Friday, June 13, 2003

Another highlight from Stephen Roach's commentary today:
The problem, as I put it in response, is that a saving-short US economy is now asking the rest of the world to divert an increasingly larger portion of its surplus saving to fund America�s ever-rising twin deficits. In other words, if a non-US global investor currently has 60% of his/her assets in dollar-denominated assets, America is saying that�s no longer enough -- we want you to increase your overweight to at least 70%. When I put it that way, even the bulls flinch. �There�s no way I would do that,� said one, �without being compensated for taking the added risk.� Those are code words for demanding price concessions on bonds and/or stocks. Even in a US-centric world, there�s a saturation point for foreign willingness to hold ever larger amounts of dollar-denominated assets without receiving some compensation for the added risk that entails. That�s what current-account pressures are all about.

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