IMF chief warns dollar may suffer ‘abrupt fall’

AFP
October 22, 2007

The head of the International Monetary Fund, Rodrigo Rato, warned Monday there are risks of an “abrupt fall” in the dollar, linked to a loss of confidence in dollar assets.

“There are risks that an abrupt fall in the dollar could either be triggered by, or itself trigger, a loss of confidence in dollar assets,” Rato told the IMF board of governors.

He also appeared to suggest that Europe could take steps to temper the strong appreciation of the euro.

“There is a risk that exchange rate appreciation in countries with flexible exchange rates — including the euro area — could hurt their growth prospects, and that in these circumstances protectionist pressures could worsen,” he said on the final day of the annual meetings of the IMF and the World Bank.

The outgoing IMF managing director spoke as the European single currency hit a new high of 1.4347 dollars and global equity markets tumbled amid growing fears a US housing-related credit crunch could pitch the world’s biggest economy into recession.

“The uncertainty … comes from downside risks that are much higher than they were six months ago. The turbulence in the credit markets is a warning that we cannot take the benign economic environment of recent years for granted,” he said.

“We still do not know the full effects of the decline in the housing market and the subprime problems of the US economy. Further disruption in financial markets and further falls in housing prices could lead to a global economic downturn.”

A crisis in the risky US subprime mortgage sector, where loans are given to homebuyers with poor credit histories, erupted this year as borrowers defaulted on mortgages amid rising interest rates and a sharp slump in US housing prices.

The spillover of the US credit crunch into global financial markets roiled stock markets worldwide in August and although they have recovered somewhat, the uncertainties of the extent of the credit problems continues to weigh on investors.

Rato warned that a downturn would exacerbate other risks that already exist in the world economy, citing some emerging economies’ reliance on capital inflows and the potential that central banks may not curb rising inflationary pressures.

“Some emerging economies that have relied on external financing to fund large current account deficits could be tipped into crisis by a combination of reduced demand for their exports and tighter financial market conditions,” he said, adding that those developments would also worsen the prospects of low-income countries.

“And there is a risk that central banks may falter in fighting the inflation which has been spurred in some countries by higher oil and food prices.”

Rato told the governors of the 185-nation financial institution aimed at fostering global financial stability that it was imperative to take action to avoid such a calamitous downturn from global imbalances.

“All of these risks make action on already agreed policies more urgent,” he said.

“Major economies need … to take supporting policy actions,” said the former Spanish finance minister, who is stepping down nearly two years before the end of his five-year mandate.

His successor, Dominique Strauss-Kahn, a former Socialist finance minister of France, takes office on November 1.

In an apparent reference to recent pressures from France and other members of the 13-nation eurozone on the European Central Bank to take action to curb the euro’s sharp appreciation, which is weighing on eurozone exports, Rato said: “Policymakers need to respect the independence of central banks and support their vigilance on inflation.”

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  1. Anonymous on October 23rd, 2007

    A letter to my family, that others might find useful:

    -Anonymous

    http://www.truthnews.us/?p=433

    Dear Family,

    This has all been planned out many years ago… America’s middle class is being destroyed by design… it is what is happening… but ignorance can be blinding… and that is what the TV’s job is to do to you every day… hold you in a state of ignorance… and daze you constantly with so many endlessly useless pickup truck commercials so it all seems so normal, each step of the way down… You guys are plain crazy for not thinking… and letting the TV control your perceptions and minds. I love you. I just wish I could get y’all off the establishment spell. You are each way too poor to be considered a member of the establishment, by the establishment. You mean nothing to the establishment. You mean nothing to the cubs. You mean nothing to the bears. And you certainly mean absolutely nothing to The Federal Reserve/et al. The elite class actually consider the people of the middle-class much like insects that should be exterminated some day. They are in the process of convincing/(fear-mongering) the wealthy class of this through bogus “save the earth” global warming propaganda. That is your establishment. You appear to love capitalism so much, until the day in the future you realize unchecked & uncontrolled capitalism is fascism and it intent on eating all of you and your children alive… You could take steps to protect your future, but you would rather submit to being psychotronically zombified into thinking is everything is ok, or as Judy would say “kosher”. But it is not Kosher, system is cancerous and the economy is gangrene by all real indicators. Most people are in all sorts of debt up to their ears. The stock market is really at 6,700 because the dollar has fallen in value so much in the same time the DJIA was at 6,700. There has been no real gain in “value”, only capital gains taxes on your illusionary gains. That is the reality of the raw situation. Please do some math. Each of us took algebra, but most of us now refuse to solve two easy rather elementary, linear equations for yourself. This widespread debacle of reason and tyrannical establishment economics will only lead to gas being over 10 dollars a gallon. Your heads will all soon be spinning looking at hyperinflation attack your pocketbook all around like never before concerning common items such as food. Suddenly, it will seem in hindsight. Many people in our society won’t be able to afford to drive to work. Then the microchips will come as the establishment solution to getting a discount at the grocery store… Enjoy the “Happy Days” of course, but there are only a few of them left… You have NO UNDERSTANDING of what really caused the first great depression. What you know is actually false/dis-info. Most of what you have been taught in college and on tv about the biggest of issues are falsehoods, even though it is the status-quo. Most of this is all because you never wanted to think about the consequences of an imperial private bank, the not-”federal” no-”reserve”, ruling the country for the past century, yet you wanted to believe in all the lies presented and “fed” to you in college and on TV for so so so long… I ask you all to re-orient your ways of thinking… to the many lessons of history… to common sense… and to basic algebra… and the differences between mass-counterfeited paper money, and real silver or gold money/bullion. chicagocoin.com screw the rothschilds and rockefellers, etc. out of screwing your family. and p.s. Don’t blame me instead for the facts or the massive depression that will soon hit the US and world-wide. If you think little ‘ol me has had anything to do with the ongoing demolition of our very-long-ago great republic, I will have to object and state that anyone suggesting such in the least must be completely insane and shouldn’t be trusted with a pen, maybe a paintbrush, but not a pen.

    With my long tormented soul’s enduring sincerity,
    me