Willem Buiter warns of massive dollar collapse

[Doctor Cynic]

Source: Telegraph

The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency's prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama's mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.

Writing on his blog , Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."

Read more: http://www.telegraph.co.uk/finance/4125947/Willem-Buiter-warns-of-massive-dollar-collapse.html

[KurtNYC]

1. Buiter is a blogger who loves to say controversial things

(not that there is anything wrong with that).

He advocated legalizing heroin to hurt the Taliban, etc, etc.

[specimenfred1984]

3. Nothing controversial about a torture camp country losing its cred

Take a look at U.S. bonds lately?

[Dreamer Tatum]

10. What's your point about bonds?

Just curious - tell me your thoughts.

[girl gone mad]

5. He's no crank economist, though.

Buiter is well respected in the field.

[aquart]

7. Does he explain why our money will fail after Bush is gone?

Does he believe nothing Obama can do will inspire confidence?

[Dreamer Tatum]

12. In a nutshell, he thinks the US will have to devalue the dollar to service the debt

...especially in light of Obama's stated plan to increase government spending via stimulus
(yeah, that's what he said).

I think he's downplaying the boomerang effect of the supply side, which should act to revalue the
dollar.

Also, it's hard to take this guy too seriously when some bond yields are NEGATIVE. When people lend
money to the United States for the right to get LESS back later...well, that says something about
belief in this economy.

[aquart]

14. Buckle your seatbelts. It's going to be a bumpy ride.

[Career Prole]

2. There's your legacy, bush.

"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."

Mission accomplished.

[WriteDown]

6. Shouldn't he be more concerned with the British pound...

:shrug:

[Career Prole]

8. If the dollar sinks it makes U.S. products easier to sell

and those doing business in pounds or euros or whatever lose business as a result. That's why everyone fussed about the Chinese keeping their currency pegged at an artificially low rate.
In a global economy the rise (or fall) of one currency affects all.

[WriteDown]

9. True...

I've often said the sinking dollar is a GOOD thing because it will reduce the trade deficit. The rising yen is conversely very bad for Japan because they rely on exports so much.

[dixiegrrrrl]

4. Max Keiser and Karl Denniger and others have been saying this for past year or so.

They have the ability to understand the implications of the governmental Ponsi scheme.
I could not understand why people were "fleeing" into "safe" govrnment Treasuries, when the monstrous debt load is so well known.
Countries that threatened to unpeg from the dollar were quickly punished over the past few years, just as countries that threatened to fight US control over them have been threatened and attacked.

I owuld be surprised if it tok as long as 2 years to dump the dollar.
Britain's Brown is not as much of a poodle as Blair was.
So. American countries are already avoiding it as much as possible.

[Critters2]

11. Printing money backed by nothing. What could go wrong? nt

[Psephos]

13. Which is why Obama's recent embrace of multi-year trillion-dollar deficits is bad news

So much for pay-go...

Wasn't this board chock-full of deficit hawks the past eight years? Must have gone to hang out with the Peak Oilers.