Friday, May 06, 2005

dollar devaluation

Fed chairman Alan Greenspan set the wheels in motion for a dollar devaluation last November. That's when he predicted to members of the European Banking Congress in Frankfurt that international investors would eventually tire of financing the burgeoning U.S. budget deficit and trade imbalance. Among the bleaker predictions is that central banks, particularly Asian banks that hold more than two-thirds of the funds invested in U.S. Treasury debt, may pull the plug at some point in the next several years.

This may be inevitable, particularly if China, which has its yuan pegged at roughly 8.3 to the dollar and is judged by forward contract markets to be undervalued by about 4 percent, sees its economy start to overheat. China's GDP is running at 9.5 percent.

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