A little blog for a restless mind

Sinking Dollar

If you're planning to buy something big in or from USA, then wait just one more year.
World Economic Forum opened on Wednesday the previous week in Davos, Switzerland. And what are they all worried about? The teetering dollar, USD. There are already reports that Asian countries are considering dumping dollars in favour of other more stable currencies. Malaysia may be the first one. And China seems to consider it, too. But there's a catch. If you have a small bit of dollars, no big deal: sell them and buy some other currency. But if you have a significant portion of dollars, like China and Japan combined ($906 billion), then you risk losing a big chunk of your fortunes. It's the same problem Saudis are facing. Saudi Arabia has somewhere between $700 and $750 billion (estimated, exact figures are a secret) invested in the USA economy. If they pull the plug and sell their bonds, shares, etc., the dollar will sink rapidly and they'll get out less than it was originally worth, thus it's not a simple matter of converting from one currency to the other. This was already experienced a few years ago, when families of those deceased in the 9/11 attack started a lawsuit against some Saudis, the Saudi Binladin group, a few banks and Muslim charities, and maybe some more entities I've forgotten. Saudis pulled $200 billion out of USA in a matter of days and that had an immense impact on dollar. Well, who can blame them, they feared that the court would freeze their assets. The lawsuit is no small one, if I remember correctly the families are demanding $116 trillion. [There's also something to be said about the high costs of the USA legal system.]
Now that dollar is weak, now that USA has a record budget deficit, and with no clear strategy to at least stop sinking, the depression seems more and more inevitable. But although the world would like to get rid of the rotting currency, it can't do that, or the rotting spreads. A magical circle, only prolonging the frustration. Well, at least Americans can't say they didn't have a chance and they weren't given the time to do something about it. Because of this vicious circle they are guaranteed to get all the time the world can muster, and then some.

posted by AlesS @ 1/31/2005 12:07:00 PM