Thursday, February 03, 2005

US$ vs. Bill Gates, Warren Buffet, George Soros, China

A couple of months back, I had made a posting here about the reasons for likely Collapse of the US$ Economy. Now it seems that the day of reckoning is arriving faster....

The following are the excerpts from Bloomberg News, published in International Herald Tribune today (February 3rd, 2005).

"The world's two richest men have joined the ranks of the dollar's detractors, a stand that is raising eyebrows in Asia. Last week, for example, Bill Gates told the television host Charlie Rose, "I'm short the dollar."

Gates, the chairman of Microsoft, called the record $7.62 trillion U.S. federal debt "a bit scary" and lamented that the United States is in "uncharted territory" fiscally.

And he's right. Just ask Warren Buffett, the world's No. 2 moneyman, who has been buying foreign currencies since 2002, citing concerns about the U.S. deficit. The bet is paying off, too. Berkshire Hathaway, his company, reaped a $412 million pretax gain on the trade in the third quarter of 2004.

Gates and Buffett may not be reading from the same playbook as the financier George Soros, though their investments bear similarities. Soros has long given up on the world's reserve currency, and on President George W. Bush's competence on economic matters.

Yet the United States is managing to run afoul of an even more powerful force than wealthy individuals: the world's fastest-growing major economy. China, it seems, has had just about enough of Washington's bickering about its currency policy.

"Please leave it to us," Li Ruogu, deputy governor of People's Bank of China, said in Davos, Switzerland, when it was suggested that a stronger yuan would help China.... "The U.S. should take the lead in putting its own house in order," said the Chinese central bank adviser, Yu Yongding.

It is remarkable to see the United States being chastised by Chinese policy makers....

....The issue is coming to a head days before officials of the Group of 7 wealthy industrialized nations meet in London. The dollar's weakness, and the euro's resulting strength, is likely to be the center of attention. The European Central Bank president, Jean-Claude Trichet, has voiced concern about the dollar.

Until now, the United States has been able to influence currency traders with its deficits-don't-matter poker face. Yet it is losing its ability to keep investors - and central banks - in check. If central banks in Asia turn on the dollar, the United States is in for some very turbulent times as bond yields surge....

....Gates and Buffett, meanwhile, are warming up to China. Despite the nation's fragile financial system, inadequate transparency, lack of democracy and failure to halt the piracy of goods, Gates, speaking at Davos, described China as a "change agent" for the next two decades.

In September, Gates's $27 billion foundation received approval from China's foreign-currency regulator to invest as much as $100 million in yuan shares and bonds. Buffett, who visited China with Gates in 1995, made his first investment there in 2003, buying a stake in PetroChina.

Still, the biggest challenge for the United States is not to keep Gates or Buffett happy; it's persuading the central banks of Asia not to dump their roughly $1.1 trillion of U.S. Treasury holdings. If the banks do make such a move, the world's two richest men may also become two of its most prescient currency speculators."


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