While in Frankfurt, Germany yesterday, US Federal Reserve (Fed) Chairman Alan Greenspan warned that the US foreign trade deficit could negatively effect the country's economy. Greenspan also noted the devaluation of the dollar, and that it too could adversely affect the economy.
Though the growing US deficit has not presented a problem so far, there could be some future risks, especially if the imbalance of payments remain on current trade accounts. While recognizing that loans from foreign investors have so far financed the US current deficit, Greenspan admitted that if foreign investors suddenly gave up investing in the dollar, problems might arise. In such a case, he continued, charging off of foreign investors' their shares and US debentures in the US companies, their prices will drastically fall while interest rates will climb. Greenspan concluded: "If looked at the size of the current US deficit, the desire for dollars would decrease at some point; however, when, and through which channels and to what level will the dollar drop? Unfortunately, there is no credible answer to these questions."
Meanwhile, German Minister of Finance Hans Eichel indicated that the devaluation of dollar would not benefit the US. Ankara Chamber of Industry (ASO) Chairman Zafer Caglayan said that a decrease in the dollar will probably continue.