US Economist Warns That Budget Deficit Could Lead To Dollar Collapse

by Robert Lee, Tax-News.com, London

23 May 2002

A leading international currency analyst warned earlier this week that if America's trade and budget deficits continue to increase at the same rate, there is a risk that the dollar will collapse under the pressure.

Speaking to the Irish Independent, Lara Rhame - ViceP President of Foreign exchange research at Brown Bros. Harriman in New York - warned that the United States' budget and trade deficits, which require $1 billion per day in foreign capital to finance them, have raised the spectre of the 1980s, when the value of the dollar fell a spectacular 20% over a few months.

'It looks more and more like we are heading down that road,' Ms Rhame warned the newspaper. 'If the Administration runs large budget deficits, long-term interest rates will rise, whatever the Federal Reserve does. That could put the dollar under severe pressure, no matter how well the economy performs.'

This follows the announcement that tax revenue in the US plummeted in April, usually a peak month for tax collection. According to a government report released on Monday, tax receipts for last month totaled $237.4 billion, a drop of 28.5% on April last year.

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