InfoChange India News & Features development news
Why has the dollar been falling steadily? Quite simply, because US-based firms have less and less to sell to the world, though the world has a lot to sell to American consumers. America has lost competitiveness in recent decades, largely to China and East Asia. This growing imbalance in world trade (present for over two decades now) has meant a ballooning trade deficit (excess of imports over exports) for the US. It has paid for this by selling US Treasury Bonds (perhaps the most sovereign, reliable financial asset hitherto) to foreigners. Increasingly, however, the realisation has grown that the US is not in a position to redeem its $10 trillion external debt. This is almost tantamount to saying that in order to pay for goods produced by China the US has merely been printing the required quantity of dollars. Clearly, this is not a sustainable state of affairs.
The World Full Of Kojaks
The 10 trillion dollar external debt is most likely a conservative figure. It is possibly two-or three time that much. Internal debt is of course another matter. The cost of refloating the US financial system is another US$5 trillion.
So, what are we talking about US$50 trillion. Take that and try digesting that. The only way, this can happen if the world is asked to take a mssive haircut. In fact, we may have to become Kojak for the next 20-30 years.
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