[PEN-L:33522] Mises.org on dollar fall

[Chris Burford <cburford@xxxxxxxxxx>]

http://www.mises.org/fullstory.asp?control=1125

The relative strength of the US dollar in the past couple years reflected 
in large part the massive capital inflows that came to the United States 
from abroad. The United States experienced a benign circle where foreign 
capital for direct investment was attracted by the high growth rates when 
these inflows in turn contributed to create the superior rates of economic 
growth. Additionally, the massive external financing of US bond sales?424 
billion US dollars alone in 2001?helped to keep US long-term interest rates 
low. The huge imports of foreign goods, which amounted to 452 US dollars in 
2000 and to 427 billion US dollars in 2001 (see table 3), have kept down 
the domestic price level thereby contributing further to lower interest 
rates and higher real growth.

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The United States, due to its unique position as the provider of the 
leading world currency, has been able to largely immunize itself from the 
immediate consequences of a global contraction which is already strongly 
felt at the periphery of the global financial system. However, a shift or 
retraction of international capital flows; i.e., a repatriation of assets 
out of the United States and back to Japan, Europe and other foreign 
creditors, would affect the international payment ability of the United 
States in a direct way because it would imply a weakening of the US dollar 
and probably lead to higher interest rates. Consequently, the US economy 
would face a severe economic downturn.