Tuesday :: Jan 25, 2005

All For The Greenback, Stand Up And Holler!

by pessimist

One thing I believe will get the attention of True Conservatives is that the actions of King George Warmonger are affecting their Mammonite Diety - the dollar.

As I've been saying for a while now, there will come a time when the foreign investors will begin to edge away from the dollar in favor a more stable currency, which at this time appears to be the euro. That time appears to be at hand:

Central banks shift reserves away from US

Central banks are shifting reserves away from the US and towards the eurozone in a move that looks set to deepen the Bush administration's difficulties in financing its ballooning current account deficit. Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the US has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650bn in 2004.

Any reluctance to increase exposure to dollar assets further could cause the greenback to plunge on currency markets. "The US cannot take support for the dollar for granted," said Nick Carver, one of the authors of the study conducted by Central Banking Publications, a company that specialises in reporting on central banks. "Central banks' enthusiasm for the dollar seem to be cooling off."

Alan Greenspan, the chairman of the Federal Reserve, warned in November that there was a limit to the willingness of foreign governments to finance the US current account deficit.

In God we trust, but King George Warmonger will pay in cash?

The survey was conducted on the guarantee of anonymity for the banks involved. The 65 central banks that participated control 45 per cent of global official reserves. Individually, they had up to $250bn under management. In the two years since a similar survey was conducted, reserve managers had begun to seek higher returns for the money under management. For these managers, dollar assets have become less attractive because the fall in the dollar since 2002 has reduced the yield they received and, in some cases, has led to negative real returns.

In actions likely to undermine the dollar's value on currency markets, 70 per cent of central bank reserve managers said they had increased their exposure to the euro over the past two years. In a further worrying sign for the greenback, 47 per cent of reserve managers surveyed said they expected the growth of official reserves to slow to less than 20 per cent over the next four years.

The findings emerge from a survey of central bank reserve managers published today and conducted between September and December of last year. About 65 central banks, controlling assets worth $1,700bn, took part and the results showed a marked change in attitude over the past two years. At the end of 2003, central banks held 70 per cent of their official reserves in dollar- denominated assets and central bank purchases of US securities had financed more than 80 per cent of the the US current account deficit in 2003.

So now that these foreign central banks are tapped out of enthusiasm for the Bu$hCo Technicolor Greenback, can the private investor be far behind? One can fight a war if one's creditors are willing to carry the financial costs until payments can be arranged when peace resumes, but when one's currency is falling out of favor as the war continues to go badly, ...

It's almost time for the True Conservatives to come roaring out of Wall Street and demand a change from the Bu$h (mis)Administration in their (mis)conduct of the war in Iraq. After all, Halliburton is not being very generous with their oily windfall. Could it be that their test wells in the field of Iraqi Democracy only produced sand?

Investors don't like that kind of news!

[I'm still busy stabilizing my new software and Internet access among many other things, so consider this my customary 'fair use' notice!]

pessimist :: 7:46 PM :: Comments (4) :: Digg It!