Monday, June 26, 2006

DEAR MR. SECRETARY-DESIGNEE -- C. Fred Bergsten urges Secretary Paulson's to act boldly to correct the current accounts deficit: "The United States has to attract about $8 billion of foreign capital every working day to finance its current account deficit -- which has risen steadily for 15 years and is approaching $1 trillion annually -- as well as its own foreign investments. Any substantial reduction of that inflow, let alone a conversion into other currencies of the $12 trillion now floating around the world, could send the dollar into a tailspin. Inflation could double, to at least 5 or 6 percent. Interest rates would rise sharply and could hit double digits. Equity and housing markets would tank. The economy would fall into recession, and unemployment would rise sharply. These effects would be magnified if energy prices rose further, recalling the stagflation of the 1970s and risking a 'hard landing' for the U.S. and world economies."