bush & his archiles heel-arrow in the air

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    According to this report the dart will strike home within 4 yrs so please be aware of the approaching storm.

    Just as an aside it is a fact that if all monetary debt was repaid there would be no money in existence. Get your head around that one.


    in part

    Bush's Achilles' heel?
    High U.S. debt ranks as global concern in the year ahead
    By Gregory Robb, CBS Marketwatch.com
    Last Update: 8:50 PM ET Jan. 14, 2005 ]

    WASHINGTON (CBS.MW) - The fact the United States is the world's largest debtor nation is a dark cloud looming over President Bush's second term.
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    While some economists suggest the cloud could produce a violent storm, others are less concerned. Regardless, the huge U.S. indebtedness and how the White House deals with it will be a pivotal issue over the next four years.

    "Global imbalances are the major economic problem facing the world today," says Kenneth Rogoff, a Harvard professor and former International Monetary Fund chief economist.

    "The president is going to have to come to terms with this. Otherwise, there could be a major meltdown in the dollar, a drop in global growth and some risk of a financial crisis."

    The ultimate wild card is the record U.S. current-account deficit, which is likely to worsen, says Mohamed el-Erian, managing director and head of emerging market funds for Pacific Investment Management Corp.

    "We know in the next four years, at some point, the unsustainable will not be sustained," el-Erian says. "The only question is whether this is done in an orderly fashion or a disorderly fashion."

    A burgeoning problem

    The U.S. current-account -- essentially the checking account for the country-- shows the difference between what U.S. sold to the world and the world has sold to us.

    The deficit in the current account has been growing larger for two decades. The deficit hit $164.7 billion in the third quarter of 2004, up 50 percent from $109.8 billion in the last quarter of 2000 when Bush took first office in January 2001.

    What troubles economists is the fact that the deficit is approaching 6 percent of GDP, a record size relative to the overall economy. Already, the U.S. has to import $1.8 billion in foreign savings every day to pay for our appetite for imported goods.

    Europe and Japan are on the other side of the equation, selling more to U.S. consumers than their citizens are buying from America. China also is sending massive exports to the U.S. while keeping its currency low to also keep the favorable terms of the trade flowing.

    How long can this situation continue? Economists don't pretend to know. But economic logic suggests it can't last throughout the next four years of the Bush presidency. History suggests the debtor country will bear the brunt of any adjustment, says Robert Brusca, chief economist at FAO Economics.

    Bush policy key

    The outline of a solution to U.S. dependence on foreign capital isn't in serious dispute: Higher savings in the United States, a reduction in the growing federal budget deficit and less spending by U.S. consumers, meaning lower GDP growth since consumer spending comprises two-thirds of GDP.

    Another important factor has been faster growth in Europe and Asia. Some say the value of the dollar must decline further against foreign currencies to improve U.S. competitiveness. And here is where things get sticky.

    The dollar already has dropped 50 percent against the euro and 24 percent against the yen since a peak in February 2002. Europe and Japan are balking at the prospect of any more weakening.

    The Chinese currency has remained pegged at 8.3 yuan per dollar since 1995 and the political leadership of China has been wary of altering this anchor. The Chinese political elite are worried that a stronger currency would increase the unemployment rate in China, creating political unrest.

    Analysts say the Bush administration may have to lead a coordinated global response to unwind the deficit in a smooth and orderly fashion.

    "You would need to see President Bush getting domestic consensus for some increase in national savings and have the U.S. resume its leadership in terms of global policy coordination," el-Erian says.

    If the White House doesn't take these steps, "the adjustment burden will be undertaken by the market," el-Erian says. "The risk here is you get a collapse of the dollar and a spike in market interest rates."
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