Shooting The Dollar

It now takes over to two US $ to buy one Brit £, in part because the world’s financial industry – hence its investors – regard the US as too risky.

The US has the world’s largest external debt – bigger even than the profligate Brits. In both countries, the books are balanced by selling assets – businesses and real estate – to foreigners.

That’s why a Saudi prince and the government of Abu Dhabi now own about 9% of Citibank.

There’s nothing inherently unhealthy in this, but for it to work, foreigners have to be happy to buy our assets, and in the case of the UK they are – which is why the £ is holding up.

But the $ has tanked, here’s one reason why:

The “NatWest Three”, who were extradited to the US in July 2006 amid much public protest, changed their plea after five years of protesting their innocence in a partial bid to reduce their time behind bars.

The British men…could have faced up to 35 years in jail as a result of the charges being brought by the US government. They agreed to change their plea following four weeks of bargaining with US prosecutors, in which they agreed to one count of fraud in return for the rest being dropped.

The men may be guilty, although from my limited experience of high finance, they seem no guiltier than the average practitioner.

But we’ll never know – the men were trapped in the US, could not work, and faced spending the rest of their lives in jail. So copping a plea was rational, regardless of guilt.

The three now have to serve time in Brit jails, but the US is the big loser:

– Foreign courts will be reluctant to agree more deportations to US jurisdictions, since forced plea bargains are generally considered unfair. That means foreign terrorists get to stay home.

– Foreign financial professionals will avoid exposure to US entities, to avoid the fate of these three men.

– And that means less US assets will be purchased by foreigners.

– And hence the dollar will tank to balance the equation.

Of course a weak dollar means more US exports and less imports, and both are good.

But it also means more US assets will be bought by people who the US won’t dare annoy – cash-rich Arabs, Chinese, and Russians.

That is not good.

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2 Responses to Shooting The Dollar

  1. This is a direct result of Sarbanes-Oxley. Sarbanes-Oxley must be repealed even before the egregious McCain-Feingold.

  2. gandalf says:

    Wolf Pangloss

    Amen to that.

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