Friday, November 19, 2004
Alan Greenspan says...
Alan Greenspan gave a speech today in Frankfurt in which he said in part
We are standing on the edge of a tragedy. Back in 1987 interest rates were going up and the dollar was going down. Then the market crashed! I remember it well. The only buyers wanted steep discounts and sellers just wanted out. It was like a hurricane inside the office and the eye of the storm was outside on the street. I recall walking outside for a break and life was normal, a beautiful fall day. Then, we didn't owe $7 trillion and then we saved over 7% and then we didn't have a trade deficit of $600 to $700 billion. The market recovered and by January of 1988, so had the market. I don't think we will be so lucky this time.
Mover Mike
"Given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point,"The dollar is down roughly 30% since its peak in 2002.
"International investors will eventually adjust their accumulation of dollar assets or, alternatively, seek higher dollar returns to offset concentration risk, elevating the cost of financing the US current account deficit and rendering it increasingly less tenable."
Analysts were surprised by Mr Greenspan's frank words. "It's a hell of a speech," said Jason Bonanca, director of foreign exchange research at CSFB in New York.German Finance Minister Hans Eichel hopes that Europe, the US, and Japan can work out some way to support the dollar. A rising Euro and Yen is devastating for trade with the US and makes them vulnerable to asian imports. A falling dollar for the US raises import prices, while it helps us export to Europe. It, also, will increase interest rates here, hurting our economy and, possibly, real estate. Since the price of Gold moves opposite the USD, one way to protect ourselves is to buy Gold with US Dollars. Gold has gone from $250 an ounce in 2001 to $448 today.
"It's remarkable ... I think what he's calling for here is a weaker dollar, even though he's tightening," he said, referring to the four interest-rate rises - to 2% - that the Fed has implemented this year.
We are standing on the edge of a tragedy. Back in 1987 interest rates were going up and the dollar was going down. Then the market crashed! I remember it well. The only buyers wanted steep discounts and sellers just wanted out. It was like a hurricane inside the office and the eye of the storm was outside on the street. I recall walking outside for a break and life was normal, a beautiful fall day. Then, we didn't owe $7 trillion and then we saved over 7% and then we didn't have a trade deficit of $600 to $700 billion. The market recovered and by January of 1988, so had the market. I don't think we will be so lucky this time.
Mover Mike
