The weakening US dollar has already had a negative impact on many US trading-partner economies, as exporters in these countries see their profits erode, new projects shelved and unemployment beginning to rise. However, the real danger to the United States, as well as its ripple effect on global economies, will continue to manifest itself in the months ahead. So far, the weakening US currency has been described by the International Monetary Fund (IMF) as "orderly".

The IMF's concern is that, unless US policymakers take decisive and meaningful action, confidence in the US dollar is likely to erode even further, and "disorderly" US currency plunges could occur, wreaking havoc in US markets and all intertwined global economies.

"The knock-on effect on real estate markets in the US, and globally, could be severe", says www.ResearchWorldwide.com - The Worldwide Commercial Real Estate Information Portal.

The US federal fiscal budget has swung from a surplus of 2.5 percent of GDP in fiscal year 2000 to a deficit of just under 4 percent of GDP in fiscal year 2003. This has boosted the US and global economies, however the rapidly rising US twin-deficits have resulted in the "orderly" weakening of the US dollar.

To avoid "disorderly" US currency plunges, the IMF recommends that US policymakers increase interest rates to ensure that creditor countries continue to meaningfully support the US dollar. The IMF further recommends that US policymakers should commit themselves to cut spending and increase taxes to show a willingness, as well as a realistic action plan, to balance the twin-deficit budgets and re-establish global confidence in the US currency.

Unless acceptable remedial action is taken by US policymakers to attempt to balance the US twin-deficit budgets, then reduced support from creditor nations could occur.

For the first time in decades the world has another currency, the euro, to challenge the supremacy of the US dollar as a haven for savings.

"With the US owing in excess of US$ 7 trillion, mainly to Europe, Japan and China, coupled with the intertwined nature of these global economies, there could be some "tightrope walking" in the months ahead," says ResearchWorldwide.com

Whether US policymakers will make these necessary "tightrope" decisions in a US Presidential election year remains to be seen.

"If these tightening policies of increasing interest rates, cutting spending and increasing taxes do occur, then the currently expanding US and global economies will be adversely affected. This will spill over to the real estate markets in the US and globally. However, if these policy decisions are not taken, then the IMF expects the US dollar could lose support, weaken - then plunge - with serious consequences for US and global economies, as well as asset prices," says ResearchWorldwide.com

"The IMF has taken a responsible stand in pointing out that, although profligate US spending created the current robust economic growth in the US, with its resulting global economic upliftment, there is a price to be paid for these excesses - rebalancing the US twin-deficits. Regrettably, the real estate markets in the US, and globally, will be adversely affected whatever option US policymakers choose. However, the more responsible path of showing resolve to balance the US budgets could see considerably less impact on real estate markets in the US and globally. The other option, put forward by the IMF, that of a "disorderly" plunging US dollar, would have catastrophic consequences on the US, as well as the world economy.

"Many countries, which have experienced plunging currencies in the past, such as those in South America, Asia and Africa, can attest to the dire economic consequences of currency fallout. Real estate and other asset classes see sizeable values wiped out as confidence collapses," says ResearchWorldwide.com - The Worldwide Commercial Real Estate Information Portal.

Ends

Issued by: ResearchWorldwide.com - The Worldwide Commercial Real Estate Information Portal
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