Forex Blog: Currency Trading News & Analysis.

July 7th 2005

The Catch-22 of the USD

Recent economic data suggest that America’s record government spending and current account deficits are driving the country deeper into debt.  A new report on America’s indebtedness attempts to discredit this popular belief.  According to the report, America’s foreign assets actually appreciated in Dollar terms, as the USD depreciated, offsetting much of the increase in foreign borrowing which was taking place.  In short, while it appears America is sinking deeper into debt, the truth is less dramatic. Whereas, America ran an $600 Billion current account deficit in 2004, its net foreign liabilities increased by only $200 Billion. Due to the appreciation of its foreign assets. However, what goes up must come down.  As the USD has appreciated over the last few months, so have its foreign holdings depreciated.  It may take a drastic reversal of the USD to correct this problem.  The Economist reports:

Of course, a further drop in the dollar and a fall in American share prices could trim those liabilities again in 2006. But that is hardly a reason to buy dollars.

Read More: Show me the money

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Posted by Adam Kritzer | in Economic Indicators, US Dollar | No Comments »

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