World economy becoming more dependent on US debt

[NVMojo]

The increasing fragility of the world economy is underlined by the latest report from International Monetary Fund staff on the position of the United States. The report, which will be the subject of discussion before a final document is prepared, said there was “general agreement” that the outlook for the US in 2005 and 2006 was “favourable” with gross domestic product (GDP) expected to expand at around 3.5 percent over the next two years.

Noting that the US had been the “main locomotive of global growth” in the recent period, the report said the US economy was again expected to outperform the other members of the Group of Seven major industrialised countries. Herein lie some of the major problems for the world economy as a whole because US growth is increasingly being supported by what the IMF report called “unprecedented borrowing” both from foreigners and domestically.

“This unusual constellation of financial flows has sustained growth by keeping long-term interest rates low and stimulating house prices. However, this creates a number of vulnerabilities, including the possibility of a marked slowdown of household spending, particularly were the housing market to cool.”

The report went on to warn that “external imbalances”—the US balance of payments deficit now running at more than 6 percent of GDP and the inflow of funds from the rest of the world needed to finance it—posed a “significant risk” to the global economy. The US deficit is “widely viewed as unsustainable” and with limits to the global demand for US assets emerging at some point “there is a risk that an abrupt and disorderly shift in investor preferences could have an adverse effect on interest rates and global capital markets”.

more...

http://www.wsws.org/articles/2005/may2005/usec-m30.shtml

[ananda]

1. and who is..

.. the head of the IMF now?

Wolfowitz.

That explains it all.

Sue

[Benbow]

5. So, likely to be about as accurate as "Iraqi oil will pay for the war"

which is, apparently, what Wolfowitz told Congress in March 2003.

I have a horrible feeling that the slaughter in Iraq will stop only when Bush and co have obtained guarantees - somehow - that Iraq's oil will be traded in petro-dollars. Because if Iraq's oil were to continue to be traded in petro-euros (Saddam started selling oil in euros in November 2000), then other oil-producing countries might follow suit. Before long, the US dollar would no longer be the world's reserve currency.

I think that this is what the invasion of Iraq has been all about - controlling the world's second largest reserve of oil is only part of it, the main part is to make sure that Saddam's petro-euros arrangement is overturned. If this were true, if the US soldiers dying at a rate of between 2 and 3 a day in Iraq were being sacrificed to fulfil the ambition of the current US administration to force Iraqi oil trade to be converted permanently to dollars from euros, then hanging would be too good for Bush and his administration.

[emcguffie]

2. the UN has been fretting about these "imbalances", too. n/t

[peacetalksforall]

3. Have you heard Dick or Bush announcing a plan for our country?

There is only silence and mounting debt.

[TreasonousBastard]

4. Everyone's been saying this for years...

going back to the Bundesbank buying up Eurodollars and the Japanese buying golf courses and real estate to support our importing.

It does look worse now, and the present fools in charge seem to be doing less than any other administration in history, so the end of it all just might be in sight.

[bemildred]

6. Yep, we are the world's #1 manufacturer of debt. nt

[daleo]

7. Maybe the U.S. will get an IMF restructuring demand

Just like Chile, Argentina, and all the rest. Fat chance though, unless Bush wants to use it as a smokescreen to trash social security.

[oblivious]

8. Foreign central banks continue selling US securities

Foreign investors sell U.S. assets

International investments in U.S. securities dropped to $45.7-billion (U.S.) in March from $84.1-billion in February, the U.S. Department of Treasury said Monday, further evidence that foreign central banks may be diversifying their holdings away from U.S. assets.

The March inflows fell well short of the $70-billion economists polled by Bloomberg had expected. Moreover, it is below the $65-billion to $75-billion that is needed to cover the U.S. current account deficit and outflows of foreign direct investment, according to a report by Adam Cole, senior currency strategist at RBC Capital Markets in London. Overseas central banks were net sellers of U.S. assets for the first time since September 2002 ... the largest since August 1998, he said.

...Speculation has risen this year that Asian central banks are diversifying their holdings away from U.S. assets. Between 70 and 80 per cent of the U.S. economy's borrowing requirement is being met by foreign, mainly Asian, central banks, Harvard professor Niall Ferguson wrote in the New York Times earlier this year.

http://www.theglobeandmail.com/servlet/story/RTGAM.20050516.wusdollar0516/BNStory/Business/

[NVMojo]

10. I think the goal here is to have anarchy set it, then they can executive

order us into honest slavery.

[Massacure]

9. The house of cards has to fall sometime.

The U.S. is so short sited.