As The Greenback Slides
-- November 18, 2003

The dollar slid to record lows today after a government report showed that foreign purchases of U.S. assets, such as Treasuries and agency securities, fell to the lowest level in five years.

The Treasury Department said foreign investors bought $4.19 billion in September, down from $49.9 billion in August -- a 92% drop! The September figure represents the smallest tally since September 1998 when foreign investors bought $1.7 billion in U.S. securities.

As fewer foreign investors buy less stocks and bonds, the harder it is for the United States to finance the burgeoning current account deficit.

The greenback took a few more kicks based on speculation that the war in Iraq may heat up further and the increasing threats of more terrorist attacks worldwide.

The big question is whether foreign investors will keep buying up enough U.S. assets to offset the current account deficit. In the second quarter, the current account deficit was at a record $138.7 billion. And with the current pace of foreign financing, that deficit is going to get even bigger!

Sure, there are signs that the U.S. economy is crawling out of its funk, but a battered dollar, and the economy, could take a bigger kick if the current account deficit continues to grow.

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