Tuesday, July 15, 2008
Is there any U.S. equivalent to the U.K.'s Ambrose Evans Pritchard? Nouriel Roubini is certainly more bearish, but he's an economist, not a writer for a major news organization.
Floyd Norris perhaps? Somebody at MarketWatch, Barrons?
Anyway, in his never ending quest to instill fear into the global economy and raise questions about the longevity of the late 20th century American financial juggernaut that went stumbling into the new century and which, according to Ambrose and his interview subjects, may have just taken a big step away from hegemon toward world pariah, we get the image of the once-mighty U.S. dollar going down the drain in his latest offering.
Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.Everyone knew that, one day, foreign investors would cool to the whole idea of buying even more U.S. debt, purchases to date having enabled hundreds of millions of Americans along with its government to spend beyond their means for so long.
The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst.
Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.
Hiroshi Watanabe, Japan's chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.
But the lion's share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.
That day seems to have drawn a bit nearer since the Fannie and Freddie problems began to flower just a couple weeks ago.