Soros Sees End of Dollar as World's Reserve Currency Billionaire investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency. ``The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate today at the World Economic Forum in Davos, Switzerland. ``Now the rest of the world is increasingly unwilling to accumulate dollars.'' The dollar's share of global foreign-exchange reserves fell to a record low of 63.8 percent in the third quarter as demand for U.S. assets waned after the collapse of the U.S. housing market, according to International Monetary Fund data. It accounted for 65 percent three months earlier.
Merrill Lynch says U.S. nationwide home prices may fall 30% Merrill Lynch forecasts nationwide U.S. home prices could decline 25% to 30% over the next three years, as new supply and weak demand weigh on the market. "This sounds dire... but would only reverse part of the unprecedented 130% price surge from 2000 to 2006," wrote economist David Rosenberg in a research note released Wednesday. Rosenberg added the S&P 500 may decline an additional 20% to 25% to breach the 1,100-point level if the market follows historical precedents at times when the U.S. economy is in recession.
Fed's big easing a 'once-in-a-generation' event The U.S. Federal Reserve, responding to an international stock sell-off and fears about a possible U.S. recession, cut its benchmark interest rate by three-quarters of a percentage point Tuesday, an aggressive move that came a week ahead of a regularly scheduled meeting of the central bank. The Fed's policy making group, known as the Federal Open Market Committee, lowered its target for the federal funds rate, which regulates overnight loans between banks, to 3.5 percent from 4.25 percent. The move, unusual in both its scale and its timing, underscored the severity of the current strains facing the U.S. economy. "It's a once-in-a-generation event," Mark Zandi, chief economist at Moody's Economy.com, said. In recent years, the Fed has rarely acted between scheduled meetings of the committee, and almost always in increments of one-quarter or one-half point. It was the biggest single cut since October 1984.
U.S. Treasuries Rise on Speculation Fed Will Keep Cutting Rates U.S. Treasury notes rose for a fourth day, reversing an earlier decline, on speculation the Federal Reserve will keep cutting interest rates to avert a recession in the world's largest economy. The advance pushed two-year yields to the lowest since April 2004 as European stocks and U.S. stock futures declined, prompting investors to seek safety in shorter-dated government debt. The Fed's decision yesterday to trim the target for overnight loans between banks to 3.5 percent pushed notes to the biggest rally since the aftermath of the Sept. 11, 2001, terrorist attacks. ``There'll be more rate cuts and we'll see further declines in yields,'' said Axel Blase, a fund manager at Invesco Asset Management in Frankfurt. ``The fundamentals haven't changed and investors are more keen to play it safe.''
In Washington, an urgent response as stocks plunge Even though Monday was a holiday, Ben Bernanke showed up early at his office at the Federal Reserve. The next day, he was planning a trip to New York. But those plans quickly changed. He watched with growing concern as stock markets in Japan, China and Hong Kong started plummeting. Shortly after lunch, Bernanke called a quick meeting of the Fed officials who decide interest-rate policy. Meanwhile, the Treasury secretary, Henry Paulson Jr., watching the same market turmoil spread to Europe, was anxious enough that he called President George W. Bush at the White House at 3:15 p.m. At 6 p.m., Bernanke convened a videoconference with Fed governors and an hour and a half later, he orchestrated the biggest one-day cut ever in the benchmark interest rate, which the Fed would announce early Tuesday morning.
Business leaders criticize the Fed Business leaders appealed for more leadership from U.S. and other central banks to head off an economic downturn on Wednesday, with some accusing policy makers of losing their grip and their nerve. As shares in Europe fell heavily again on Wednesday on deepening fears of a slowdown, a day after an emergency U.S. interest rate cut, top executives expressed alarm as they gathered for an annual retreat in the Swiss resort of Davos. "Central banks have lost control," said billionaire financier George Soros. Other executives attending the opening discussions of the annual meeting of the World Economic Forum in Davos said the surprise decision by the U.S. Federal Reserve on Tuesday to cut interest rates by 75 basis points looked like a panic move.
Startling jump in California foreclosures The housing market's vicious downward cycle wreaked more havoc in 2007, as record numbers of people in California and the Bay Area lost their homes to foreclosure, according to a report released Tuesday. Coming on the heels of statistics showing home sales at record lows and prices slumping, the foreclosure information was a fresh reminder that the real estate malaise directly hurts many homeowners, particularly those with risky subprime mortgages. California, where home prices saw double-digit appreciation during the post-millennium real estate frenzy, is now seeing equally dramatic increases in foreclosures. The nation's foreclosure crisis has spread to the point where many analysts say the country is either in recession or on the brink. The Federal Reserve's major interest-rate cut on Tuesday underscored how seriously the government views the situation.
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