[link|http://ftalphaville.ft.com/blog/2007/10/04/7831/qatar-vietnam-ditch-the-dollar|FT.com]

Announcements on Thursday from the Qatari and Vietnamese governments that they are rapidly divesting in dollar denominated securities will not come as good news to the US government. Overseas investors hold half of America\ufffds $4,400bn of marketable government debt, up from a third in 2001 according to the US Treasury department.

Qatari Prime Minister, Sheikh Hamad bin Jassim bin Jabr al-Thani said on US TV that the government-backed $50bn Qatari Investment Authority (QIA) now had less than 40 per cent of its investments in dollars, down from a high two years ago of 99 per cent.

On Thursday, the State Bank of Vietnam quietly let slip it would be ending its dollar purchase schemes, which it has been using to hold down the Vietnamese currency. Although it only has middling dollar reserves of $40bn, Vietnam is widely regarded as a barometer for economic sentiment among other, bigger, regional dollar sinks like China, Taiwan, Korea or Singapore.

The Qatar move was documented some time ago, but this indicates the move is larger then previously announced. The Vietnam move is actually bigger if it really is the first country in the region.

One of the things keeping the dollar from dropping even further is that exporting countries buy dollars to keep their currencies low vs the dollar. It is a simple and effective but sometimes expensive way of encouraging exports. As the dollar goes down though, they have to buy more and more to keep their currencies under the dollar. At some point, they simply can't afford to keep up.

Jay

By increasing our exports and encouraging some capital formation (low interest rates for borrowing and favorable exchange), we may actually be able to get some mfring base back which we have been losing for some time.

Also, with less debt in foreign hands we will be less at risk of financial attack.

Your right, in the long run it will probably be good for the country. However there will be pain over the short term until things adjust. And if the dollar crashes, the only thing we can be sure of is that it will be ugly.

What it DOES mean, though, is we have to get our debt under control NOW...and believe it or not I think the conservatives know this, which is why you see some of the defection from Bush about the war (especially the cost) and the lack of fiscal discipline.

I see no signs that has much bearing. The claimed conservatives in congress didn't begin to bail on Bush until the public turned against the war and it became clear that we where loosing. Nor do I see them trying to balance the budget in any meaningful sense. They are just brining up their budget line to counter some recent small domestic spending.

Jay