And now time for fear

Let me start by saying that apologies are in order: I intend to keep the focus of this blog is tech but every now and again I come across other info worth sharing. The Economist’s Buttonwood column offers a disturbing insight into the current state of the dollar. One of the scarier things is:

“... the foreigners—mainly Asians plus a few outliers, including Russia and Brazil—have obliged, permitting America to scoop up 75% of the world's surplus savings. Together, Asian central banks have accumulated about $2.5 trillion in foreign-exchange reserves, up almost a quarter in little more than a year, most of it in dollars; Japan and China alone have reserves of nearly $1.5 trillion between them.”

The American point of view is that this is a BAD thing because they will be paying interest on these loans to a bunch of foreigners. On top of that those same foreigners are buying equity and property in the U.S.A. so that the foreigners will suck out rents from American enterprise. We foreigners should worry because in the past 5 years the US Dollar has slid down by close to 60%. Basically that means that if you had given an American € 100 in dollars at the dollar’s high point and he paid you back today, you’d be looking at getting € 40 worth of dollars back (excluding interest of course).

Now if we take that calculation and let it loose on the numbers from the Economist, this means that the United States could have destroyed 45% of the world’s surplus savings: 60% of the 75% of the world’s surplus savings. And every day that the dollar slides, the more non-American savers are being ripped off. I don’t know about the rest of the world but I really don’t enjoy saving to finance American consumption.