] Shares of GM fell almost 6 percent and Ford shares
] declined 4.5 percent after Standard & Poor's Ratings
] Services downgraded the debt to below investment grade,
] which is commonly known as junk or high-yield status.

Sayonara US auto companies.

S&P Cuts GM, Ford Credit Ratings to 'Junk'

] He said that while the U.S. economy was "doing well," the
] danger was that deficits would keep rising as a
] percentage of total national output.
]
]
] "Unless that trend is reversed, at some point these
] deficits would cause the economy to stagnate or worse."

Thanks for the update Alan, I think there is a long list of people who have been saying this for decades.

Greenspan Warns Deficits Endanger Economy

] The current account trade deficit is closely watched by
] economists because it is the broadest measure of
] international trade, covering not only trade in goods but
] also trade in services and investment flows between
] nations. The deficit for 2004 was not only a record in
] dollar terms but also as a percentage of the total U.S.
] economy, climbing to 5.7 percent of the gross domestic
] product, up from 4.8 percent of GDP (news - web sites) in
] 2003.

And the bleeding continues. Something else of note, elsewhere in the article they make the point that the dollar has been on a three year slide, meaning foreign goods are getting more expensive, yet the trade imbalance continues to grow. Something in that says there is a huge problem.

"Don't cry for me Argentina..."

Trade Deficit at All-Time High of $665.9B

] The dollar fell on Tuesday, as market worries that
] central banks were diversifying reserves out of U.S.
] assets pushed the currency below key technical support
] levels.

This is the sort of thing that I brought up months ago. A bit fasrther down the article it notes that South Korea holds about $69 Billion in US debt. This brings us right back to the original question, "What happens when the government decides to do some borrowing and no one takes the loan?"

Dollar Falls on Reserve Shift Worries

] As traders cleared off their desks ready to ring in the
] new year, the dollar was on track for a dismal fourth
] quarter. The U.S. currency shed 10 percent against the
] euro and Swiss franc in the last three months.
]
]
] Against the yen, the dollar fell around 7 percent in the
] quarter.
]
]
] In the absence of any convincing signs of a substantial
] rebound in the greenback, traders added to their bets
] against the currency going into 2005.
]
]
] "If anyone is out there looking for a correction in the
] dollar, it just hasn't happened and there's no sign that
] it's going to happen in the upcoming days," said
] Investors Bank and Trust's Mazanec.

And the continuing tanking of the dollar continues.

Dollar Falls to New Low Vs Euro

] The Next Four Years - borrowed time

And now to throw some gasoline on the economic bonfire, Princeton economist Paul Krugman...

The Next Four Years - borrowed time

] Stephen Roach, the chief economist at investment banking
] giant Morgan Stanley, has a public reputation for being
] bearish.
]
] But you should hear what he's saying in private.
]
] Roach met select groups of fund managers downtown
] last week, including a group at Fidelity.
]
] His prediction: America has no better than a 10
] percent chance of avoiding economic ``armageddon.''
]
] Press were not allowed into the meetings. But the
] Herald has obtained a copy of Roach's presentation. A
] stunned source who was at one meeting said, ``it struck
] me how extreme he was - much more, it seemed to me, than
] in public.''

I don't think this is a big surpise to people who have been watching this sort of thing, the fact people with big bank accounts are starting to say it should be frightening.

BostonHerald.com - Business: Economic `Armageddon' predicted

] Although completely unreported by the U.S. media and
] government, the answer to the Iraq enigma is simple yet
] shocking -- it is in large part an oil currency war.

This was recommended by doddster98 as something to read coming off my concern about the continuing fall of the dollar. After reading through it is something that deserves it's own thread.

I was both impressed by the piece and curious to find out who this guy actually is. I mean I say this and it makes sense, but I could be just another conspiracy wacko. The answer to who the writer is came from Amazon of all places. "William Clark is Manager of Performance Improvement at Johns Hopkins University School of Medicine. His research on oil depletion, oil currency issues and U.S. geostrategy received a 2003 Project Censored award, published in Censored 2004. He lives in Columbia, Maryland."

This piece is VERY dense, but more than worthwhile reading. There are reasons for maintaining good relations with your allies.

Revisited - The Real Reasons for the Upcoming War in Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth, by William Clark, updated: Jan 2004

] The dollar index, a measure of the dollar against a
] basket of currencies, extended a slide to a nine-year
] low.

This is going to require a little explanation as to why this is important. A large portion of the US economy is dependant on imports. We'll start with cars. Currently the #1 domestic car manufacturer is GM followed by Ford and Toyota (yes, that's right, Toyota). The trick here is, no one makes a car anymore with all domestic parts. Toyota obviously makes a good number of their parts in Japan where they are brought over and installed in US cars, GM does similar things, primarily in Mexico, and Ford and Chrysler both do a good amount of their construction in Canada, which means the dollar sliding across the board will increase prices for DOMESTIC products. The sliding dollar will also cause increased pressure on import prices, so things actually made in other places will be more expensive as well.

Because we're an "import" economy, this means that costs are going up, but there is no concurrent increase in revenue, so wages (the demand side of that supply-demand equation remain stagnant. This also applies in other areas as well. The computers we're reading this on are most likely made out of all, or nearly all, imported parts and just assembled here, and those two products are not unique, far from it in fact.

The results on the international markets has already started this morning, with the Nikkei (the Japanese version of the Dow) down a bit under a percent, with expected slides in US companies on the German and British exchanges later today. We'll see how that goes.

One thing that will prove interesting will be oil. With the dollar sliding, one would expect that the price of oil will increase further. This may not actually be the case, but there's a pretty big BUT at the end of this. Oil prices are universally done in terms of US dollars. If you're in Germany, you take your Euros, buy dollars and then use those dollars to buy oil. This is something that was done by of all people OPEC. Thirty odd years ago, their #1 trading partner was us, and so to make oil transactions simple globally, they benchmark the price of oil in dollars. It worked for them and so now, all oil exporting companies/nations handle this pretty much the same way. They sell oil for dollars.

So, what happens to the price of oil? Good question. Other countries, notably European ones are in theoretically good shape. Their money is worth more, so oil costs less. Some other countries, notably Japan are going to get squeezed. They export heavily to us, so the sliding dollar hurts them, pretty badly in fact. But, the sliding dollar also means that oil is less expensive. The bottom line I think is that the sliding dollar hurts them more than it helps them. Oil is cheaper, but because we're not buying as much stuff, they don't need the oil and so they aren't helped by the decreased costs as much as they're... [ Read More (0.2k in body) ]

Yahoo! News - Dollar Hits New Low, Gold at 16-Yr High

] Former Enron CEO Ken Lay, left, is led into Federal Court
] by law enforcment officers in Houston Thursday July 8,
] 2004.

Nothing like a good perp walk.

Yeah... it wasn't as entertaining as the infamous "low speed chase" but then all OJ did was allegedly whack his ex wife and hoyfriend. This guy screwed the retirement money of a few thousand people.

Yahoo! News - AP Photo - Ken Lay