They retain very important assets in dollars

As time passes, and decline of the dollar without reduction in the market of the deficit of the US current-account which might reach 1,000 billion this year, there is the emergence of two opposite trends. Some fear the eruption of a major crisis. Most of the economists of international finance, for example, have the feeling that the magnitude of this potential crisis only increases. Others, especially the portfolio managers, are more and more convinced that economists do not know much or that it is unimportant.

After all, assert the unrepentant optimists, real GDP in the United States increased $ 400 billion per year, or $ 270 billion for work and $ 130 billion to the capital. Even after depreciation, the additional annual revenue of $ 130 billion is capitalized at approximately 1,500 billion. The deficit even 1,000 billion is therefore not disproportionate. In winding up the two-thirds of the increase in the wealth created in the United States to finance imports, there we would still 500 billion more than the previous year.

In addition, the annual interest to the 1,000 billion that Americans borrow each year to the rest of the world represent 50 billion, or 12.5 of the annual economic growth, and the trade deficit is financed by the growth of the value of the capital. So what is the problem Why can the US current account deficit not remain indefinitely at its 2006 value

Because there is a difference between the current account deficit and trade deficit. The current account deficit is equal to the gap commercial, completed the financial cost of international investment, or the rent, interest and dividends due to foreigners who have invested the capital in the United States. Over time, accumulate deficits and increases the cost of the financing of the international investment.

Thus, to stabilize the current account deficit, should reduce the trade deficit. The only solution to this is a fall of net imports, which requires either a fairly strong decline of the dollar generating an increase in the price of imports, or a depression in the United States.

This is the reason why denominated asset holders should expect two possible scenarios: a weak dollar and an economic crisis in the United States. In either case, it is not desirable today retain considerable amounts of dollar assets. Foreign speculators should soon away and thus causing the collapse of the dollar that they so fear. But the currency speculators and investors expect to either of these scenarios. They retain very important assets in dollars.

But, then, that think the players in the market And why see - it things so different from international finance economists It would seem that nobody in the financial centers of New York, London, Tokyo, Frankfurt and Hong Kong do have to prepare for a drop in the dollar. Especially in times of crisis, the dollar is a desired value.

George Soros may have expected a decline of the pound sterling. The Thai import-export firms can build on a drop of the baht by accelerating revenue and delaying spending in dollars. You can bet on the decline of the peso. But not the dollar. At least not for the moment.

In other words, the market is betting on a gradual decline of the dollar over the next five years and a reduction in the deficit of current account without financial crisis. This is what happened at the end of the 1980s as late 1970s. After all, it is said that God protects children, fools, dogs, and the United States. But the chances of landing smoothly reduce from day to day.