Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets, a former Bank of England policymaker has warned.

The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.

Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.

The warning comes despite the dollar having strengthened significantly against other major currencies, including sterling and the euro, after hitting historic lows last year. It will reignite fears about the currency's prospects, as well as sparking fears about the sustainability of President-Elect Barack Obama's mooted plans for a Keynesian-style increase in public spending to pull the US out of recession.

Writing on his blog, Prof Buiter said: "There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place."

He said that the dollar had been kept elevated in recent years by what some called "dark matter" or "American alpha" - an assumption that the US could earn more on its overseas investments than foreign investors could make on their American assets. However, this notion had been gradually dismantled in recent years, before being dealt a fatal blow by the current financial crisis, he said.

"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."

He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.

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Chicken Little is right! The sky has fallen!

I hope not, but am afraid he is also wrong, about other currencies. We are all in for it. All of us.

You will have to look at who is the most self sufficient in ALL things. Food, fresh water, energy, to name the primary things, of importance in a recovery or stopping further decline. Too many people, will have a negative effect, in the balance. The economic world has changed, as much as the physical world will have changed, if the earth has shifted upon it's axis. Heck of a New Year, GOD help us all.

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SONNY was right...Nobody Cares.
Calogero, from the movie, "A BRONX TALE."

Your other post, " A fresh piece of reality" made far more sense than this. All Prof. Buiter is doing is screaming what others have been screaming, "Its all Bush's fault!!" Which is BS, the problems go back YEARS, through many ADMINISTRATIONS, and ALL the politicians are responsible. RT

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When all else fails, vote from the rooftops!
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It' Bush's fault.

which one?

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"It's normal for these things to empty your wallet and break your heart in the process."
2012 SLK 350
1987 420 SEL

A whole savanna of the bastards.

Does it? Under Clinton we had a balanced budget and the dollar and economy were strong. Bush has been a much more reckless spender than Clinton ever was and that and his aversion to financial regulation is mostly what got us in this mess.

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Please go back and check out your history. Just because Clinton happened to be in office while the economy was strong doesn't get him off the hook. The current calamity we are in now had its roots in the late 80's. Clinton actually was the guy who increased the risky debt levels of Feddy and Fanny. The "wealth" created under Clinton was due to the "High Tech" bubble, or have we forgotten that one already?

I know you're a Clinton hack and willing to put on that stained dress for BillyBoy to please him but the sun actually doesn't shine out of his a$$.

I blame them all, RT

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When all else fails, vote from the rooftops!
84' Mercedes Benz 300D Anthracite/black, 171K
03' Volkswagen Jetta TDI blue/black, 93K
93' Chevrolet C2500HD ExCab 6.5TD, Two-tone blue, 252K

Yes, it does. The decline in US manufactuing industries has been on-going for decades. The wealth under Clinton resulted from the tech boom which once it had run it's course left nothing in the US able to create wealth besides the real estate pyramid scheme. Now that that's burst we find nothing left in the US able to generate the wealth necessary to re-build. While I used to think fairly highly of Clinton I now regard him as a fool running a fools paradise.

- Peter.

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2021 Chevrolet Spark
Formerly...
2000 GMC Sonoma
1981 240D 4spd stick. 347000 miles. Deceased Feb 14 2021
2002 Kia Rio. Worst crap on four wheels
1981 240D 4spd stick. 389000 miles.
1984 123 200
1979 116 280S
1972 Cadillac Sedan DeVille
1971 108 280S

Prescott, perhaps?

bug spray. The rupee has declined big time due to that little "Enronesque" problem with a computer company over there.

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"It's normal for these things to empty your wallet and break your heart in the process."
2012 SLK 350
1987 420 SEL

I'm not a huge Clinton fan, but I am a big fan of the truth. I'm just saying it as it is, though of course I didn't go into all the details. You could trace the economic crisis all the way to the stone age if you wanted to, but what really matters is the major recent events that led to the crisis, namely the credit rating agencies' hiding of the risk of bundled subprime mortgage securities from investors who poured billions of dollars into them. Without this the crisis wouldn't have happened.

As to the dot com bubble, that came in the late part of Clinton's term and actually resulted in a mild recession at the end when it burst. I'm not giving Clinton all the credit for the sound economy during most of his term, but at least he didn't screw up the economy like Bush did with his reckless financial policies. That I give him credit for.

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2004 VW Jetta TDI (manual)

Past MB's: '96 E300D, '83 240D, '82 300D, '87 300D, '87 420SEL

Yes the decline in US manufacturing has been going on for a long time, but that's not primarily what I was talking about. That has mostly to do with cheap overseas labor.

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2004 VW Jetta TDI (manual)

Past MB's: '96 E300D, '83 240D, '82 300D, '87 300D, '87 420SEL

Fair enough. Tell us what you think of the idea that Clinton didn't want to remove the CRA and threatened a veto if any changes were made.

Have we forgotten congress?

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01 Ford Excursion Powerstroke
99 E300 Turbodiesel
91 Vette with 383 motor
05 Polaris Sportsman 800 EFI
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04 Tailgator 21 ft Toy Hauler
11 Harley Davidson 883 SuperLow

He was for it before he was against it.