan reduced its holdings by $28 billion. China’s holdings grew by $40 billion. The U.K. increased its holdings by $107 billion.
The numbers cited can be found at:
http://www.treas.gov/tic/mfh.txt
Dave was right in noting that most U.S. debt is held domestically. Unfortunately, the foreign portion of debt held by the public is growing, from 42.7 percent at the end of September 2005 to 44.1 percent at the end of September 2006. If the trend continues, the U.S. will be a debtor nation in four years.
Another problem is that these domestic holdings soak up investment that might otherwise flow to U.S. industry.
For statistics on the overall U.S. debt, go to:
http://www.publicdebt.treas.gov/opd/opd.htm