In the wake of global financial events, a couple of articles have caught my attention in terms of implications for the dollar. First was this Reuters account of a People's Daily editorial, suggesting "diversification". But it's hard to discern the underlying message given the low signal to noise ratio in official publications. Today's article in the IHT is a little more informative, not just about what's going on in China but in Asia (where a lot of that "saving glut" was alleged to come from):
In Asia, bloom is off the U.S. rose
By Keith Bradsher, Published: September 18, 2008
HONG KONG: Tremors from Wall Street are rattling Asian confidence, leading many investors to question the wisdom of being invested in the United States to the tune of trillions of dollars.
Asian investors were starting to show hesitation even before the financial earthquake of the last week. Now, a wariness toward the United States is setting in that is unprecedented in recent memory, reaching from central banks to industrial corporations, from hedge funds to the individuals who lined up here to withdraw money from the American International Group on Wednesday.
Asian savings have, in essence, bankrolled American spending for decades, and an Asian loss of confidence in American financial institutions and assets would have dire consequences for the U.S. government and American taxpayers.
The potential for panic is stoked by Asian news organizations, which tend to focus more on business and economics than on politics, which can be touchy here. Their coverage has been obsessive and unrelentingly negative about the bankruptcy of Lehman Brothers, Merrill Lynch's rush to find a buyer, and the turmoil at AIG.
The nonstop deluge of bad publicity for American investments seems to be seeping into the consciousnesses of the rich and middle class across Asia.
...
The asset management operations of American banks have steered many Asian investors into American securities for years. But Thomas Lam, the senior treasury economist at United Overseas Bank in Singapore, said many of these investors had not fully understood what they were buying. They became more curious and more concerned when, for example, Fannie Mae and Freddie Mac were placed in conservatorship.
"All these top executives, Indonesians and others, started asking, 'What do they really do?' " Lam said. "They bought because the next company did."
Some experts say that with the phenomenal economic growth in Asia, savings are piling up so quickly that those funds will inevitably start flowing again to the United States at a fast clip.
