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Robert Reich: U.S. dollar heading for a collapse - September 25, 2004



The Vancouver Sun     September 25, 2004

U.S. dollar heading for a collapse, ex-Clinton adviser says

Currency | Robert Reich warns of investing jitters
 
By James Baxter

Banff, Alta. -- The U.S. dollar is fast reaching a point at which foreign
investors will abandon it and send it into a freefall, says Bill Clinton's
former economic adviser.

Robert Reich told the Global Business Forum in Banff that record high budget
and trade deficits, personal debt and a foreign policy that is alienating
traditional allies, has the already slumping U.S. dollar headed for
collapse. The U.S. already requires a daily infusion of $1.2 billion in
foreign investment just to keep the greenback's decline under control, he
said.

"The mainstream view is that the budget deficit (currently $422 billion
U.S.) . . . is going to get larger," said Reich, who is an "informal
adviser" to presidential hopeful John Kerry. "Simultaneously, the mainstream
view is that there is no reason to believe that the trade deficit
(approximately $600 billion) is going to shrink anytime soon.

"In fact, I see the dollar continuing to decline and I see at some point a
tipping point where East Asian banks that have been trying to prop up the
dollar, maintaining their exports (to the U.S.), because at some point it
becomes a lousy investment."

Reich said global investors are already conducting significant amounts of
business in Euros, not U.S. dollars.

The reason for Reich's speech to the audience of approximately 200 business
leaders, mostly Canadians, was to explain why free trade has suddenly been
revived as a great economic evil in the U.S.

In painting a bleak outlook for the U.S economy, Reich suggested the worst
is yet to come, especially if President George W. Bush and the Republican
party's agenda of tax less and spend more is re-elected in November.

"My upbeat message is that we don't have to have it like we have it," said
Reich, who insisted Bush is not entirely to blame, but bears considerable
responsibility for the economic straits facing the U.S.

"Deficits matter," he said.

"If you embark on a unilateral foreign policy and the rest of the world is
upset with you, that has a boomerang effect on your global businesses. It
can't help but (have an effect). So not only does fiscal policy matter, but
your foreign policy cannot be completely divorced from your national
economic policy.

Reich said regardless of who is the next leader, significant measures are
going to be needed to control the budget deficit and to begin rebuilding the
economy so that real manufacturing wages, which have been largely stagnant
in the U.S. since the Reagan era in the 1980s, begin to grow.

He also said that while the U.S. is unlikely to retreat from global trade,
it is also unlikely to aggressively pursue more open trade for the time
being. That's because U.S. workers are suffering and are looking for
something to blame, like outsourcing, he said, and politicians are being
forced to play along.

"A lot of people are very, very willing to blame other countries for the
loss of American jobs or the stresses on American wages," said Reich. "This
blame is ill-founded.

"Nevertheless, in political terms, people talk about jobs being lost in the
United States to China . . . or to India . . . or elsewhere."

Reich also tried to quiet fears among Canadians that Kerry is anti-free
trade, saying only that Kerry wants to remove certain tax incentives that
encourage companies to move a portion of their manufacturing offshore so
that they can legally shelter money from income taxes. He said Kerry
believes strongly in the value of trade and that Canadians shouldn't fear
his policies.

Edmonton Journal



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