PARIS (Reuters) - Accumulation of dollar reserves by some Asian countries could spark a systemic foreign exchange crisis, the chief economist of the World Bank said in an interview to be published on Thursday.
Francois Bourguignon told the Les Echos newspaper it was too early to talk of a speculative bubble but that the United States had to cut its deficits to head off a crisis. The paper released the text of the interview ahead of publication.
"For the moment I would not speak of a speculative bubble but of the danger of a systemic crisis linked to the accumulation of foreign exchange reserves," Bourguignon told the paper.
"Some countries, particularly Asian ones, have no interest in the parities of major currencies being modified. As a result, they are financing the enormous American current account deficit.
"Today, the danger is that some dealers are starting to think they must change the rules of the game, play dollar depreciation and move toward the yen and the euro. That would confront us with a real systemic risk."
Cutting the U.S. deficit was key, Bourguignon said. The World Bank foresaw an orderly adjustment with the United States announcing a progressive reduction in its budget deficit accompanied by interest rate rises.
"Too drastic a program would plunge the United States into recession," he said.
Recent pronouncements by Alan Greenspan, chairman of the U.S. Federal Reserve, suggested things were changing, he said, but "we are at the mercy of the nervousness of market dealers.
"Today, no catastrophe is anticipated in the coming six to nine months. So I am not yet totally pessimistic," Bourguignon added.
Okay, forgive my stupidity in advance, but someone tell me, what deficits are we cutting? Are we writting off money others owe us, or are we writing off money we owe others, Asian countries specifically? Or what?
Joined: Sun Oct 17, 2004 7:19 pm Posts: 39068 Location: Chapel Hill, NC, USA Gender: Male
cltaylor12 wrote:
Okay, forgive my stupidity in advance, but someone tell me, what deficits are we cutting? Are we writting off money others owe us, or are we writing off money we owe others, Asian countries specifically? Or what?
Confused,
c-
Doesn't that mean we need to stop spending more than we're taking in? AKA going into debt? I could be wrong, but it probably has to do with the fact that we're currently umpteen trillion dollars in debt and still haven't balanced the federal budget.
_________________ "Though some may think there should be a separation between art/music and politics, it should be reinforced that art can be a form of nonviolent protest." - e.v.
Joined: Sun Oct 17, 2004 12:26 pm Posts: 3859 Location: Jersey
They are warning the U.S. that if we don't reduce our budget deficit, foreign countries will be less interested in financing our deficit (foreign countries hold our currency in the form of U.S. bonds). As the value of the dollar drops, and as our budget deficit grows, it becomes more risky and less beneficial to hold U.S. bonds. If those countries sell off U.S. bonds, the value of the dollar will plummet and we are totally screwed.
Joined: Sun Oct 17, 2004 7:19 pm Posts: 39068 Location: Chapel Hill, NC, USA Gender: Male
That's OK, if there is a depression, it'll be the Democrat's fault anyhow.
Besides ... can't Wolfowitz take care of this?
_________________ "Though some may think there should be a separation between art/music and politics, it should be reinforced that art can be a form of nonviolent protest." - e.v.
Joined: Mon Oct 18, 2004 4:50 pm Posts: 3955 Location: Leaving Here
Quint wrote:
They are warning the U.S. that if we don't reduce our budget deficit, foreign countries will be less interested in financing our deficit (foreign countries hold our currency in the form of U.S. bonds). As the value of the dollar drops, and as our budget deficit grows, it becomes more risky and less beneficial to hold U.S. bonds. If those countries sell off U.S. bonds, the value of the dollar will plummet and we are totally screwed.
=> massive recession or depression
Gee, it's like Ronald Reagan has come back from the grave, less the "supply side spending" fiasco.
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