Wednesday, August 27, 2003

More evidence that the US current account deficit will be skyrocketing in the near future -- and that the country's economic debate in the 2000s will increasingly look like that of the 1980s.
By spending trillions of yen to buy dollars in the foreign exchange market, Japan has limited the yen's rise against the dollar this year to no more than 2.3 percent, while the euro has jumped as much as 13.5 percent. The yen is now up just 1.3 percent against the dollar while the euro is up 3.8 percent, almost three times as much.

Japan's success in keeping the yen from gaining significant strength against the dollar � and other currencies � is helping the country's economy rebound by keeping its exports more competitive abroad. But, at the same time, it is a drag on American economic growth and is making it more difficult for the United States to reduce its troublesome current account deficit, which is now over $500 billion.
Apart from the US, East Asia is the only growth spot in the global economy today. But much of this growth is premised, as we see in the cases of both Japan and China (the two largest economies in East Asia), on selling to the United States. East Asia has trillions of dollars in reserves and has shown no reluctance to use them. Watch for the dollar to rise even further in the near future, and global balancing to fall right off the table.

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