Thursday, October 14, 2004

Global property, US dollar collapse: When, not If: "As I examine the financial 'realities' and the implications of the US current-account deficit, the word 'ominous' is the only thought that seeps into my mind. And though the timing is anyone's guess, the US dollar is poised to be overwhelmed by the deficit.... From the peak in this cycle, February 2002, through September 2004, the dollar has fallen only 23%. The current account is now approaching twice what it was when it finally bottomed in 1988. So if we use the current-account "adjustment" as a guide, we should multiply the 42% decline by a factor of two to determine just how far the dollar must fall before solving the current-account problem - that's 84%! ... As Treasury bonds soared and US demand rose, stocks revived. "It's the 1990s again," rattled the talking heads on CNBC. But the big winner in this liquidity game was global real estate. "The world is sitting on top one of the biggest property bubbles in history, with the biggest bits in China and the US, in my view," says Xie. There is nothing new in what we are seeing in China. Massive lending funneled into property and commodities speculation: it's the classic boom-bust credit cycle.... Fed tightening is working its way through the global financial system. Soaring crude oil prices are dampening growth prospects. Property prices in Australia and the United Kingdom are already falling. And policymakers are continuing to apply the brakes in China where they can. These are the dynamics that scream for an eventual bust in China. I believe this will be the catalyst for a dollar crisis."

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