[NYTimes Editorial] Apparently, the South Korean government, which holds 4 percent of US Treasury bills, made the suggestion that they are going to start investing more in other (non-dollar) vehicles.
Apparently, everyone freaked out, thinking "Whoah -- what if China and Japan follow suit?". Since they hold 90% of US T-Bills, if they stop sending George Bush the $2B/day in cash he neeeds to support his deficit spending, that will send interest rates through the roof (are you holding a floating interest rate home loan?) So the dollar fell.
So, what could happen? Everyone would sell their dollars, Bush couldn't get loans for his deficit except at high interest rates, which sends everyone's variable interest rate home mortgages through the roof; so everyone sells their homes, sending home prices down (I'll believe it when I see it, though), and suddenly, the US has a depressed economy.
How do we avoid this? Bush needs to stop borrowing $2B/day -- send the deficit to zero.
Good luck with that.
Thursday, February 24, 2005
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