Expert Warns of Economic 9/11 for U.S.
By MoneyNew.com

There's an economic storm cloud brewing on the horizon; one that will sink millions of middle class Americans into poverty and the economy into financial chaos. And the flailing US dollar is to blame.

Unfortunately, few Americans are aware of the train wreck ahead.

So says Clyde Prestowitz, president of the Economic Strategy Institute, a Washington think tank, and author of the new book Three Billion New Capitalists.

Out touting the book, Prestowitz says that, for millions of Americans, the bulk of their investments, their life savings and their assets are tied up with the dollar-like an iron chain to a
two-ton anchor. And right now, the US dollar is the most widely-held financial asset in the world.  But it is also the most dangerously overvalued asset in the world. And one of the worst
performing.

As a result, the U.S. current account deficit, the broadest measure of foreign trade, has risen to nearly $600 billion, or around 6 percent of gross domestic product, as Americans buy more from
overseas than U.S. businesses can export.

In a recent issue of Financial Intelligence Report, Warren Buffett warns that the excessive consumption in the United States has hit a point of real danger. Learn how to protect yourself
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Thus the comparison to 9/11 -- a worldwide financial panic triggered by a sudden massive sell-off of US dollars that would lead inexorably to the collapse of economies around the world. And
if that happens, Prestowitz predicts: "It would make the Great Depression of the 1930s look like a walk in the park."

"Right now," Prestowitz tells the newspaper The Australian on August 29, "we have a situation in which the US is running huge trade deficits -- about $US650 billion ($766 billion) in 2004 --
which are financed by borrowings from the central banks of Asia -- mainly the Chinese and the Japanese. All the world's central banks are chock-full of US dollars -- they're holding many more
dollars than they really want. They're holding those dollars becauseat the moment there's no great alternative and also because the global economy depends on US consumption. If they
dump the dollar and the dollar collapses, then the whole global economy is in trouble.

"However, some countries have a bigger stake than others in maintaining the status quo. China and Japan have a big stake in maintaining the flow of their exports to the US and keeping the
US economy humming. Russia, on the other hand, does not export much to the US. India doesn't export much to the US. Yet Russia and India are also big dollar-holders. They hold many more dollars than they really want or need.

"It doesn't take any great stretch of the imagination to see what could happen if one of these central bank managers decides to dump dollars. We had a situation recently when a mid-level
official at the Central Bank of Korea used the word 'diversification'. It was a throwaway remark at some obscure lunch, but there was instantaneous overreaction. The US stock market fell by
100 points in 15 minutes because the implication was that South Korea might be shifting out of US dollars.

"So picture this: you have a quiet day in the market and maybe some smart MBA at the Central Bank of Chile or someplace looks at his portfolio and says, 'I got too many dollars here. I'm
gonna dump $10 billion'. So he dumps his dollars and suddenly the market thinks, 'My God, this is it!' Of course, the first guy out is OK, but you sure as hell can't afford to be the last guy out.

"You would then see an immediate cascade effect -- a world financial panic on a scale that would dwarf the Great Depression of the 1930s."

Whether one agrees with Prestowitz or not, he isn't alone. Billionaire  financiers Warren Buffet and George Soros have taken steps to hedge their currency positions against the possibility of
a cataclysmic plunge in the greenback.

Then there's Paul Volcker, head of the Federal Reserve before Alan Greenspan, who has said publicly there is a 75 per cent chance of a dollar crash in the next five years.

"No wonder people look at this and say, 'Holy cow!'," he says. "No one knows for sure what will happen, but clearly the global markets could implode very quickly. The lack of an alternative to
the dollar is the only reason it hasn't taken a big fall already."