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New York - Professor Warns Of Massive Dollar Collapse |
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Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.
The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency's prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama's mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.
, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."
He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.
"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."
He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.
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Read Comments (15) — Post Yours »
1
Jan 08, 2009 at 12:15 PM NYCESQ Says:
We should buy gold so that when the dollar is worth less the Gold will be able to maintain its value in whichever currency one needs. Plus, when the Nazis come back we'll need it to bribe our way across the border.
2
Jan 08, 2009 at 12:19 PM Anonymous Says:
He has been saying this for a while. It is his opinion.
Just remember this adage: Economists are like weathermen; they are never fired when they are wrong.
3
Jan 08, 2009 at 12:36 PM Goldwater Says:
“ We should buy gold so that when the dollar is worth less the Gold will be able to maintain its value in whichever currency one needs. Plus, when the Nazis come back we'll need it to bribe our way across the border. ”
you will be labeled an "alarmist", an instigator, or marginalized , your comments will be attacked, or ignored, BUT you are 100% right on, correct-the trouble is your dire warning is probably 9-15 months pre-mature. By the time people realize you are right about the gold the price will be upward of $2000.00 per troy ounce, and rising steeply. On a related note I told everyone months ago at Shul to buy guns, I was ridiculed, and now the same folks are coming to me "hey , all they would do for me at the gun shop was put me on a waiting list, the shelves were empty, and they said ammunition was on "backorder"
4
Jan 08, 2009 at 12:31 PM Anonymous Says:
At first glance what he says sounds logical. However, the facts are that the US is still the biggest economy in the world and if countries such as China or Japan or other countries were to suddenly stop buying dollars and treasury notes, they would destroy their own export based economies. More than likely, there will be a gradual decline in reliance on the dollar, and we will go back to a more manufacturing based economy instead of a serviced based economy since our own manufactured goods will become cheaper than exported goods.
5
Jan 08, 2009 at 01:29 PM US Exporter Says:
This economist obviously is a theoriticion. I am an exporter of materials to China, Hong Kong and Europe. I can tell you that the Chinese and Asian Markets have ground to a halt. The Chinese are laying off million of workers and Honk Kong owned factories in China are closing by the hundreds. They stay in business selling to the USA. What this means is that business will be slow until the next production cycle for next yushkimiss begins in the summer. The US has to finance all the work Obama wants. If it can't sell bonds at 1% it must print money. These decisions will be made with intense press and Republican scrutiny. The main thing is that the US is the main engine for world growth. If the US doesn't buy, the rest of the world will not grow. Just remember the EU has their problems - massive unemployment (muslim immigrant youth), highest taxes in the world, and a stupid slow socialist workforce.
6
Jan 08, 2009 at 01:02 PM Not a Bar Samche Says:
He is no Bar Samche, not any more than me or you and we are all entitled to decide the Mikveh News.
If you predict it will rain every single day, you will eventually be right, on some day and then you can be a HERO that you guessed right.
He has predicted the same for years and so far he was wrong.
7
Jan 08, 2009 at 01:40 PM mordy Says:
Looking Bright
I am not an economist and I have no plan on debating what this Professor just wrote I do just want to bring up one positive point. In the last few day since the beginning of the New Year the dollar has beat the euro 5 straight times although it fell back yesterday. Although this is all short term and in the long term things may be just the opposite
This fear of the Dollar collapsing because of lack of foreign investment is perhaps the reason why President elect Obama want s to pump money into the economy so that it will give foreign investors more confidence to invest in out country. Let’s wait and see what happens
8
Jan 08, 2009 at 01:35 PM Anonymous Says:
BS"D
What he fails to mention is that even more socialistic and hidebound Europe is in worse shape than America, which will probably wake up and elect a Republican congress after 2 years of Obama in 2010, followed by a Reagan like figure in 2012. Europe will always be socialist at heart and will muddle along even if the Euro does soar so that US exports to Europe are cheaper.
9
Jan 08, 2009 at 01:27 PM Anonymous Says:
Why didn't he predict the financial crisis, which was much easier. The US spending and borrowing will definitely produce some problems in the future, but all experts are just dreaming & speculating according to their own inclinations and believes.
10
Jan 08, 2009 at 02:14 PM RBS Guy Says:
I would have believed him until his dig at the Bush admin showed his true colors. A true liberal trying to dig at the conservative base any chance they get.
11
Jan 08, 2009 at 01:51 PM Anonymous Says:
#5 is coorect- The FED will print money but quickly rein it in when necsessary. Obama had all these plans for "wealth redistribution" and higher taxes. For the next five years he is oif gehakte tzuris. The Madoff affair has pulled off billions from the economy and much wealth gone.The economic wealth multiplier effect is disastrous
The Cinese are still pretty poor and mizen essin Rice again. Their stk market like Russia has collapsed. If oil comes down further , consumers will spend again in the US. Obama is menatlly ill for taking this job at this time of economic disaster.
Globilization is trying to correct the problem and int'l cooperation will help all. As the three Musketeers said "all for one and one for all." We need betochon for all this...
12
Jan 08, 2009 at 02:24 PM michal Says:
“ We should buy gold so that when the dollar is worth less the Gold will be able to maintain its value in whichever currency one needs. Plus, when the Nazis come back we'll need it to bribe our way across the border. ”
Chas V'shalom
13
Jan 08, 2009 at 02:23 PM Anonymous Says:
He must be from the same propaganda school as the russki professor who predicts the breakup of USA and Alaska going back to Russia
14
Jan 08, 2009 at 06:30 PM Anonymous Says:
Obamas economic plans will cause hyper inflation and a crash on the dollar.
We will be overtaxed and treasury will be printing cash.
The Left will get its wish - the end of American capitalism supremacy.
15
Jan 08, 2009 at 10:25 PM keep those printing presses rolling Says:
“ Obamas economic plans will cause hyper inflation and a crash on the dollar.
We will be overtaxed and treasury will be printing cash.
The Left will get its wish - the end of American capitalism supremacy. ”
print up currency all day and night, add on more printing presses-yup, thats what Zimbabwe did just last year, cost of a pact of cigarettes over there, last I checked (nov '08) $150,000,000.00 (150M, and rising) google: "inflation rate in Zimbabwe"